Singapore Corporate Tax: The Definitive Guide for 2022

 

The small island nation of Singapore is often commended for its efforts to help entrepreneurs set up successful ventures. The business-friendly taxes, easy access to capital, strategic location, excellent infrastructure, and supportive business policies - all help in providing a conducive business environment that attracts global investment.

Among the Asian countries, Singapore offers the best corporate tax rates. This article aims to serve as a Singapore Corporate Tax Guide while highlighting its key features.

Singapore Corporate Tax Computation

To whom is the law applicable? 

Before diving deep into the subject, let us first look at who needs to pay the corporate tax in Singapore.

Under the income tax act, all companies, irrespective of their tax residency status, must pay corporate tax on income generated from Singapore. Apart from this, any income generated over-shore and transmitted into Singapore also comes under the purview of this act.

What is the current Singapore corporate tax rate set at?

Singapore has set its headline corporate tax rate at a flat 17%. This tax is levied on a company's chargeable income.

Chargeable income is calculated as the difference between a company's taxable revenues and deductible expenses. Any recurring or ongoing expense earned from Singapore or remitted into the country is treated as taxable revenues.

Deductible income is any expense spent by the company to generate revenue. For more information on what fees comes under the gambit of deductible expenses, refer to the IRAS website.

It is worth noting that the effective rate applicable to a company is usually lower than the corporate income tax rate due to the many tax incentives and exemptions offered by the government.


Do you need help with corporate tax in Singapore?

Fill up our form below to talk to one of our dedicated account managers.

We will get back to you in as little as 1 business day.

Name

Which companies get the status of being Singapore tax-resident?

There are several benefits a Singapore tax resident company can claim compared to non- tax resident companies. Hence it is essential to understand which companies get labelled as Singapore tax-resident.

A Singapore tax-resident company is one whose control, and management decisions were taken from Singapore. It is important to remember that the place of incorporation does not necessarily mean that the company is Singapore tax-resident.

Therefore even if the daily operations of the company take place in Singapore, but the Board of Directors makes strategic decisions outside Singapore, the company will not become a Singapore tax-resident company.

It is for this reason that a branch of a foreign company based in Singapore is not given the status of a Singapore tax-resident company.

The basis of taxation for a resident and non-resident Singapore company is reasonably identical, but a resident Singapore company does enjoy a few many perks.

What are the general tax incentives offered in Singapore?

The various tax incentives extended to a tax-resident company incorporated in Singapore from Year of Assessment (YA) 2020 are as follows:

  1. A newly incorporated tax resident company in Singapore can avail 75% exemption for the first S$100,000 of normal chargeable income.

  2. A further 50% exemption is offered on the subsequent S$100,000 of taxable income. Under the Start-Up Tax Exemption Scheme, a newly incorporated company can enjoy this benefit only for the first 3YAs.

  3. Singapore follows a territorial tax system. Singapore signed a double taxation treaty with various countries. As a result, there is no double taxation of individual incomes earned from a country which Singapore signed a tax treaty with.

  4. Any foreign sourced income on which tax has been collected in a foreign country will be eligible for income tax exemption in Singapore. If, in any case, the income has been subjected to tax in Singapore, the company can avail tax reduction or exemption in a foreign country.

  5. Since 1st January 2003, Singapore follows a single-tier corporate income tax system. Thus it levies taxes only on profits. Any dividend given to its shareholders by the company is tax-free.

Moreover, Singapore does not follow the practice of capital gains tax. Hence profit received from the sale of any fixed assets or gains incurred from foreign exchange on capital transactions is exempted from taxation.

What are the partial tax exemptions given to companies in Singapore?

Any company that has not claimed benefits offered in the tax exemption scheme for new start-ups can avail of the Partial Tax Exemption (PTE) scheme. The various perks of this scheme from YA 2020 onwards are a follows:

  • An income tax exemption of 75% on the 1st S$10,000 of taxable income

  • A further exemption of 50% on the subsequent S$190,000 of taxable income

What are the tax exemptions for foreign sourced income from a foreign country?

Three types of incomes are tax-exempt:

  1. Profits obtained from a foreign branch

  2. Dividends provided to shareholders from a foreign source

  3. Service income generated from a foreign source

To be tax-exempt, the foreign-sourced income must meet the below criteria.

  • The corporate income tax rate prevalent in the foreign country must be at least 15% at the time when the foreign income enters Singapore.

  • The income was taxed in the foreign country.

  • The government of Singapore feels that the tax exemption offered will be useful to the individual residing in Singapore.

What is the DEI scheme?

The Development and Expansion Incentive (DEI) is an additional tax incentive scheme offered to further lower a company's taxable income.

DEI applies to companies that are either upgrading or increasing their scale of production in Singapore. It is also applicable if the company is venturing into leading global industries.

All income generated can be Tax-exempt or taxed at 10% for 5 years. However, companies must meet the below criteria:

  1. Generate employment that adds seniority, expertise, and skills to the workforce of Singapore

  2. The business expense must contribute to the country's economy.

  3. Be committed to adding new skill sets, technology, and know-how.

What are the projects that qualify for investment allowance?

