With the global economic recession brought about by the COVID-19 pandemic, one might have expected that the corporate tax would be raised in Singapore in 2021. This didn’t happen, however. There are still corporate taxes to pay in Singapore and the country is not an offshore jurisdiction if by ‘offshore’ you mean ‘low-tax jurisdiction’. This good news is that the corporate taxes have been decreasing stably in Singapore over the last few years.
The Government of the country is doing its best to keep the existing foreign investors and attract new ones. Lowering the corporate taxes is a very smart move on the part of the Singaporean Government. Old tax incentives for companies are still in place and some new ones are available too. The corporate rules are becoming softer as well. Launching a business company in Singapore is certainly an option to consider if you are an international businessperson.
Please note that only general information on corporate taxes in Singapore can be found in the text below. If you need detailed advice on the matter, please write to info@offshore-pro.info to contact the International Wealth experts and place a request for a professional consultation.
Taxes on business companies in Singapore
Low corporate tax rates, multiple tax deductions, lack of currency control, and the single-tier tax system are the main factors that have made Singapore so popular with foreign investors. The economy of the country has been growing for years and years in a row and today Singapore is listed among the countries with the highest GDP per capita in the world. Singapore doesn’t tax companies at low rates because it’s a rich country and it can afford it. Instead, Singapore is a rich country because the taxes are comparatively low there, which attracts a great number of business people from other parts of the world.
Corporate taxation in Singapore: the key characteristics
- The corporate tax rates have been decreasing in the country.
- A large number of various tax incentives and tax deductions are available in Singapore.
- Low taxes attract foreign investments.
- A single-tier tax system and the territorial taxation principle are applied in Singapore.
- Under certain conditions, a startup registered in Singapore can be totally tax-exempt for a period of time.
- No capital gains tax is charged in Singapore.
Single-tier taxation system
The taxation system has been in use since 2003. The system is simple and it guarantees that companies are not taxed twice. Here is how it works. When a Singaporean-based company pays everything that it owes in taxes and duties, it is free to use the remaining profits any way it likes. Thus, the dividends paid to the company shareholders are exempt from any further taxes.
Corporate income tax in Singapore
The corporate income tax is currently at 17% in Singapore (it was 26% between 1997 and 2000). This is one of the lowest corporate tax rates in South Asia and in the whole world.
The dynamics of the corporate tax decrease over the years:
- 1997–2000 ‒ 26%;
- 2001 ‒ 25.5%;
- 2002 ‒ 24.5%;
- 2003-2004 ‒ 22%;
- 2005-2006 ‒ 20%;
- 2007-2009 ‒ 18%;
- 2010 till now ‒ 17%.
Please note that the effective corporate income tax rate does not reflect the ultimate amount of the taxes that companies pay on their incomes. With the view of multiple tax reductions, the corporate income tax is often much lower in Singapore!
Available tax deductions
Beginning 2020, new tax deductions have been available in Singapore. They make incorporating a company in Singapore an even more attractive opportunity as far as taxes are concerned.
Taxes and tax deductions in Singapore, for resident companies:
- 75% of the first 100,000 SGD (Singaporean dollars) of income is tax-exempt for the first three years.
- 50% of the second 100,000 SGD of corporate income is tax-exempt.
Taxes and tax deductions in Singapore, for all companies:
- 75% of the first 100,000 SGD of income is tax-exempt;
- 50% of the second 190,000 SGD of corporate income is tax-exempt.
Tax deductions in Singapore: qualification requirements
- Company registration in Singapore;
- Tax residence in Singapore;
- Not more than 20 company shareholders, with one person owning 10% of the stock or more.
Corporate tax on profits in Singapore
The tax incentives available in Singapore make registering a company there and engaging in active business activities an attractive opportunity indeed. A reduced tax burden is critical especially for newly established companies when they are only starting their business operations.
Profit tax for the first three years of operations depending on the amount of profit:
- up to 100,000 SGD ‒ 4.25%;
- from 100,000 SGD to 200,000 SGD ‒ 8.5%;
- from 200,000 SGD to 2,000,000 SGD ‒ 17%.
