Singapore Corporate Tax Explained: Considerations for business owners
Each year tens of thousands of entrepreneurs setup their businesses in Singapore for its ease of capital access, strategic location & supportive policies from the government. The city-state’s tax-friendliness is one prominent reason. Singapore has an extremely competitive corporate and personal tax rates, rivalling the lowest-taxed OECD states. This guide serves to give an introduction to Singapore corporate tax system and shed some light to some key considerations among business owners.
The prevailing Singapore corporate tax rate is 17% flat on its chargeable income. Though this may not be the lowest among all global jurisdictions, generous tax exemption and rebates from the Singapore tax authority has boosted the city-state to among the lowest-taxed places in the World, which has become a magnet to businesses and capital.
Partial-tax exemption for established Singapore companies
Currently, tax exemption is applicable to Singapore companies at different stages of their life, up to SGD$300,000. To illustrate, for established companies with chargeable income (taxable profits) of SGD $300,000, you would only need to pay an effective tax of 8.36% because up to SGD $152,500 of that income is being exempted from tax according to the latest tax rules. For new start-up companies (those in existence for less than 3 years), the tax-exemption amount is even higher at SGD $200,000.
How it is calculated?
For those interested in the math – The rule goes this way. Your first $10,000 of chargeable income would be 75% exempted from tax, whilst the next $290,000 is 50% exempted. i.e. For your first SGD $300,000 of chargeable income, a total of $152,500 will be exempted from tax. Therefore, your company would need to pay tax = ($300,000-$152,500) * tax rate of 17% = $25,075 = Eff 8.36%
Below we have calculated for you the effective % of tax you could expect to pay for your Singapore Company under prevailing rates for various taxable income brackets:
Tax exemption for new start-up companies
As we mentioned above, newly start-up companies (i.e. those in existence for less than three years) are entitled to even bigger tax exemptions. In fact, Singapore has rolled out numerous government grants and subsidies to support local SMEs, including this generous tax exemption for start-ups.
The rule is simple: Your firm’s first SGD $100,000 of chargeable would be completely tax-free, with the next $200,000 being 50% exempted.
This means for your firm’s first $300,000 of profits, you are only paying tax on $100,000 on them, at 17%, putting your tax amount at $17,000, an effective rate of 5.67%
Below illustrates how much tax your start-up can expect to pay for various profit brackets:
As the calculations show, the Singapore government has effectively made the city-state among the lowest taxed OECD countries in the world. Its generous tax exemptions offered is putting most SMEs well below the 10% tax bracket on an effective basis.
Tax rebates of 30% for all companies for YA2013 to 2017
To help SMEs cope with rising business costs, the Ministry of Finance has announced 30% tax rebates for all corporates in recent years. Whilst this may be subject to revision in future, current rate of rebate for YA2016 and YA2017 is 30%, capped at SGD $20,000. Below we illustrate how much tax Singapore companies shall pay for different bands of taxable income after rebate. Most six-figure businesses would fall right below the 10% mark in taxes with a million-dollar business only paying 11-12% in taxes.
Such attractive tax rates coupled with generous government grants for Singapore companies say a lot about Singapore reputation as the “World’s Easiest Place to do Business”.
Tax residence of your company
Your company’s basis of taxation (whether you’re a resident or non-resident company) is generally the same except there’re certain benefits only available to resident companies. For instance, if your firm is a resident company, it can:
- Be eligible for income tax exemptions available for new start-up companies (i.e. tax rates for new start-up companies mentioned above)
- Be entitled to benefits conferred under the various double taxation agreements concluded between treaty countries and Singapore
- Enjoy income tax exemption on foreign-sourced dividends, profits from a foreign branch, and service income from a foreign source
Your firm is considered a tax-resident in Singapore if your control and management of the business is exercised in Singapore. While there is no explicit definition by the authorities on the term “control and management”, it is understood to refer to the policy level decision-making at the Board of Directors level, not the day-to-day operations and decision making.
Alternatively, your firm would be considered non-resident if you control and manage the business, and hold board meetings outside of Singapore, even if your operational staff is taking care of the day-to-day operations within Singapore. Depending on circumstances, your company’s residence status may vary from one year of assessment to the next.
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Tax residence for branch vs subsidiaries
As a magnet to businesses, foreign companies are keen to setup shop in Singapore and they’re faced with the option of subsidiaries vs branches. The tax residence status of the two is therefore a common query among foreign firms. A Singapore branch of a foreign company is regarded an extension of the parent company and has no legal status, therefore in general it is not treated as a Singapore tax resident as “control and management” lie outside of Singapore.
On the other hand, a Singapore subsidiary to a foreign company is regarded as a separate legal entity in Singapore, with its control and management being vested locally, and therefore would qualify as a tax resident under most cases.
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Withholding tax, capital gains tax and dividends
Often times, entrepreneurs would concern about treatments to capital gains, dividends and withholding taxes. Singapore. The good news is that, Singapore does not have a capital gains tax regime. This is why investors’ interests in setting up here remain high, who wish to setup their regional hubs, or investment holding companies that they use to hold, management or control investments within the region.
As for dividends, if it is paid on or after 1 Jan 2008 by a Singapore resident company, they will be tax-exempt under the one-tier corporate tax system. This means shareholders will not be taxed on such dividend income.
Finally, as for withholding tax, particularly for directors, it would depend on the individual director’s tax residency. If the company director is physically present in Singapore for less than 183 days in the year preceding the Year of Assessment (YA), he or she would be regarded as a non-resident director. The remuneration of a non-resident director will be subject to withholding tax, at the prevailing rate of 20%, and expected to be raised to 22% over next YA. However, remuneration for Executive Directors who are involved in running the daily operations is not subject to withholding tax.
Ready to join the millions of entrepreneurs in Singapore and do business among the lowest-taxed places in the World? Speak to our consultants today. We’re most glad to advise and guide you through the journey.
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