Corporate Income Tax

Singapore has had a single-tier corporate income tax structure in place since January 1, 2003, which means there is no double taxation for stakeholders. The final tax is the tax paid by a company on its chargeable income, and any dividends paid by a firm to its shareholders are exempt from further taxation. In Singapore, capital gains are not taxed. Gains on the sale of fixed assets, gains on foreign exchange on capital transactions, and so on are examples of capital gains.

When it comes to submitting your business tax, it is critical that you understand what can be deducted and what must be included for taxation. Get some broad recommendations on calculating taxable income for Singapore businesses.

The taxable income of a business is not the same as its net income. A company’s taxable income is calculated by starting with the net profit/loss in the company’s accounts and then applying different adjustments to get at the taxable income for the given accounting year. Adjustments are required because some of your company’s expenses may not be deductible for tax purposes. Similarly, part of your company’s income may be exempt from taxation or taxed separately as non-trade source income.

Income earned in or derived from Singapore is taxed by a Singapore corporation. Income obtained in Singapore from sources other than Singapore is subject to applicable exemptions and tax breaks. Income consists of:

In order to compute taxable income, the Singapore company’s net profit/loss data is adjusted as follows:

Non-taxable income can be deducted. Non-taxable income is subtracted from chargeable income. Capital gains, sale of fixed assets, gains on foreign exchange on capital transactions, exempt shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that meets the qualifying conditions, and other income exempt from tax under the Singapore Income Tax Act are examples.

Make adjustments for net investment income. Non-trade income such as interest income, dividend income, and rental revenue is referred to as investment income. Investment income is assessed separately for income tax purposes because the excess of expenses over income obtained from one source of investment cannot be claimed against the surplus deriving from another source of investment. Any excess expenses linked to rental income, for example, cannot be deducted from dividend or interest income. The net investment income is then computed as follows: a) deduct all investment income from chargeable income; b) deduct investment-related eligible expenses from investment income for each type of investment income; and c) add the balance net investment income for each type of investment income.

Allowable business expenses can be deducted. Expenses incurred solely for the purpose of generating trade income are deductible. Wages, office rent, service fees, R&D expenses, and other deductible expenses are examples. Non-deductible expenses include fines, fixed asset write-offs, income tax, private and domestic expenses, motor vehicle expenses for private passenger cars, and so on. The list of deductible and non-deductible company expenses is quite long and cannot be explored in depth in the scope of this essay.

Capital allowances are deducted. Expenses incurred on the purchase of fixed assets are not tax deductible because they are capital in nature. Depreciation on fixed assets is likewise not tax deductible. Instead of depreciation, the corporation can claim a deduction for wear and tear on the fixed asset known as “capital allowance.” Unused capital allowances on fixed assets from prior accounting periods as well as the current accounting period might be deducted.

Subtract unutilized losses. In Singapore, qualified losses can be deducted from one’s income. Qualified loss means that a) the loss must have resulted from the operation of a business; and b) it has not previously been used. Losses are deducted on a “preceding year” basis, which means they can be deducted in the year(s) after the year in which the loss was incurred. If the losses cannot be entirely adjusted in the relevant year of assessment, the balance might be carried forward to the following year of assessment. Losses can be carried forward forever if certain requirements are met.

Donations that have not been used should be deducted. Only gifts to approved institutions of a public nature can be deducted for the purposes of calculating the company’s income tax.

Singapore’s top company tax rate is a flat 17.5%. Income tax rates in Singapore have constantly decreased in order to make Singapore an appealing investment destination, as seen below.

In Singapore, as in many other jurisdictions, the headline income tax rate does not often provide an accurate representation of the effective corporate tax rate. Due to applicable tax exemptions and tax incentives, depreciation regulations, and other factors, the effective rate is typically lower than the headline tax rate.

The broad tax breaks mentioned above result in relatively favourable tax rates for small-to-medium-sized businesses. For example, a typical Singapore resident firm with an annual taxable income of S$2,000,000 will be taxed as follows:

Income tax returns for newly established businesses within the first three years:

Income tax returns filed beyond the first three years:

The CIT rebate will be extended until YA 2020, at a rate of 25% of the tax payable, with a ceiling of S$15,000.

Corporate Income Tax Exemption for companies from YA 2020:

Tax exemption for new startup companies (where any of the first 3 YAs falls in or after YA 2020):

The corporation tax filing deadline for Singapore companies is 30 November (for paper copy forms) and 15 December (for electronic forms) (for e-filing).

The corporation must file a full set of returns, including Form C, audited/unaudited financial statements, and tax computation. Form C is a declaration form used by a corporation to disclose its income, whereas tax computation is a statement that shows the adjustments made to a firm’s net profit/loss in order to arrive at the amount of income that is chargeable to tax. See the Annual Filing Requirements for Singapore Companies guide for more information.

