Corporate Taxes in Singapore

Singapore is one of the strongest economies in the world as far as its GDP per capita is concerned. The country is extremely attractive for foreign investors because it has a taxation system that incentivizes large and small companies to do business in Singapore. They find multiple tax benefits and low corporate tax rates there. The authorities of Singapore are working hard to entice more foreign capital to the country by offering various financial stimuli to international entrepreneurs. 

Let us discuss the advantages of the Singaporean tax system. We will particularly look into the issues related to corporate taxes for resident companies in the country. 

Taxes

Please note that if you register a company in Singapore, it will not automatically become a resident company in the country.

How can a company acquire tax residence in Singapore? 

Only resident companies in Singapore can enjoy the tax incentives that the Government makes available to entrepreneurs. The company has to derive profits from business activities in Singapore to qualify for tax residence there. It can also make profits abroad but then the capital has to be transferred to Singapore. So, simply registering a company in the country is not enough for becoming a tax resident there. To qualify for tax residency in Singapore, the company has to be administered from the territory of the country. The following conditions have to be satisfied:

  • The company shall have a functional office with all the necessary office equipment.
  • The Board of Directors shall meet in Singapore.
  • The financial records, the fiscal reports, and the minutes of the shareholders’ meetings shall be kept at the company office.
  • The company shall have a website on a Singaporean domain (if possible), a local telephone and fax number.
  • The company shall have personnel in Singapore and this is the key requirement that determines if the tax residence status can be assigned to the company.  

According to the definition proposed by Inland Revenue Authority of Singapore (IRAS), control and administration of the company implies that strategic decisions shall be made in Singapore if the company is to qualify for tax residence of the country. 

This means that even if the company makes earnings on the territory of Singapore but the company directors live abroad and the shareholders’ meetings are held in another jurisdiction, the company will not be considered a tax resident of Singapore.

Corporate taxation in Singapore

The tax service of the country is called the Inland Revenue Authority of Singapore (IRAS). The main goal of this organization is to implement a taxation system that would be simple and transparent and that would stimulate the growth and development of Singaporean-based businesses. IRAS representatives take part in the negotiations about signing international agreements on double taxation avoidance and the organization determines the Singaporean tax policies together with the Ministry of Finance. 

The following corporate tax rates apply in Singapore in 2021:

  • from 9% to 17% for limited liability companies depending on the amount of annual profits;
  • 7% tax on common goods and services and imported goods;
  • 0% tax on capital gains;
  • 0% tax on inherited property;
  • 0% tax on dividend payable to the company shareholders;
  • 0% tax on global profits that have been taxed before being transferred to Singapore. 

The territorial taxation system is applied in Singapore, which means that only the profits made on the territory of the country are taxed. The Singaporean-based companies that derive profits from foreign sources and pay taxes on them in foreign countries are not subject to any additional taxes in Singapore if the corresponding double taxation avoidance agreement has been signed.   

Other taxes and duties in Singapore

If your Singaporean-based company pays dividends to a non-resident shareholder (a natural person), the income tax is payable. The progressive taxation scale is applied and the tax rate is between 0% and 22%. Interests, royalties, rental payments, and company management fees are also taxable in Singapore. If your company has non-resident personnel/ experts, they have to pay the withholding tax.

Other compulsory payments that Singaporean companies have to make include the following ones:

  • Customs and excise duties are payable for oil products, tobacco products, automobiles, and alcoholic beverages.
  • Customs duties on all other imported goods are not payable.
  • Real property owners in Singapore are subject to the property tax (the scale is progressive and the rate depends on the property worth).
  • When the ownership rights for the property that belongs to a corporate entity (including securities) are transferred to another party, the stamp duty is payable. 

Please note that due to the variety of tax incentives in Singapore, the effective corporate tax rate can be considerably lower in the country.

Tax incentives for Singaporean-based companies

In 2005, the Government of Singapore introduced new taxation rules for startups that leave part of the company profit untaxed. In order to qualify for this tax incentives, the company has to meet the following requirements:

  • The company shall be incorporated in Singapore in accordance with the legal procedures.
  • The company shall have the tax resident status in Singapore.
  • The company shall have at least two shareholders (natural persons).
  • The company is not an investment holding.
  • The company is not engaged in building construction if its purpose is to sell the erected buildings.   

If your startup in Singapore meets these criteria, it will be eligible to the following tax incentives over the first three years of its existence:

  • 75% of the profit will be tax-free if it does not exceed 100,000 Singaporean dollars (S$) per year. Applicable to companies registered in 2020.
  • 50% of the profit exceeding the said amount but below 200,000 S$ is tax-free. Applicable to companies registered in 2020.
  • 100% of the profit is tax-free for startups registered in 2010-2019 if it does not exceed 100,000 S$ and 50% of the profit exceeding the said amount but below 300,000 S$ is tax-free.  

