Singapore Corporate Tax Guide

The benefits of incorporating a Singapore company are numerous.

Top-notch financial hub with availability of affordable funding, ease of doing business, robust IP protection and legal system, excellent connectivity, and strategic location among the world’s leading emerging markets, are few of the reasons.

 

But the most important benefit from a corporate point of view is the city-state’s attractive tax framework.

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Overview of Corporate Taxation in Singapore

Singapore resident companies are taxed on profits derived in Singapore, as well as on foreign soil, which are then remitted to Singapore. The corporate income tax rate since 2010 has been fixed at 17%. It is calculated on the basis of the company’s chargeable income i.e. taxable revenues less allowable expenses and other allowances.

As regards to the rate itself, while Singapore’s marginal rate is already the third lowest in the world, the effective tax payable comes out to even lower if one takes advantage of all the government incentives, subsidies and schemes.

For instance, through its enhanced Productivity and Innovation Credit (PIC) Scheme, the Singapore government has made it possible for a firm to not pay any Singapore corporate tax even if it earns as much as S$28 million annually.

We detail a few options below.

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Effective Corporate Tax Rate for New Companies (YA 2019)

(Eligible for the Start-up Tax Exemption (SUTE) scheme)

Chargeable Income ($)	Estimated Tax (S$)	*Effective tax rate
100,000	0	0%
200,000	5,100	2.55%
300,000	10,200	3.40%
400,000	20,400	5.10%
500,000	36,000	7.20%
1,000,000	121,000	12.10%
2,000,000	291,000	14.55%
3,000,000	461,000	15.37$
5,000,000	801,000	16.02%
10,000,000	1,651,000	16.51%

Note: After 25% corporate tax rebate (Max. $15,000)

The eligibility conditions include:

• must have no more than 20 individual shareholders
• in case of corporate shareholders, one individual must hold at least 10% of the issued shares
• property and investment holding companies are not eligible

Since 2010, SUTE has been extended to include companies by guarantee. However, the tax exemption scheme for new start-up companies is not extended to investment holding companies and companies engaged in property development activities that are incorporated after February, 2013.

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Partial tax exemptions (YA 2019)

All other companies that do not qualify under the SUTE scheme will be eligible for partial tax exemption.

Chargeable Income ($)	Estimated Tax (S$)	*Effective tax rate
100,000	4,845	4.85%
200,000	9,945	4.97%
300,000	15,045	5.02%
400,000	27,075	6.77%
500,000	44,075	8.82%
1,000,000	129,075	12.91%
2,000,000	299,075	14.95%
3,000,000	469,075	15.64$
5,000,000	809,075	16.18%
10,000,000	1,659,075	16.59%

Note: After 25% corporate tax rebate (Max. $15,000)

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Corporate income tax (CIT) rebate

In 2020, the government announced that all companies will be granted a 25% corporate income tax rebate that is subject to an annual cap of S$15,000.

The list of beneficiaries of this new scheme even include registered business trusts, non-tax resident companies in Singapore, and companies already receiving income taxed at a concessionary tax rate. But it doesn’t apply to the amount of income of a resident company, which is subject to final withholding tax.

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Exemption clauses for foreign sourced income of companies

For Singapore tax resident companies, who also do their business overseas, it’s quite common nowadays to have their foreign sourced income remitted to Singapore. Since the city-state follows a progressive tax framework, based on territorial policy, this foreign sourced income is also taxed.

Though, as detailed in Sections 13 (7A) to 13 (11) of the Income Tax Act (ITA) of Singapore, companies can benefit from the foreign sourced income exemption scheme (FSIE).

FSIE is applicable to:

• Foreign sourced dividend – a dividend paid by a non-Singapore tax resident company, which may have been temporarily deposited into a foreign custodian account before its remittance into Singapore. However such remittance must be made within one year from the date it was deposited into the foreign custodian account and any interest earned on such deposit must not be included in the dividend, for which FSIE is sought.
• Foreign branch profits – profits generated by business operation of a Singapore company registered as a branch in a foreign country. It excludes non-trade or non-business income of the foreign branch.
• Foreign-sourced service income – income generated by a resident taxpayer for services provided through a fixed place of operation in a foreign country. This may mean a place of management, an office, or a certain amount of floor space at the disposal of the specified resident taxpayer.

But, importantly, the exemptions apply only when the headline corporate tax rate in the foreign country from which the income is received is at least 15%, and the income had already been subjected to tax in that particular country.

The third and last qualifying condition to enjoy tax exemption on foreign sourced income is when the Comptroller of Income Tax is satisfied that the exemption would be beneficial to the specified resident taxpayers.

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Important to avoid double taxation

Sometimes, foreign income of a Singapore tax resident company may be subject to taxation twice – once overseas, and then a second time when the income is remitted into Singapore.

For such cases, the Inland Revenue Authority of Singapore (IRAS) has a foreign tax credit (FTC) scheme, which allows the company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.

Under this, two types of credit or relief can be claimed.

• Double tax relief (DTR) – Singapore has signed over 20 Free Trade Agreements (FTAs), and 74 comprehensive and 8 limited Avoidance of Double Tax Agreements (DTAs), facilitating trans-border trade and making it cheaper for Singapore-based firms to expand their operations internationally. Thus, a DTR is the credit relief provided under DTAs to counter double taxation scenarios.
• Unilateral tax credit (UTC) – It’s a scheme for foreign tax paid by Singapore tax residents in countries with which the city-state has no DTA.

Notably, UTC is allowed only when repatriated income is generated by any of the following activities:

• income from professional, consultancy and other services
• royalty income, which is not borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore, or is not deductible against any income accruing in or derived from Singapore
• dividends income
• employment income
• branch profits

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Singapore FTC Pooling System

The government, in 2011, also introduced a FTC pooling system to give businesses greater flexibility in their FTC claims, reduce the taxes payable on foreign income, and to simplify tax compliance.

The eligibility conditions were the same as in FSIE i.e. the headline corporate tax rate in the foreign country from which the income is received is at least 15%, and the income had already been subjected to tax in that particular country.

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