An investment allowance is a generous scheme under which companies can avail tax credit on capital expenditures for qualifying projects. The tax credit earned can go up to 100% of the capital expenditures. The companies can seek this benefit for 5 years. In a few cases, the investment allowance can prolong for 8 years.

The projects that come under the umbrella of this scheme are as follows:

  1. Increasing the production volume of an already existing product or manufacturing a brand new product

  2. Projects centered around research and development

  3. Projects that require the expertise of specialized technical or engineering service

  4. Projects that seek to enhance energy efficiency

  5. Projects that aim to decrease water consumption

  6. Projects based on Construction operations

  7. Projects that involve space satellites

  8. Projects that offer to boost the tourism industry (hotels not included)

  9. Projects that deal with the repair, overhaul or provide maintenance services to aircrafts

What happens if a company incurs a loss?

If a company incurs a loss in a YA, it has the option of carrying forward the losses to the next YA. But first, the company must clear the Shareholding Test.

To pass this test, the company must prove that no significant changes have occurred in their shareholdings between the final day of the year in which the loss occurred and the starting day of the YA from which the loss will be recovered.

What is the corporate tax basis period in Singapore?

The IRAS takes into account the income generated in the preceding year for corporate tax computation. Basis period refers to the 12 months that fall before a YA. Therefore, the basis period for any YA is the financial year-end (FYE) of the year preceding the current YA.

For example, consider the FYE of a company to be from 1st April to 31st March. Then, in the year 2021, the company will begin corporate tax filing for income generated between 1st April 2019 and 31st March 2020.

What are the documents required for filing corporate tax in Singapore?

A company, to complete its corporate tax formalities, must file two documents with the Inland Revenue Authority of Singapore (IRAS).


Estimated Chargeable Income

It is commonly known as the ECI document. This document provides an outline of a company's chargeable income. The filing of this document is mandatory for all companies. Companies are required to e-submit this document 3 months before their FYE.

However, if a company has generated an income less than or equal to five million in the year and has no chargeable income for YA, it need not file an ECI.

As per the latest guideline issued, all companies must file their corporate tax documents online from YA 2020. The physical filing of the documents is slowly being phased out.

Companies can file their documents through the myTax Portal.

Form C and Form C-S

A company must file their returns using the Form C document. Additional documents such as tax computation, financial statements must also be submitted.

However, if a company has generated an annual revenue less or equal to S$5 million, it can file their taxes using the simplified Form C-S document. This is applicable only under the below conditions:

  • The place of incorporation in Singapore.

  • The income is charged at the headline corporate tax rate of flat 17%.

  • The company does not claim tax benefits under any special schemes.

When is the due date for filing the corporate tax in Singapore?

There is an important dates to remember for filing corporate tax in Singapore.

A Singapore resident company or non-resident company needs to e-file the income tax documents by 15th December.

Failing to file the documents by the stipulated deadline is an offense. The company, as well as the officers of the company, can be fined up to S$1,000 and S$10,000, respectively.

How to pay corporate tax in Singapore?

IRAS will review the forms filed by the company and generate a Notice of Assessment (NOA) by May 31st of the following year. The NOA is an in-depth statement of the current tax liabilities of a company.

The company must pay the tax assessed by the IRAS within 30 days of receiving the NOA. There are different payment methods available to the companies to pay their taxes. Companies can pay through internet banking, GIRO, cheque, or even telegraphic transfer.

What are the different kinds of penalties associated with corporate tax in Singapore?

There are 3 situations under which penalties can be imposed on a company:

1. Inaccurate filing of tax

If the IRAS finds that a company has unintentionally filed false tax documents, it can do the following:

  • Impose a fine of up to S$5,000

  • Charge 200% of the tax undercharged as a penalty

  • And/or a jail term of a maximum of 3 years

2. Late payment of tax

Late payment of corporate tax will lead to a 5% penalty. Further delay will result in an addition of 1% for every following month until the company clears its dues.

It is within IRAS's authority to take further legal or enforcement actions to recover the taxes.

3. Tax evasion

Tax evasion occurs when an individual or a company furnishes incomplete or inaccurate data to reduce their tax liability, obtain a refund or gain ineligible tax credit. This is a serious criminal offense and miscreants could face the below consequences:

  • Stiff penalties of up to 400% of the undercharged tax

  • Fines that can go up to S$50,000

  • And/or jail term for a period of up to 7 years

Given the severity of the punishments, it is strongly advised to seek the help of a professional tax advisor at Piloto Asia to help you file taxes on time and accurately.

Rounding up

Companies can significantly reduce their tax burden by setting up offices in Singapore. The business environment is the most favorable in the world. The exemptions received on dividends and capital gains are reasons enough that make Singapore the ideal destination for doing business.

Need support on tax filing?

Piloto Asia can partner with you on meeting your tax requirements.