In Singapore, corporate income is calculated on a year-to-year basis. This means that the base period for any Year of Assessment (YA) is typically the fiscal year ending (FYE) in the year preceding the YA. For instance, in 2018, you will file a corporation tax return for your company’s fiscal year that ended between January 1, 2017 and December 31, 2017. Each year, your company’s accounts are prepared up to the fiscal year end.

The general tax exemptions/incentives now available to Singapore tax resident firms are listed below. When these tax breaks are applied to taxable income, the effective income tax rate for small-to-medium-sized Singapore businesses is dramatically reduced.

Tax exemptions for newly incorporated firms in the first three consecutive YAs are as follows from YA2020 onwards:

If a newly incorporated company meets the following conditions, it will be exempt from the 75 percent corporate income tax rate on the first S$100,000 taxable income for each of the first three tax filing years:

A further 50% tax exemption on taxable income up to S$100,000 is available.

Newly incorporated companies are also entitled for a further partial tax exemption, resulting in a tax rate of around 8.5 percent on taxable income of up to S$100,000 per year. Taxable income in excess of S$100,000 will be levied at the standard headline corporate tax rate of 17 percent.

Tax residence of company

If a company’s control and management are exercised in Singapore, it is deemed a tax resident in Singapore. “Control and management” refers to the process of making strategic decisions, such as those concerning business policy and strategy. In general, one of the important factors in determining where control and management is exercised is the location of the company’s Board of Directors meetings, during which strategic decisions are taken.

If the company has an executive director or key management personnel situated in Singapore who plays an essential role in decision-making, this is one of the key considerations in deciding where control and management is exercised.

A firm is considered non-resident in Singapore if its directors manage and control the business and hold board meetings outside of Singapore. This is true even if day-to-day operations are carried out in Singapore. Depending on the circumstances, a company’s residence may shift from one year of assessment to the next. Because control and management are vested in an overseas parent company, a Singapore branch of a foreign corporation is normally not classified as a Singapore tax resident.

With the exception of some incentives granted to resident companies, the taxation basis for a resident company and a non-resident company is essentially the same.

Please keep in mind that a company’s place of incorporation is not always indicative of its tax residency.

Singapore tax treaties

A tax treaty between two nations is an agreement that outlines how revenue earned will be taxed by the authorities of each country when a corporation does business in both countries. The primary benefit and goal of an income tax treaty is to assist businesses in avoiding double taxes on their earnings.

Singapore has tax treaties with over 80 nations, and the list is growing. The treaties reflect Singapore’s ongoing efforts to assist businesses in avoiding double taxation and to encourage and facilitate cross-border trade and investment opportunities.

Singapore has gone a step further, granting unilateral tax incentives to Singapore firms as of YA2009. According to the new policy, all Singapore enterprises that receive income from countries that do not have a double tax treaty with Singapore will be able to claim a tax credit on their foreign-sourced income from those countries.

Net income vs taxable income

Gains or profits from any trade or business revenue from investment such as dividends, interest and rental royalties, premiums, and any other earnings from property other gains of an income nature are all examples of a company’s income.

According to Singapore’s Income Tax Act, corporate tax is levied on income that A) accrues in or is generated from Singapore; or B) is received in Singapore from outside Singapore.

Part A is the income derived in Singapore. Part B is money earned outside of Singapore and received in Singapore. However, there are certain eligible exemptions known as Exemptions On Foreign Sourced Income for Part B.

The net profit/loss of a corporation does not provide an accurate picture of taxable income. For example, certain of your company’s expenses may not be deductible for tax purposes, or part of the money received may not be taxable or may be taxed separately as non-trade source income.
Certain corporate earnings may be exempt from taxation under the Singapore Income Tax Act. Exempt revenue for specific businesses such as shipping income produced by a shipping firm, foreign-sourced dividends, branch profits, and service income received by a resident company that meets the qualifying circumstances, exemptions on qualified foreign sourced income, and so on are examples.

Tax treatment of losses

In general, a corporation in Singapore can deduct permitted expenses from its income for tax purposes. The loss can be carried forward indefinitely (subject to certain restrictions), but it must be subtracted in the first eligible year where statutory income exists. The loss is deducted on a “proceeding year” basis. It is vital to remember that the losses can only be used if there is no significant change in the shareholding and major activity, as applicable.

Singapore has enacted a withholding tax law (on certain categories of income) to secure the collection of taxes owed by non-residents on income earned in Singapore. The tax withholding does not apply to organizations or people based in Singapore. When a payment of a specific sort is made to a non-resident company or individual, the law requires that a portion of the payment be withheld and remitted to Income Tax Authorities. The amount withheld is referred to as the withholding tax.
More information on withholding taxes can be found in the Singapore withholding tax guide.