Please apply for a consultation with our tax specialists to have a better understanding of the tax incentives available in Singapore. We will advise on your case specifically.

Other tax incentives in Singapore

If your company in Singapore does not qualify for the tax incentives described above, you may be eligible for some other tax benefits! It is possible to use the tax reductions of the following kinds in Singapore:

  • 75% tax reduction on the first 100,000 S$ of profits;
  • 50% tax reduction on the next 290,000 S$ of profits.   

In addition, you can pay no taxes on the following types of profits derived from foreign sources:

  • Dividends;
  • Profits made by foreign branches of the Singaporean company;
  • Profits made by providing services abroad. 

The territorial taxation system is not applied unconditionally in Singapore and you have to realize this. To pay no taxes in Singapore on your foreign profits, you have to meet several conditions. First, the foreign profit has to be taxable in the foreign country at the rate not lower than 15%. Second, the tax has to be paid in the foreign country. This means that you will have to provide a confirmation of the payment of foreign taxes.   

Some other tax incentives available in Singapore include the following ones:

  • An incentive for companies modernizing their production equipment or extending their business activities (total tax exemption or a 10% tax);
  • A tax credit for organizations providing training to their employees, purchasing and licensing intellectual property rights, registering patents, engaged in R&D, or design project (a 400% tax deduction);
  • A 5 to 8-year tax credit for fixed asset construction (a tax reduction on 100% of the investment capital).

It is important to realize, however, that your Singaporean-based company will have to meet certain criteria again in order to qualify for the tax incentives described above. For instance, the incentive for companies that modernize their production equipment or extend their business activities is available only if new jobs are created that require special skills and knowledge. In addition, you have to make use of new technologies and know-hows. Besides, the modernization/ extension activities shall contribute to the economic development of Singapore. 

As far as investment in fixed asset construction is concerned, your company will qualify for the 100% tax reduction only if one or more of the following criteria are satisfied:

  • The construction will allow putting out new produce or an increased amount of existing produce.
  • The company uses innovative engineering or technological projects in the process.
  • The company is engaged in R&D or participates in the reduction of water consumption initiative.
  • The company is engaged in activities related to space satellite operations.
  • The company is engaged in tourist development (with the exception of hotels).
  • The company provides technical services to aircraft owners.
  • The company activities enhance energy efficiency. 

Please note that Singapore has signed double taxation avoidance treaties with more than 80 national states. Please contact us to find out if your country has such a treaty with Singapore.

Taxes in Singapore: what is going to change in 2021 and beyond? 

The COVID-19 pandemic is making national governments raise taxes, both personal and corporate ones. Are the Singaporean authorities going to do the same? They will have to in all likelihood, but the tax increase will mostly affect private savings. 

Yes, the financial reserves of Singapore have shrunk but the Minister of Finance and the Deputy Prime Minister have both assured the people of the country that the Government will do its best to avoid raising the taxes.  

At the moment, the personal income tax, the corporate tax, and the real property tax remain at the same rates. Only the gasoline excise has been rained. Foreign nationals are still free to buy real property in Singapore. 

The income to the national budget of Singapore derived from the corporate tax over the last few years trails only the income obtained from foreign direct investments. 

Some tax increases are unavoidable due not only to the pandemic but also to the new international tax-related regulations such as BEPS, for example. Are the increased taxes going to make Singapore less attractive for foreign investors? Is the 7% import tax going to be increased for more common goods and services (as it has already been increased for some of them)?

The global economy is certainly going through hard times at the moment but if you are planning to engage in international business and in the Asian region in particular, Singapore is one of top countries to consider without any doubt. Please apply for our professional consultations on setting up a company in Singapore or opening a corporate bank account there. You are welcome to contact us by email, a messenger, or our live chat. We respond to all queries promptly!

What are the principles of taxation in Singapore?

Singapore applies the territorial taxation system. Therefore, no profit obtained abroad is taxable in the country. The standard corporate tax rate is 17% but it can be as low as 9% under certain conditions. Besides, various tax incentives are available in Singapore and you can get up to 100% tax deduction for a few years of your company operations. No dividend tax, nor inheritance tax, nor capital gains tax is payable in Singapore.

What types of companies can count in tax benefits in Singapore?

Startups can be eligible for some serious tax incentives in Singapore. There are also tax benefits for companies engaged in R&D, intellectual property rights, modernization, and innovative technologies. The tax credits can reach 100% on some occasions.

Are the taxes going to grow in Singapore in 2021?

The Government of Singapore is not increasing the personal income tax nor the corporate tax thus far. HNWIs may be affected but the corporate tax rate remains between 9% and 17% anyway.

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