Doing Business in Singapore – Tax Benefits
- Posted by Lee Bon
- On 24.03.2017
Incorporating a business in Singapore has lots of perks, and taxation is one of them. The tiny but strong economy advantageously stands out against a background of other Asian business hubs (such as Hong Kong or Taiwan) due to its low corporate, personal and value-added taxes, lavish government incentives, and tax exemption of dividends and capital gains. Over 3 thousand international enterprises have already chosen Singapore as a regional headquarters attracted by the country’s high standards of living, innovativeness, and safety.
Every entrepreneur should study the taxation principles of the chosen jurisdiction before incorporating a company. You can calculate your prospective profit right now using our Singapore business taxation guide.
Key Points of Singapore Corporate Taxing
- Singapore’s Inland Revenue Authority is in charge of collecting taxes from businesses. The agency initiates tax incentives, develops business-friendly tax regime and works on optimising the procedure of tax filing making the country more attractive for the foreign capital.
- Every profitable activity conducted by a corporate body is subject to the local taxation. Singapore has decreased its corporate tax to 17% making it one of the planet’s lowest. The registration for paying local taxes is mandatory for companies incorporated in SG, branches and foreign firms registered abroad.
- Individuals who stay and work in SG during more than 183 days in a year are considered tax residents, and, therefore, their personal incomes are taxable at the rate of 0-20% (0-22% from 2017).
- The company’s tax residence (actually, the place of management and control) is crucial for defining its taxability. For example, an enterprise managed from SG whose income is earned in SG is fully taxable at the rate of 17% (certain incentives apply). The foreign-sourced income of a branch controlled from overseas isn’t taxable in Singapore. However, if the foreign income was transmitted to SG (which includes being remitted, brought physically, used for paying the debt in SG or spent on movable property that is going to be subsequently moved to SG), it becomes subject to the local corporate tax.
- Double taxation agreements with over 76 countries protect companies from paying the tax on the same foreign-sourced income twice. After getting taxed by the foreign jurisdiction, you can enjoy your overseas revenue in Singapore tax-free, and the opposite. Such agreements are intended to stamp out the tax evasion and attract more foreign investments. If the country-source doesn’t have such an agreement with Singapore, you still can claim tax exemptions based on available credits and individual approach:
- The Unilateral Tax Credit enables tax residents to get exempted not only for SG-sourced income but also for foreign profits (foreign salaries, incomes earned overseas through a professional activity or services, dividends, and foreign-sourced royalties) repatriated to SG.
- Similar to the UTC, the Foreign Tax Credit enables companies-residents to get their Singapore taxes reduced if they pay similar taxes on their income abroad (for example, if an SG-based company has overseas subsidiaries that repatriate their profit to SG can get tangible tax exemptions).
Corporate Tax Incentives
Singapore is a true tax haven not only due to its outrageously low corporate tax (for comparison: in the USA, it is almost 40% while in Australia, the company tax reaches 30%) but also due to a developed framework of tax incentives that covers almost all business niches. The most tremendous of them are:
Startup Tax Exemption
During 3 consecutive years after your incorporation in SG, your company can enjoy the first 100k SGD of chargeable income tax-free and then pay the halved tax (8.5%) for the next 200k SGD. To get qualified for this exemption program, your company must fulfil such requirements: be SG tax resident, be incorporated as the Private Limited company (not specialised in real estate or operating as an investment holding), comprise no more than 20 shareholders (corporate shareholders are allowed provided that at least 10% of shares are held by an individual). This program helps you to save 200k SGD at the very beginning. After this 3-year plan ends, you firm can get qualified for the partial exemption.
Partial Tax Exemption
Get up to 152,5k SGD exempted (out of the 300k SGD of chargeable income) starting from the 4th year of assessment (for participants of the Startup Tax Exemption) or starting from the incorporation for all other businesses. The scheme works this way: you pay the corporate tax only for the 25% of your first 10k SGD of chargeable income (exemption of 75%) and then for only 50% of the next earned 290k SGD. The SG’s tax authority is aware of the fraud opportunities this scheme potentially provides, so in case of misuses (for example, if you allocate your real income to several dummy corporation for the purpose of tax evasion), the IRAS takes action.
