Singapore income tax guide for companies

Singapore is often cited as the leading example of countries that continues to reduce corporate income tax rates and introduce various tax incentives to attract and keep global investments. Singapore has a single-tier territorial based flat-rate corporate tax system. Effective tax rates as one of the lowest in the world and the general "business friendliness" of Singapore are the two important factors contributing to the economic growth and foreign investment into the city-state.

Inland Revenue Authority of Singapore (IRAS) is the statutory body that administers the effective assessment, collection and enforcement of all major types of taxes in Singapore including corporate income tax, personal income tax, property tax, goods and services tax, stamp duty, motor vehicle tax, customs & excise duties, and taxes on betting/sweepstakes/lotteries. Singapore's tax revenue accounted for 93% of the government operating revenue for FY 2006/07.

This guide provides a detailed overview of Singapore corporate tax rates, tax system, and tax incentives.

Note: The information presented here is for general guidelines only and is not meant to replace professional advice from a qualified tax specialist.

Single-Tier Tax System

Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation. For highlights of recent tax amendments, see Recent Tax Amendments in Singapore. 

No Capital Gains Tax

There is no capital gains tax in Singapore. Examples of capitals gains include gains on sale of fixed assets, gains on foreign exchange on capital transactions, etc. 

Corporate Tax Rate and General Tax Exemptions

Headline Tax Rate 

Singapore's headline corporate tax rate is a flat 18% at present. In order to make Singapore as an attractive investment destination, corporate tax rates in Singapore have been going down consistently as seen below:

Headline company tax rate in Singapore as in many other jurisdictions does not necessarily provide an accurate indication of effective corporate tax rate. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation rules, etc.

General Tax Incentives 

Listed below are general tax exemptions/incentives currently available to Singapore resident companies. Once these tax exemptions are applied to the taxable income, the effective tax rates for small-to-midsize Singapore companies is reduced significantly.

• 0% tax on S$100K taxable income 
  The corporate tax rate is 0% on the first S$100,000 taxable income for each of the first three consecutive tax filing years for a newly incorporated company that meets the following conditions:
  
  • be incorporated in Singapore
  • be tax resident in Singapore
  • has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares.
• Approx. 9% tax on taxable income of upto S$300K
  All Singapore resident companies are eligible for partial tax exemption which effectively translates to about 9% tax rate on taxable income of upto S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 18%.

Effective Corporate Tax Rate 

The above general tax incentives mean very attractive tax rates for small-to-midsize companies. For example, a typical Singapore resident company with S$400,000 annual taxable income will be taxed as below:

Industry Specific & Special Purpose Tax Incentives

In additional to the the general tax exemptions/incentives listed above, there are many industry specific and special purpose tax incentives & concessionary tax rates offered under the Singapore Income Tax Act. For overview of these additional tax incentives, refer to Industry Specific & Investment Related Tax Incentives in Singapore. 

Net Income vs Taxable Income

A company's income means gains or profits from any trade or business income from investment such as dividends, interest and rental royalties, premiums and any other profits from property other gains of an income nature.

As per Income Tax Act of Singapore, corporate tax is imposed on the income that is A) accruing in or derived from Singapore; B) received in Singapore from outside Singapore.

Part A is the income that has a source in Singapore. Part B is the income with a source outside Singapore and received in Singapore. For Part B however, there are certain qualified exemptions commonly known as Exemptions On Foreign Sourced Income. For more details, see Singapore Taxation of Foreign Sourced Income guide.

A company's net profit/loss alone does not provide an accurate picture of the taxable income. For instance, some of the expenses incurred by your company may not be deductible for tax purposes or some of the income received may not be taxable or it may be taxed separately as a non-trade source income. For more detais, see Calculating Taxable Income for Singapore Companies.

Certain company income may be exempted from tax under the provisions of the Singapore Income Tax Act. Examples include general tax exemptions available to all companies, exempt income for certain industries such as shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions, exemptions on qualified foreign sourced income, etc. 

Tax Filing Due Date

Income tax filing due date for Singapore companies starting year 2009 is October 31. However, in 2008 the filing due date is November 30, 2008.

The company has to file a complete set of returns including Form C, audited/unaudited accounts, and tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax. For more details, see Annual Filing Requirements for Singapore Companies guide.

Tax Basis Period

In Singapore, corporate income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for your company's financial year that ended anytime between January 1, 2007 to December 31, 2007. Your company's accounts are prepared up to the FYE each year.

Audit Exemption

In order to ease the burden on smaller businesses, exempt private companies (i.e no corporate shareholders and individual shareholders < 20) with annual revenue of less than S$5 million and dormant companies (i.e. no accounting transactions during the year) are exempted from auditing their accounts and can file unaudited accounts. Where the financial year is less than 12 months, the said limit of S$5 million must be pro-rated.

An Exempt Private Company (EPC) is defined under Section 4(1) of the Companies Act as a company which has no more than 20 shareholders and its shares are held by individuals only. It's important to note that all companies (regardless of exempt or not) are required to submit a Form C, tax computation and the audited/unaudited accounts annually. For more details on statutory compliance, see Singapore Company Statutory Compliance Requirements guide.

Withholding Tax

Singapore has a withholding tax system (on certain types of income) in place to ensure the collection of tax payable by non-residents on income generated in Singapore. The tax withholding does not apply to Singapore resident companies or individuals. Under the law, when a payment of a specified nature is made to a non-resident company or individual, a percentage of the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is called the withholding tax.

For more details on withholding taxes, see Singapore Withholding Tax guide.

Tax Treatment of Losses

In general, a company can deduct losses against the income for taxation purposes in Singapore. The loss can be carried forward indefinitely, however, it must be deducted in the first available year where there is a statutory income. The deduction of the loss follows the "proceeding year" basis. It's important to note that the losses can be utilized only as long as there is no substantial change in the shareholding.

Tax Residence of Company

A company is considered as resident in Singapore if the control and management of the business is exercised in Singapore. Although the term "control and management" is not defined explicitly by authorities, a generally accepted consensus is that it refers to the policy level decision making at the level of Board of Directors and not the day-to-day decision making and operations.

In general, a company is considered non-resident in Singapore if the directors manage and control the business and hold board meetings from outside Singapore. This is true even if, for example, the lower level operations are taking place in Singapore. A company's residence may change from one year of assessment to the next depending on the circumstances. A Singapore branch of a foreign company is generally not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same with the exception of certain benefits that are available to resident companies. These include:

• A Singapore resident company is eligible for tax exemption scheme available for new start-up companies.
• A Singapore resident company can enjoy tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
• A Singapore resident company is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

Tax Treaties

A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries. The main benefit and objective of a tax treaty is to help businesses avoid double taxation of their income.

Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The treaties reflect Singapore's continual efforts to help businesses in relieving double taxation and to encourage and facilitate the trade and investment opportunities across-borders.

Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore companies. According to the new policy, all Singapore companies that earned income from countries that don’t have double tax agreement with Singapore, will be allowed a tax credit on their foreign-sourced income from those countries.

For more details, see Guide to Singapore Tax Treaties and Double Tax Agreements.

Advance Tax Ruling System

The advance tax ruling system in Singapore tool effect starting January 1, 2006. For a fee ranging from S$500 - S$1000, Income Tax Authorities of Singapore can make an advance ruling on how any provision of the Act would apply to the entity and to the situation for which the ruling is sought. The rulings are private and confidential and are not disclosed to the public.