Singapore’s position as one of the leading business hubs in Southeast Asia and a gateway to the wider region is without doubt. Much of that can be attributed to the ease of running business in the lion city as well as the multiple tax incentives on offer to keep attracting global investors, companies, and entrepreneurs looking to make their mark on the US$ 3 trillion ASEAN economy.
The corporate tax rate in Singapore is a single-tier territorial based flat-rate system. The effective tax rate is one of the lowest in the world and contributes to the thriving business environment. In 2019, Singapore received nearly 106 billion USD in foreign direct investment according to The World Bank.
In this article, we’ll discuss the corporate income tax rates, tax system, and tax incentives for Singapore.
Single-Tier Flat-Rate Income Tax System
The single-tier tax system prevalent in Singapore means that no stakeholders are subject to double-taxation. The tax paid by a corporation on its taxable income is the final amount owed and any dividends issued by the company to its existing shareholders will not be subjected to additional taxation. What’s more, ACRA does not levy any tax on capital gains in the country. Examples of this are capital increases on sale of fixed assets or other corporate transactions.
Singapore Corporate Tax Rate
The Inland Revenue Authority of Singapore (IRAS) imposes a headline corporate tax rate of 17% for all entities, local or foreign, registered in the lion city. This makes it one of the lowest in the world; for context, the headline tax rate in China is 25% and in Japan is 23.2%.
It wasn’t always this low. The headline tax rate in Singapore in the late 1990s was 26% but was consistently reduced at periodic intervals in the 2000s. The existing rate has been in place since 2010.
Despite this low rate, it deserves a mention that the headline income tax rate does not mean that it is the effective corporate tax rate. There are many tax exemptions and incentives that Singaporean companies can apply for, lowering their overall tax bill.
Corporate Tax Incentives in Singapore
The highest tax incentives currently on offer in Singapore apply to new startups, provided they were incorporated within the last three years.
For 2020 onwards, such companies qualify for a 75% tax exemption on the first 100,000 SGD of taxable income as well as an additional 50% tax exemption on the next 100,000 SGD of taxable income. This applies as long as the new startup is incorporated in Singapore, is a tax resident of Singapore, and has no more than 20 shareholders of which at least one is an individual shareholding holding at least 10% of shares.
The exemptions will be valid for the first three years of tax filing.
Effectively, what this means is that the corporate income tax rate in Singapore for companies declaring profits up to 100,000 SGD is only 4.25%. The next 100,000 SGD is taxed at 8.25%. The 17% headline tax rate only kicks in once a company has declared over 200,000 SGD in annual profits.
Corporate Income Tax Rebate in Singapore
According to the IRAS, the corporate income tax rebate is issued to help ease the costs of running a company.
As of right now, companies can apply for income tax rebates going as far back as 2013. The following corporate income tax rebates apply:
- 25% corporate income tax rebate, capped at $15,000 for 2020;
- 20% corporate income tax rebate, capped at $10,000 for 2019;
- 40% corporate income tax rebate, capped at $15,000 for 2018;
- 50% corporate income tax rebate, capped at $25,000 for 2017;
- 50% corporate income tax rebate, capped at $20,000 for 2016; and
- 30% corporate income tax rebate, capped at $30,000 per year from 2013 to 2015.
Due Date for Income Tax Filing
The due date for companies to file their corporate taxes is 30 November for those submitting paper forms and 15 December for those who prefer to e-file.
An entire set of returns needs to be filed, including Form C, an audited or unaudited statement of accounts, and the overall tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss to arrive at the total chargeable tax figure.
The tax filing period refers to the year preceding the filing. So if you file taxes in 2020, they will be for the financial year ending anytime between 1 January 2019 to 31 December 2019. A company’s accounts are prepared up to the financial year ending each year.
The Difference Between Net Income and Taxable Income
Companies earn profits through sales as well as additional income arising from rent, royalties, dividends, and interest. Singaporean Income Tax applies to income that has accrued or derived from inside Singapore or received in Singapore from outside Singapore (such as a Singaporean shell company wiring back profits to the head office).
There are tax exemptions that apply even after a company’s net profit / loss is calculated. For example, some expenses may not be eligible for tax deductions while some income may be taxed separately. IRAS’ site has more details on the exemptions and how you can apply for them.