Singapore Corporate Taxation

Singapore, located at the southern tip of the Malaysian Peninsula, is strategically positioned at the crossroads of major Asian shipping and air routes. As a central hub for trade and investments in the region, Singapore offers a thriving economic landscape despite its relatively small size of just over 622 square kilometers. It boasts an advanced infrastructure, a highly educated workforce, political stability, and an efficient business environment. Singapore stands as an ideal choice for establishing holding companies, corporate headquarters, and serves as a gateway for foreign investments into emerging Asian economies such as China, India, Vietnam, Indonesia, and Thailand.

Territorial-Based Tax System

Singapore operates on a single-tier territorial-based corporate income tax system, which is renowned for its competitive tax rates and the overall business-friendly atmosphere that promotes economic growth and attracts foreign investments.

Single-Tier Income Tax System

Since January 1, 2003, Singapore has embraced a single-tier corporate income tax system, eliminating double taxation for stakeholders. Tax paid by a company on its chargeable income is considered the final tax, and dividends paid to shareholders are exempt from further taxation. Capital gains, including profits from the sale of assets and foreign exchange transactions, are not subject to taxation in Singapore.

General Tax Incentives

Several tax exemptions and incentives are available to Singapore resident companies, significantly reducing the effective income tax rate for small-to-midsize businesses. Here are some key tax incentives:

1. 0% tax on the first S$100,000 taxable income: Newly incorporated companies meeting specific criteria can enjoy a 0% corporate income tax rate on their first S$100,000 taxable income for the first three tax filing years.
2. 8.5% tax on taxable income of up to S$300,000: All Singapore resident companies are eligible for partial tax exemptions, effectively lowering the tax rate to about 8.5% on taxable income up to S$300,000 annually.
3. Effective corporate tax rate: The combination of these incentives results in a highly attractive tax rate structure for small-to-midsize companies, ensuring a competitive tax environment.

One-Off Corporate Income Tax Rebate

The Singapore Budget 2015 introduced a one-time 30% corporate income tax rebate on tax payable for Year of Assessment (YA) 2016 and YA 2017, with a cap of S$20,000 for all Singapore companies.

Withholding Tax

Singapore has a withholding tax system in place for specific types of income, ensuring that non-residents pay taxes on income generated within the country. This withholding tax does not apply to Singapore resident companies or individuals. Under this system, a percentage of payments made to non-resident entities is withheld and remitted to the Income Tax Authorities.

Tax Residence of Companies

A company is considered a tax resident in Singapore if its control and management activities occur within Singapore. In general, this term pertains to the policy-level decision-making by the Board of Directors rather than day-to-day operational decisions.

On the other hand, a company is regarded as a non-resident in Singapore if its directors manage and control the business from outside Singapore, even if some operational activities take place within the country. A company’s tax residence may change from one year of assessment to the next, depending on the specific circumstances. Notably, Singapore branches of foreign companies are generally treated as non-residents, as their control and management remain vested in their overseas parent companies.

Net Income vs. Taxable Income

Corporate tax in Singapore applies to income accruing or derived within Singapore or received in Singapore from outside the country. Inland Revenue Authority of Singapore (IRAS) offers qualified exemptions known as Exemptions on Foreign Sourced Income, allowing tax relief for certain foreign-sourced income.

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.