Corporate Tax in Singapore
One of the major draws to incorporate in Singapore is the low corporate tax rates and strong financial incentives provided by the Singapore government. To provide more detail on Singapore’s approach to corporate taxation, this article covers:
Corporate Tax – Key Facts
- Profits of your company will be subject to corporate tax in Singapore. Singapore uses a territorial tax system. Where income is earned from treaty countries, double taxation is avoided by means of foreign tax credit granted under those treaties. For non-treaty countries, unilateral tax credit is given in respect of foreign tax on all foreign-sourced income.
- Singapore levies taxes on an income-basis where only taxable profits are taxed. In other words, taxes are not based on revenues; instead, they are based only on profits.
- Singapore uses a single-tier tax system: Many jurisdictions use a two-tier tax system where both company profits and dividends are taxed. In Singapore, companies only pay taxes on profits. Dividends are tax exempt.
- In Singapore, there are no taxes on capital gains or dividend payments.
- Singapore has over 80 Avoidance of Double-Taxation treaties that eliminate or reduce taxes on foreign sourced income. Also certain types of foreign source income is tax exempt.
- Singapore offers generous incentives and tax breaks when investing in new and promising industries, R&D, and productivity-enhancing technologies.
Corporate Tax Rate
Singapore’s current headline tax rate is capped at 17%. However, with the tax exemption and incentive programs offered by the Singapore government, the effective tax rate for companies can be significantly lower.
Current tax rates
|Type of corporate tax||Tax rate %|
|Tax on corporate profits||17%|
|Tax rate on capital gains by the company||0%|
|Tax rate on dividends distributed to shareholders||0%|
|Tax rate on foreign-sourced income that was already subjected to taxation overseas||0%|
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Under Singapore’s territorial tax system, qualifying income generated in Singapore and income remitted to Singapore from a foreign source is taxable. In Singapore, taxable income includes:
- Gains or profits from any trade or business
- Income from an investment such as interest and rental property income
- Royalties, premiums and any other profits from property and
- Other gains that are considered revenue
A company incorporated in Singapore is not automatically considered a tax resident of Singapore.
To be considered a tax resident of Singapore, a company must be controlled and managed from Singapore. According to IRAS, controlled and managed refers to, “making decisions on strategic matters, such as those on company policy and strategy.”
In general, the location of board meetings is a key factor in determining where a company is controlled and managed. Furthermore, the location of company personnel who have a key role in the company’s decision making can also determine tax residency.
Typically, a company is deemed to be a non-resident if board meetings and key management personnel are located outside of Singapore–even if the day-to-day operations of the company are in Singapore.
For example, foreign-based holding companies that only earn passive income are normally considered non-residents since these companies are run with instructions from owners and shareholders who are based outside Singapore.
Note that the tax residency of a company can change from year to year.
The benefits of being a Singapore tax resident
Companies with Singapore tax residency enjoy the following benefits:
- Tax benefits provided under Avoidance of Double Taxation Agreements (DTAs)
- Tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income
- Tax exemption for new startups
Companies that are tax resident in Singapore are eligible for the following tax exemption schemes:
Tax exemption for new startups
To help local companies grow, Singapore introduced the new startup company scheme in 2005 which provides tax exemption on some of the income of a startup. Under the scheme, new companies that meet the qualifying criteria below receive the following tax exemption for the first three consecutive YAs depending on where the YA falls:
YA 2020 Onwards
New companies that qualify are given a 75% tax exemption on the first S$100,000 of taxable income and an additional 50% exemption on the next S$100,000 of taxable income.
YA 2010 to YA 2019
New companies that qualify are given a full i.e. 100% tax exemption on the first S$100,000 of taxable income and an additional 50% exemption on the next S$200,000 of taxable income.
The above tax exemption is open to all new companies that meet the following criteria:
- The company must be incorporated in Singapore
- The company must be a tax resident in Singapore
- The company must not have more than 20 shareholders where:
- all of the shareholders are individuals “beneficially and directly” holding the shares in their own names OR
- at least one shareholder is an individual “beneficially and directly” holding at least 10% of the issued ordinary shares of the company.
Note that certain companies are not permitted to use the tax scheme, including:
- Companies whose principal activity is investment-holding
- Companies whose principal activity is the development of property for sale, investment, or both.
Partial tax exemption (PTE) scheme for companies
All companies qualify for PTE unless the company already claims under the tax exemption scheme for new startups. Under PTE, companies enjoy the following exemptions.
YA 2020 Onwards
- 75% tax exemption on the first $10,000 of normal chargeable income and
- A 50% tax exemption on the next $190,000 of normal chargeable income
YA 2010 to YA 2019
- 75% tax exemption on the first $10,000 of normal chargeable income and
- A 50% tax exemption on the next $290,000 of normal chargeable income
Tax exemption for foreign-sourced income
Certain types of foreign sourced income are tax exempt; these include:
- Foreign-sourced dividends
- Foreign branch profits
- Foreign-sourced service income
To qualify as tax-exempt, foreign-sourced income remitted to Singapore must meet all three of the following conditions:
- The headline tax rate of the foreign jurisdiction is at least 15% at the time the foreign income is received in Singapore
- The foreign income was taxed in the foreign jurisdiction (note, the rate at which the foreign income was taxed can be different from the headline tax rate)
- The Singapore government is satisfied that the tax exemption would be beneficial to the person resident in Singapore
Other Tax Incentives
The following tax incentive schemes are available to further reduce a company’s taxable income if the company meets the criteria defined below.
