A low headline tax rate, generous tax exemption, and a host of other tax schemes and incentives are some of the reasons for incorporating a company in Singapore.
Also, the Singapore government‘s effort to sign Double Taxation Agreements with several other countries has made it possible to register a company in Singapore and expand globally without the obligation of paying extra taxes on foreign-sourced income.
To make Singapore more attractive for investment, income tax rates in this country have been going down consistently.
Currently, the corporate income in Singapore is imposed at a flat rate of 17% (with an effective tax rate frequently lower due to several tax incentives and tax exemptions available in Singapore). This applies to both local and foreign companies in Singapore.
The single-tier income tax system in Singapore
To make the country more attractive for investors, Singapore adopts a one-tier taxation system, in which all dividends paid by Singapore-resident companies are tax-exempt in the shareholder’s hands.
General tax incentives in Singapore
Once the tax exemptions stated below are applied to the taxable income, the income tax rate for most Singapore companies will be reduced significantly.
Tax exemption scheme for new start-ups in Singapore
A partial tax exemption plus a three-year start-up tax exemption for qualifying start-up companies are available in Singapore.
The qualifying conditions are for the company to be incorporated as being tax resident in Singapore. Also, the company must not possess more than 20 shareholders with at least one of the shareholders being an individual shareholder holding a minimum of 10% of ordinary shares.
Note that this start-up exemption is not available to property development and investment holding companies in Singapore.
Partial tax exemption (PTE) scheme for companies in Singapore
All companies in Singapore qualify for PTE unless the company already claims under the tax exemption scheme for new startups. Under the Singapore PTE, companies enjoy a 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.
Tax exemption for foreign-sourced income in Singapore
Specific types of foreign-sourced income are tax-exempt. These include foreign-sourced dividends, foreign branch profits, and foreign-sourced service income.
Withholding tax in Singapore
The withholding tax doesn’t apply to Singapore resident companies or individuals.
In addition to the general tax incentives listed above, there are specific industry and special purpose income tax incentives and concessionary tax rates offered under the Singapore Income Tax Act.
Tax return filing in Singapore
A company’s chargeable income is asserted in its Corporate Income Tax Returns (Estimated Chargeable Income (ECI) and Form C). And the due date for corporate tax filing for Singapore companies is 30 November for hard copy forms, and 15 December for electronic filing.
To finalize corporate tax returns, a company must submit the filings with the Inland Revenue Authority of Singapore (IRAS).
In Singapore, corporate income is evaluated on a preceding-year basis.
Tax residency in Singapore
A company established in Singapore is not automatically considered a tax resident of the country. In order to be considered a tax resident of Singapore, the company must be controlled and managed from the country.
Also, a company is considered a non-resident of Singapore if board meetings and pivotal management personnel are situated outside of the country.
The benefits of being a tax resident in Singapore
Companies with Singapore tax residency enjoy the benefits provided under Avoidance of Double Taxation Agreements (DTAs), tax exemption on foreign-sourced dividends and service income, and foreign branch profits. Also, a Singapore tax residency enjoys tax exemption as a new startup.
Singapore tax treaties
Singapore has signed Avoidance of Double Taxation Agreements (DTAs) with over 80 jurisdictions. These DTAs reduce or eradicate taxes on foreign income that has already been taxed in a foreign jurisdiction. This has further asserted Singapore as one of the most ideal countries in the world to do business.
And for non-treaty countries, a unilateral tax credit is given concerning the foreign tax on all foreign-sourced income. With respect to the new policy, all companies in Singapore that earned income from countries that don’t have a double tax agreement with Singapore will be permitted a tax credit on their foreign-sourced income from those countries.
Do you want to establish a business in Singapore and benefit from these tax incentives? – Let’s go ahead and contact your Damalion experts now.