Corporate Income Tax Rebate
Get a one-time rebate of 30% (usually no more than 20k SGD) during 2016 and 2017 years of assessment.
Productivity and Innovation Credit
The government supports businesses that invest in innovations. Within this PIC program (works until 2018), your business is able to get up to 400% allowances and deductions for such qualifying activities as purchasing intellectual property rights, upgrading equipment, development and research, re-design, training, and so on. What is more, you can get your qualifying innovation expenditure (up to 100k SGD a year) converted into cash at the rate of 60% (40% from August 2016). With such lavish deductions, your business is able to kill two birds with one stone: march with the times increasing productivity and reduce the tax bills.
The list of tax incentives is quite long and embraces most of the business sectors: International (or Regional) Headquarters Award, Allowance for Land Intensification, Integrated Investment Allowance, Tax Incentive for Finance & Treasury Centres, Global Trader Program and so on. Whether you use high-end technologies, optimize your land usage or lease an aircraft, the government has already developed ways to help you save. You can familiarize yourself with them on the IRAS website.
Goods and Services Tax
The value-added tax (termed as Goods and Services Tax in SG) Singapore imposes on imported goods or those goods/services intended for consumption inside the country is one of the planet’s lowest – 7% (in France and the UK, the same tax would be imposed at the rate of 20% while in Norway and Sweden, the rate is 25%.
Exports, precious metals, and such services as property leasing, financial services, and so on are tax exempt. You are also able to avoid this tax if your sales turnover is less than 1M SGD. In other cases, the company must get registered for paying the GST. Since you are GST-registered, you need to increase the cost of your goods/services by 7% in order to submit the difference to the IRAS. As the natural result, you might lose a part of customers as they might prefer buying from the non-GST registered buyer in order to save, but, OTOH, the GST registration boosts your image and represents your business as reliable and serious.
Capital Gain Tax3h>
Singapore doesn’t impose the capital gain tax on any revenues derived from selling property with the only exception when your sell/buy property professionally. In any case, your capital gain tax exemption will be decided based on the reason and frequency of such deals and the period of holding. You should take into account that as long as the capital gain isn’t taxed, you won’t be able to get tax deductions for your capital loss.
If your company is a part of a group where all companies have synchronous accounting periods, you can transfer your expenses/losses such as unutilised donations or unabsorbed allowances to any other firm in the group. Exceptions are investment allowances and foreign-sourced losses.
Foreign Worker Levy
Singapore protects the employment rights of the local manpower by introducing levies to SG-based companies hiring foreign skilled (holders of the S Pass) and lower-skilled (Work Permit holders) staff. The amount of the levy directly depends on the skill level and experience of the particular foreign worker: 300 SGD or 550 SGD.
Any payments (royalties, interests, technical service fees, rentals etc.) your company makes to a company or an individual that are non-resident are subject to the withholding tax: you withheld a certain percentage of the payment and submit it to the IRAS. This way, Singapore tax authority controls SG-sourced profits of non-residents.
The Stamp Duty is a tax paid when your company issues a document regarding real estate and shares (lease, transfer, mortgage documentation etc.).
Excise and Import Duties
Importing or producing such excise items as petroleum goods, tobacco, liquors, and cars, your company falls under the import/excise regulations, and, therefore, must pay respective duties.
Tax Filing in Singapore
Unlike personal income that is filed based on a traditional calendar year (filing deadline is April 15), the corporate income doesn’t have a fixed business year. Every company decides when its fiscal year begins and ends on its own. The deadline for corporate tax filing is November 30. You submit your tax returns and audited accounts for the business year that ends in the preceding calendar year. For instance, in November 2016, you file tax returns for the year that terminated between Jan. 1 and Dec. 31, 2015. No later than 3 months after the ending of the accounting period, the company must submit its Estimated Chargeable Income with the IRAS. The financial documentation must be maintained during 5 years.
The low corporate tax, group relief, avoidance of the double taxation foreign tax credits, and tax-free capital gains, as well as lavish tax incentives, high standards of life, the government’s support, the IP protection and banking excellence, make Singapore an unrivalled tax haven for businesses. However, a tangible saving is possible under the assumption of a wise tax planning and strategizing.
Involve a professional incorporation help and tax consultancy in order to wring as many tax benefits as possible.