Development and Expansion Incentive (DEI): DEI is available to companies that are planning to increase or upgrade their operations in Singapore or expand into globally leading industries. Under DEI, all income earned from qualifying activities is either tax exempted or taxed at a rate of 10% for a period of 5 years.
Companies are required to meet certain criteria to qualify:
- New job creation that adds new skills, expertise and seniority to the Singapore workforce
- Total business expenditure that adds to the Singapore economy
- Commitment to adding new capabilities in terms of new technology, skillsets, and knowhow
Productivity and Innovation Credit (PIC) Scheme: PIC offers companies a 400% tax deduction or allowance on certain expenditures incurred in any of the following six qualifying activities:
- Training employees
- Acquiring and licensing intellectual property rights
- Registering patents, trademarks, designs, and plant varieties
- R&D activities
- Design projects approved by DesignSingapore Council
Investment allowance: Under an investment allowance, companies can receive a tax credit of up to 100% of the capital expenditures incurred for qualified projects during a tax year. Normally, Singapore permits the investment allowance for a period of 5 years; however, certain cases can extend up to 8 years. The types of projects that qualify for an investment allowance include:
- Manufacturing new products or increasing production of an existing product
- Projects requiring specialized engineering or technical services
- Projects focused on R&D
- Construction operations
- Projects to reduce water consumption
- Projects that promote the tourist industry in Singapore (other than a hotel)
- Operations involving space satellites
- Maintenance, repair and overhaul services to any aircraft
- Projects that improve energy efficiency
Tax Return Filing
To complete corporate tax returns, a company must submit two filings with IRAS (Inland Revenue Authority of Singapore):
- Estimated Chargeable Income (ECI): ECI is a company’s taxable income after deducting tax-allowable expenses.
- Form C or Form C-S: In both Form C or Form C-S a company declares its actual income for the tax year. A Form C filing requires companies to attach tax computations, financial statements, detailed profit & loss statement, and other supporting documents. Conversely, form C-S is a simplified filing that does not require additional documents.
Due dates for tax return filing
- ECI: Due within 3 months of the company’s financial year-end
- Form C or form C-S: Due by November 30 for paper filing or December 15 for electronic filing
For more detailed information on tax return filings with IRAS, consult our guide on annual return filing in Singapore.
Basis Period and Year of Assessment (YA)
It is important to understand the concept of the Year of Assessment (or YA) and Basis Period to appreciate how Singapore taxes are calculated. A company is taxed on the income earned in the preceding financial year. This means that income earned in the financial year 2018 will be taxed in 2019. In this example, 2019 is the Year of Assessment (YA). Thus, the YA is the year in which your income is assessed to tax. To assess the amount of tax, IRAS looks at the income, expenses, etc. during the financial year. This financial year is known as the “basis period”. The basis period is generally a 12-month period preceding the YA. So, if a company’s Financial year end is on March 31 of each year then for YA 2019 its Basis Period will be 1 April 2017 to 31 March 2018.
To decrease the tax burden on companies that receive income from foreign sources, Singapore has signed Avoidance of Double Taxation Agreements (DTAs) with over 80 jurisdictions – including major economies in the Americas, Europe, and Asia. The DTAs reduce or eliminate taxes on foreign income that has already been taxed in a foreign jurisdiction.
In some situations, a tax credit may also be available. If the foreign tax was paid in accordance with the DTA provisions then the lower of a) the foreign tax paid and b) the Singapore tax that would have been payable on the same income is calculated. If the company has paid any excess tax this calculated amount in a foreign country then it can be claimed as a tax credit in Singapore, known as Double Taxation Relief (DTR). Under DTR, a company can claim some of the foreign income taxes that it has paid against its Singapore income taxes and receive that money back from IRAS.
Furthermore, since 2008, the Singapore government has offered a unilateral tax credit to companies with foreign income sourced from a jurisdiction without a DTA with Singapore.
Note, to receive a foreign tax credit, companies must meet the following requirements:
- The company is a tax resident in Singapore for the relevant basis year
- The tax has been paid or is payable on the same income in the foreign jurisdiction and
- The income is subject to taxation in Singapore
Singapore is one of the most favorable tax jurisdictions in the world. With a low headline tax rate and generous tax exemption and incentives, companies in Singapore can greatly reduce tax expenses. Furthermore, the tax exemption on capital gains and dividends ensures that shareholders benefit more from their investments.
Finally, the Singapore government’s effort to sign Avoidance of Double Taxation Agreements allow companies to establish in Singapore and expand internationally without the burden of paying extra taxes on foreign-sourced income.