A Simplified Guide to Singapore’s Corporate Tax Structure

Singapore Income Tax

Corporate tax is a type of direct tax imposed on the income of corporate entities. For taxation purposes in Singapore, income pertains to any of the following:

  1. Profits or gains from business or trade;
  2. Passive income such as rentals, dividends and interests;
  3. Premiums, royalties and any other profits from property; and
  4. Any other gains which are deemed revenue in nature

Corporate income which accrues or is derived from Singapore is subject to corporate taxation. The same tax burden applies to foreign income deemed remitted or actually remitted into Singapore.

To simplify, under the Income Tax Act of Singapore, a company incurs corporate tax liability in Singapore on income that is either:

  1. accrued in or derived from Singapore
  2. received in Singapore relating to earnings accruing from outside

The first type of taxable income is those commonly earned by local or resident companies. The second type of taxable income pertains to foreign companies with income received from abroad qualified under such conditions pursuant to Section 10(25) of the Income Tax Act:

  1. Funds going into Singapore – Income from abroad brought or transmitted into Singapore;
  2. Debts Payment – Foreign income which will be utilised in settling debts related to trade or business in Singapore; or
  3. Goods and Movables – Foreign income used for the purchase of movable property brought into Singapore (e.g. equipment or raw materials connected to your business).

This means that whether or not a corporation is a resident or non-resident, so long as its earnings are sourced from Singapore or remitted or deemed remitted into Singapore, corporate tax liability arises. It is to be noted, however, that when the foreign sourced income has already been taxed in the source country at a headline rate of at least 15 %, then it will no longer be taxed in Singapore.

Why is Singapore’s Corporate Tax Regime So Ideal?

  • Singapore’s Corporate Tax Rate is Relatively Lower.
  • Singapore imposes a relatively lower corporate tax at a flat rate of 17%. Corporate tax rates were reduced from 40 per cent in 1986 to the current 17 percent in 2010 and remains unchanged since.  According to the Organization for Economic Cooperation and Development (OECD), Singapore is among the lowest-taxed yet economically advanced nations in South East Asia, with a corporate tax imposition which is lower than its Asian counterparts. The prevailing corporate tax rates in various countries are as follows: China at 25%, India at 30%, Philippines at 30%, Japan at 25.5%, Thailand at 20%, Malaysia at 25% and Myanmar at 25%.

    1. It Features a Single-Tier Corporate Tax Structure.

    In other jurisdictions, double taxation is a major concern because corporations are deemed separate taxable entities from shareholders. Aside from taxing the corporate income, dividends issued to shareholders are further subjected to personal income tax. Thus, dividend payments are taxed yet again, even if these were already subjected to tax at a corporate level.

    Singapore's Businesses

      In Singapore, a single-tier corporate income tax system since January 1, 2003 has been in place. This eliminates the fear of double taxation of most stakeholders. The corporate tax paid is considered a final tax, and any dividends payout given to stake holders are already exempt from personal taxation.

      1. Singapore Offers Business-Friendly Tax Reduction Schemes.

      Companies may avail of several tax reduction schemes to lower their tax liabilities. Among these are:

      (A) Tax Exemptions for Start Up companies

      Qualifying start up companies, for the first three consecutive years of assessment, can avail of the full exemption for the first SGD $100,000 of their normal taxable income and 50 per cent exemption for the next SGD $200,000 of their normal taxable income. A qualified start-up company, to maximise the exemptions of up to 200,000, must hold the following attributes:

      • It must be a company which has incorporated in Singapore.
      • The company’s tax residency must be in Singapore, that is management and control of the business is exercised in Singapore.
      • The company shareholders do not exceed 20, and at least one is an individual shareholder with at least 10% of the total shares.

      Partial tax exemption may still be availed from the fourth year onwards. This may amount to 75 per cent tax exemption for the first SGD $10,000 of normal taxable income and a 50 per cent tax exemption on the next SGD $290,000 of normal chargeable income.

      The tables below taken from the Inland Revenue Authority of Singapore summarise available exemptions for the first three years of operations of a new start up company and the succeeding years onwards:

      Tax Exemption on First $300,000 of Chargeable Income

       Chargeable Income% Exempted from Tax Amount Exempted from Tax 
      First $100,000100%$100,000
      Next $200,00050%$100,000

      Partial Tax Exemption from the Fourth year onwards

      Chargeable Income% Exempted from TaxAmount Exempted from Tax
      First $10,000@75%= $ 7,500
      Next $290,000@50%= $145,000

      (B) Business Expenses as Deductions

      Deductible business expenses may be utilised to reduce taxable corporate income and ultimately lessen the amount of tax liability. To be deductible, business expenses must be revenue in nature and not capital. These must be solely incurred in income production, and not a contingent liability or barred from deductibility under the Income Tax Act. To view a list of business expenses deductible from corporate income, please take a look at this list provided by the IRAS.

      Singapore’s Corporate Tax Regime: Will there be a Raise Anytime Soon?

      Businessman

      In its bid to make the tax structure sustainable and progressive amidst its plans to grow revenues needed to fund burgeoning expenditures, the Singaporean government is contemplating on raising corporate income tax rates, along with other indirect taxes such as Goods and Services Tax.

      Finance Minister Heng Swee Keat hinted that in order to boost the tax revenue base, the government may likely modify the tax rates for its biggest revenue sources, among them being the corporate income tax (CIT) which accounted for 20 per cent of revenues coming from tax collections. Other economists, however, believe that corporate taxes may be tweaked yet unlikely to be raised, since doing so would negate the attractiveness of Singapore to investors and hurt its global competitiveness.

      If you have any queries on how Singapore’s corporate tax applies to your company or simply interested in setting up a tax planning scheme, talk to our tax analysts today.

    Posted in Corporate Business Tips.