A Comprehensive Guide to Corporate Tax in Singapore
April 22, 2022
April 22, 2022
One of the reasons that keep Singapore on top of the most business-friendly countries’ list is its continuous dedication to reducing corporate tax and introducing various tax incentives that attract and retain global investments. At present, the country follows a single-tier corporate tax system, in which company-paid taxes are not chalked up to the investors. That is why it is important to understand the way around corporate tax in Singapore if you plan to start a company in the country.
Learning the corporate tax system of a hustling business hub like Singapore is not an easy task. It is challenging, especially for a startup owner who is a novice in the business industry. Although Singapore’s government and other qualified organisations regulating businesses in the country are stringent when it comes to compliance, they keep companies in the know about their status.
If you want to know more about the corporate tax system, you can check out the Inland Revenue Authority of Singapore’s (IRAS) website. This article is also a comprehensive guide to Singapore’s corporate tax, providing an overview of Singapore’s tax rate, tax system, and tax incentives. Continue reading below.
Getting In-Depth with the Single-Tier Tax System
Singapore’s Headline Tax Rate
General Tax Incentives in Singapore
Singapore started using a single-tier corporate income tax system on the first day of January 2003. Since then, the country has implemented no double-taxation for stakeholders. The single-tier taxation also entails that all stakeholder dividends paid by a company are free from further taxation. Moreover, capital gains in Singapore have no tax, including gains from fixed assets and foreign exchange transactions, and more.
Singapore has a current headline tax rate of flat 17%. This is to make the country an attractive destination for investors. Singapore’s income tax rates have consistently declined from 26% between 1997 and 2000 and went down to 25.5% in 2001 and 24.5% in 2004. From 2003 to 2004, Singapore’s income tax rate was 22%, while in 2005 to 2007 and 2007 to 2009, tax rates were 20% and 18%, respectively.
However, having a headline income tax rate does not guarantee an effective corporate tax rate in Singapore and other jurisdictions. To make a tax rate effective, it has to be lower than the headline tax rate because of factors like applicable tax exemptions, tax incentives, and depreciation rules, among others.
Other parts of the corporate tax in Singapore are tax exemption and incentives. There are various tax incentives/exemptions tax resident companies in Singapore can avail of. The effective tax rate for small- to medium-sized enterprises in Singapore will be significantly reduced if tax incentives are applied to their taxable income.
Starting the Year of Assessment (YA) 2020, the tax incentives of startups are 75% on the first S$100,000 normal chargeable income in the first three consecutive YA, only if they meet the following conditions:
- The company is incorporated in Singapore.
- The company is a tax resident in the country.
- The company has no more than 20 shareholders. There should be at least one who is an individual shareholder holding a minimum of 10% shares.
There is another 50% tax exemption of up to S$100,000 on taxable income. Newly registered companies are eligible for a partial exemption, up to S$100,000 per annum, from taxable income’s 8.5% tax rate. If the taxable income exceeds S$100,000, it will be charged with the 17% normal headline corporate tax rate.
Is Singapore an Ideal Place to Start a Business?
On a recently conducted survey of more than 100 startup owners in five territories, including India, Poland, the UK, the USA, and Ukraine, it was found that Singapore is one of the most highly-chosen places to start a business. Many factors were looked into, like business policies, startup resources, access to a skilled workforce, the rule of law, taxation, protection of intellectual property (IP), ease of global expansion, and quality of life.
Despite the limited resources, Singapore became a world-class economy by strengthening its core proficiencies. Today, the country’s bloodlines are impressive infrastructure, advanced industrial sector, business-friendly policies, reputable global image, and flexible economic policies.
Amidst the strain of setting up a business, Singapore is an excellent choice because it is easier to establish a business in the country and grow it. Apart from this, Singapore is a very diverse country, full of rich culture and has a world-class economy that creates more opportunities for innovative and creative people. All this contributes to achieving business success. Singapore is fast becoming a home for entrepreneurs worldwide, with many programs dedicated to helping foreign investors.
The Bottom Line Is
As a startup owner vying for a breakthrough in the business industry, you should utilise all available resources to achieve your goals. One of the many factors contributing to a successful business is the corporate tax system. There is no place like Singapore in terms of favourable tax jurisdiction in the world.
The process of corporate tax in Singapore is fairly straightforward, and it is easy for companies incorporated in the country to reduce tax expenses significantly because of the low headline tax rates and generous tax exemption and incentives. Other than that, the exemption on capital gains and dividends increases the benefits of shareholders from their investments.
Lastly, Singapore’s government effort to implement the Avoidance of Double Taxation Agreements helps businesses to thrive in the business landscape. It also allows them to expand their scopes internationally with no extra taxes to pay on foreign-generated income.
Looking for a Corporate Service Provider in Singapore to Help Sort Out Taxes?
A business owner’s worst nightmare is to be charged with a tax evasion case. Prevent this from happening by hiring a reliable corporate service provider in Singapore like ContactOne. We offer business support services, including secretarial and accounting services. The best thing about outsourcing a business support provider is that you know everything is taken care of. With that, you can focus more on other critical business elements that are profitable to grow your company.
Taking things into your hands is not the most practical way to go. Haphazardly managing tasks is likely to happen if you do not hire a corporate service provider. Call us now on +65 6333 0633 or +65 8666 3633 now. We will be glad to work with you!