Our Guide to Singapore Corporate Income Tax & Exemptions

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Singapore is one of the most attractive places to set up a company in the world. Beyond the enticing corporate tax rates and strong financial incentives provided by the government, there are many other compelling reasons such as political stability, personal tax rates, tax relief measures, absence of capital gains tax, one-tier tax system, and extensive double tax treaties.

If you’re interested in learning more about corporate income tax and exemptions, read on for five facts to help get you started:

1) A company is taxed on the income earned in the preceding financial year

Therefore, money earned in 2018 will be filed in 2019. In tax terms, 2019 is the Year of Assessment (YA). In other words, the YA is the year in which your income is assessed to tax. To assess the amount of tax, IRAS looks at the income, expenses, etc. during the financial year. This financial year (eg. 2018) is known as the “basis period“. The basis period is generally a 12-month period preceding the YA.

2) Tax remains the same for a local or foreign company  

All companies are taxed at a flat rate of 17%.  Companies are also given Corporate Income Tax (CIT) Rebate for YAs 2013 to 2019. The rebate will not apply to income derived by a non-resident company that is subject to final withholding tax. New companies are also eligible for partial tax exemption (from YA 2020) and tax exemption (where any of the first 3 YAs falls in or after YA 2020).

3) Two Singapore Tax Systems - Territorial and Single-Tier 

• A Territorial Tax System: in other words, companies and individuals are taxed mainly on Singapore sourced income. Foreign sourced income (branch profits, dividends, service income, etc.) will be taxed when it is remitted or deemed remitted into Singapore unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%. Although the concept of locality of the source of income seems simple, in reality, it can often be complex and contentious. No universal rule can apply to every scenario. Whether profits arise in or are derived from Singapore depends on the nature of the profits and of the transactions which give rise to such profits.

• A Single-Tier Tax System: Since 1 January 2003, Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation. There is no tax on capital gains in Singapore. Examples of capital gains include gains on the sale of fixed assets, gains on foreign exchange on capital transactions, etc.

4) Taxes in Singapore are based on profits, not revenues

Taxable income is the portion of gross income that’s actually subject to taxation. Deductions are subtracted from gross income to arrive at your amount of taxable income.

5) There are tax exemption schemes available

If your company is a new start-up, the income made in the first three years of operation will see significant tax exemptions, which are set to change in the next couple of years. For YA 2019, the first $100k of chargeable income is exempted from tax, while in YA 2020, only 75% is exempted from tax, so for example, if your chargeable income is $75K, 75% of $75k will be taxable at 17%. In addition to this, for YA 2019, the next $200k after the first $100k of chargeable income is 50% exempted from tax – this means any amount of chargeable income from $100k to $300k is 50% exempted. For example, if you had a chargeable income of $150k, 50% of (150k-100k) is taxable at 17%). In YA 2020, this amount is reduced to the next $100k, for example, if your chargeable income is $150k, the first $100k is 75% exempted from tax and the balance $50k is 50% exempted from tax.

Apart from start-ups, all companies can enjoy partial tax exemptions. For YA 2019, there’s a 75% tax exemption on the first 10,000 of normal chargeable income; and a further 50% exemption on the next $290,000 normal chargeable income. For YA 2020 onwards, there’s also a 75% exemption on the first $10,000 normal chargeable income, but there is then a further 50% exemption on the next $190,000 normal chargeable income. These tax rates are one of the main reasons companies start up here in Singapore.

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The deadline to e-file your Year of Assessment (YA) Corporate Income Tax is Sunday, 15 December. Need help? Get in touch: [email protected].