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Singapore Corporate Tax Rates for New Startups
New start-up companies are eligible for the Start-up Tax Exemption (SUTE) scheme:
To qualify for Start-up Tax Exemption (SUTE):
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The company must have no more than 20 individual shareholders
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For corporate shareholders, one individual must hold at least 10% of the issued shares
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Property and investment holding companies are not eligible
Full Exemption for New Startup Companies – for First 3 Years of Assessment (YA)
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The effective tax rates for YA 2015 and YA 2016 respectively are:
YA 2015
YA 2016
Single-Tier Income Tax System
Singapore practices a single-tier corporate income tax system. Tax paid by a company on its income is the final tax and all dividends are exempt in the hands of shareholders from further taxation.
The one-tier corporate taxation system was introduced in Budget 2002. Under this system, profits are taxed at the corporate level and this is a final tax. Singapore dividends are tax exempt.
The one-tier corporate taxation system greatly simplifies the tax code and reduces cost of compliance and administration for companies. It removes restrictions on the distribution of dividends from capital gains and this could result in higher dividend payouts for all shareholders.
In addition, the one-tier corporate taxation system has the desirable consequence of allowing the unlimited flow-through of exempt dividends to all tiers of shareholders, regardless of shareholding level.
Tax Residence of a Singapore company
For Singapore tax purposes, the tax residence of a company is practically determined by the location where the directors of the company hold their board meetings and exercise de facto control. Management and control, in the context of determining the resident status of a company, does not mean the management or control of day-to-day business operations but refers to the superior directing authority over the fundamental policies and decisions of the company.
Resident and non-resident companies are taxed on income accruing in or derived from Singapore as well as on foreign income remitted (actual or deemed) into Singapore. Remittance of specific foreign income (dividends, branch profits, services income) may be tax exempt when remitted by a resident company under certain conditions.
The Singapore revenue authority has also clarified that the use of foreign income to declare dividends, where such foreign income is not actually brought back to Singapore, will not trigger the deemed remittance provisions in the tax legislation. This effectively means that foreign income may be used to declare dividends to foreign shareholders without triggering Singapore income tax. (Conditions apply).
Dividends, branch profits and service income received by a Singapore resident company from a foreign jurisdiction with headline tax of at least 15% and which has suffered some tax (either by way of withholding tax or a tax on the underlying profits) will not be subject to Singapore tax.
Income Tax Basis Period
In Singapore, the statutory Income for the Year of Assessment (YA) is computed based on the income derived in the preceding calendar year (known as the basis year) from all sources. Singapore taxes income on territorial basis.
Territorial Basis (Source based)
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Income earned in Singapore, it will be taxed in Singapore.
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Income earned outside Singapore, but remitted into Singapore, is subject to tax in Singapore.
There are exceptions. Contact Beaufort Tax Advisory Services.
Productivity and Innovation Credit (PIC) Scheme
The Productivity and Innovation Credit (PIC) Scheme has been further enhanced to encourage businesses to upgrade their capabilities along the innovation and productivity value chain by providing tax incentives when they do so.
Before PIC
Currently, businesses can typically deduct their expenses at cost, i.e. 100% as part of their general tax regime.
Tax Savings = S$100,000 x 17%
After PIC
Businesses can now enjoy up to 400% deduction on the cost of the same expenditure.
Tax Savings = $400,000 x 17%
Benefits of the PIC scheme:
The table below outlines the benefits of the PIC scheme, based upon these conditions for their respective benefits:
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Qualifying Activities
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Gist of Qualifying Expenditure under the PIC scheme
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Total Deductions under the PIC
Notes:
Total expenditure cap for YA 2013 to YA 2018 – $1,200,000 for each of the six qualifying activities.
Singapore Tax Incentives
The Productivity and Innovation Credit (PIC) Scheme has been further enhanced to encourage businesses to upgrade their capabilities along the innovation and productivity value chain by providing tax incentives when they do so.
Before PIC
Currently, businesses can typically deduct their expenses at cost, i.e. 100% as part of their general tax regime.
Tax Savings = S$100,000 x 17%
After PIC
Businesses can now enjoy up to 400% deduction on the cost of the same expenditure.
Tax Savings = $400,000 x 17%
Foreign Tax Relief
In Singapore, the statutory Income for the Year of Assessment (YA) is computed based on the income derived in the preceding calendar year (known as the basis year) from all sources. Singapore taxes income on territorial basis.
Territorial Basis (Source based)
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Income earned in Singapore, it will be taxed in Singapore.
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Income earned outside Singapore, but remitted into Singapore, is subject to tax in Singapore.
There are exceptions. Contact Beaufort Tax Advisory Services.
Singapore Tax Treaties
Avoidance of Double Taxation Agreements (DTAs)
For companies operating across borders, the treatment of their income, by the tax authorities of respective jurisdiction is an important factor. A double taxation issue may arise where an income is taxed twice, namely once at the source where it is generated and for a second time where it is received.
In order to avoid such double taxation of income, Avoidance of Double Taxation Agreements (DTAs) are concluded between countries. Within the framework of co-operation under a DTA, the country of residence would usually agree to either give credit to its residents for income which is taxed at reduced rates, or exempt such income from tax. The credit or exemption granted by the country of residence is one way whereby double taxation is eliminated on foreign income derived by its residents.
Singapore has concluded Avoidance of Double Taxation Agreements (DTAs) with many countries. It must be noted that the benefits of DTAs are available only to Singapore resident companies/individuals and the resident companies /individuals of the treaty partner.
Singapore endeavors to facilitate companies expand across borders and DTA plays a significant role in this endeavor by reliving companies from double tax burden. So far Singapore has concluded DTA with over 80 countries and all the DTAs concluded by Singapore since 1965 to date are classified into 3 main categories
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Comprehensive Avoidance of Double Taxation Agreements covering all types of income – 80 countries and territories
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Limited Treaties covering only income from shipping and/or air transport – 8 countries
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Treaties which are Signed but not Ratified hence cannot be lawfully enforced – 5 countries
Some of the important countries with which Singapore has ratified comprehensive DTAs are Australia, Belgium, Canada, China, Denmark, India, France, Japan, Malaysia New Zealand, and the UK.
A DTA clarifies the taxing rights between Singapore and her treaty partner on different types of income arising from cross-border economic activities by clearly defining the following aspects
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The scope of the DTA
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Taxing rights for all types of income or gains
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Methods of eliminating double taxation
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Special provisions
Credit method and exemption method are the two methods of eliminating double taxation burden.
Exemption Relief
A Singapore Tax Resident Company, under sec 13 (8), can enjoy tax exemption on its foreign-sourced incomes such as dividends, foreign branch profits, and foreign-sourced service income that is remitted into Singapore on or after 1st Jun 2003 if the following conditions are met:
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The highest corporate tax rate (headline tax rate) of the foreign country from which the income was received is at least 15%; and
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The foreign income had been subjected to tax in the foreign country from which they were received. .
To entitle for the exemption, a company has to furnish the following information in its Form C and Appendix for Additional Information on Income and Deduction (Form IRIN 301):
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Nature and amount of income received;
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Country from which the income is received;
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Headline tax rate of the foreign country; and
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Confirmation that foreign tax has been paid in the country from which the income was received. Otherwise, company has to prove that income was exempt in the foreign country due to incentive granted for substantive business.
Need help with your Corporate Tax Filing?
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Corporate Tax Preparations and Submission from set-up to support.
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