Profit tax in Singapore depending on the amount of profit (beginning with the fourth year of operations):
- up to 100,000 SGD ‒ 4.25%;
- from 100,000 SGD to 200,000 SGD ‒ 8.5%;
- from 200,000 SGD to 2,000,000 SGD ‒ 17%.
Corporate taxation in Singapore: the rates can change!
We would like to emphasize the fact that the tax rates cited in the article apply at the moment when the text is written. They can change! Please request updated information from our experts by writing to info@offshore-pro.info.
Corporate income taxes in Singapore since 2020 (income – discount in percentage/ discount in SGD):
- First 10,000 SGD ‒ 75% / 7,500 SGD;
- Next 190,000 SGD ‒ 50% / 95,000 SGD.
Corporate income tax rates for newly established companies in Singapore applicable for three years (income – discount in percentage/ discount in SGD):
- First 10,000 SGD ‒ 75% / 7,500 SGD;
- Next 100,000 SGD ‒ 50% / 50,000 SGD.
Other factors to pay heed to
The business environment in Singapore is superb. Tax reductions available to recently established companies allow businesses to get on their feet fast and start making profits. The taxation system is transparent and problems can arise only if you ignore the recommendations of the Inland Revenue Authority of Singapore (IRAS).
You should also bear in mind the following factors:
- The tax filing date depends on the tax return format (paper/ electronic): November 30 or December 15.
- The full set of tax declarations has to be filed.
- The corporate tax is paid for the previous year.
- The tax returns shall be filed annually at the financial year end (FYE).
- Companies that are non-resident in Singapore have to pay the withholding tax on the income earned in Singapore. This requirement doesn’t apply neither to corporations registered in Singapore, not to natural persons regardless of their tax residence.
- There are industry-specific taxes in Singapore as well as industry-specific tax reductions.
Tax resident status in Singapore
The regulations governing tax residence in Singapore are similar to the corresponding regulations in other countries. A company is considered a tax resident of Singapore if it is controlled and managed from the territory of Singapore (both conditions have to apply).
The reasons why a company can lose the Singaporean tax residence are less clearly defined. If the annual shareholders’ meeting or a Board of Directors meeting is help outside Singapore, it may be enough for the local tax authorities to consider the company non-resident of Singapore.
The effective tax rates applied to resident and non-resident companies are the same but the tax reductions mentioned above are available only to resident companies (in most cases). You can also derive additional benefits from numerous double tax agreements (DTA) that Singapore has signed.
Please note that the country of company registration does not have to coincide with the country of its tax residence!
Double tax agreements signed by Singapore
Singapore needs to remain attractive for international entrepreneurs. For this reason, the country’s administration lets them avoid being taxed in two countries at a time. Singapore has signed 85 agreements on double taxation avoidance.
If a company working in Singapore comes from a country that does not have such an agreement with Singapore, tax credits are available to it in the jurisdiction. If a resident company makes an income in a foreign country and the income it not transferred to Singapore, it is never taxable there.
What company income is taxed in Singapore?
The income of a Singaporean-based company is taxed in two basic cases. First, if the income has been earned in Singapore. Second, if the income has been earned in a foreign country and then transferred to Singapore. In the second case, some tax exemptions and reductions can apply.
Operational costs and losses
Operational costs of the company can be deducted from the taxable incomes (in reasonable amounts). If the company makes losses, it can carry them forward but they have to be deducted in the first year when an income is made. You have to bear in mind that this opportunity can be used only if there are no significant changes in the company ownership structure or types of business activities.
The Singaporean corporate tax system is one of the most important factors that make the jurisdiction attractive for foreign investors. Startups can gain especially significant tax benefits in Singapore. Without doubt, you need detailed consultations with tax lawyers before you decide to launch a company in Singapore. We will be happy to provide such consultation to you in cooperation with our Singaporean partners. Please do not hesitate to contact us!
