Source: IRAS
Singapore Companies are taxed on the income earned in the preceding year. This means that an income that is earned in the financial year of 2017 will be taxed in 2018. 2018 is the ‘Years of Assessment’ or YA.
To assess the amount of tax, IRAS looks at the income, expenses, etc. during the financial year, and this financial year is referred to as the ‘basis period.’ The basis period is generally a 12 month preceding the YA.
An illustration below shows how we can determine on the Years of Assessment based on different financial year end and basis period.
Single-Tier Corporate Taxation System
Based on Budget 2002, Singapore has introduced a single-tier corporate income tax system. Under this system, profits are taxed at the corporate level. Tax paid by the company is a final tax while all dividends paid by a company to its shareholders are exempted from further taxation. There is no tax
Corporate Tax Rate
With effect from YA2010, a company is taxed at a flat rate of 17% on its chargeable income regardless of whether it is a foreign or local company
Effective Corporate Tax Rate
Singapore has a low effective corporate tax rate of 8.5% for the profits below SGD300,000 due to the corporate tax schemes and incentives provided by the government. This initiative is to encourage small and medium-sized businesses to take part in the economy.
Corporate Tax Schemes and Incentives
From YA2010 onwards, Singapore has provided an ease for entrepreneurs and smaller companies to set up and play a part in the Singapore economy by introducing corporate tax schemes and incentives.
Companies can enjoy tax schemes and incentives in Singapore if it meets the following conditions:
- The companies must be incorporated in Singapore and must be tax residents in Singapore
- Each company has no more than 20 shareholders with at least one individual shareholders holding 10% of the shares
Effective from YA2010 to YA2019
From YA2010 to YA2019, Singapore has introduced a full tax exemption scheme for newly start-up companies for the first 3 YAs, capped at SGD300,000 of chargeable income. For the first SGD100,000 of chargeable income for each of the first 3 financial years, it is fully exempted from tax. For the next SGD200,000, there will be a 50% tax exemption.
The table below shows how the full tax exemption scheme works for a Singapore company with a SGD2,000,000 chargeable income on the 2nd financial year:
The table shows that the maximum amount of exemption that company can receive is SGD200,000 since the maximum amount of chargeable income allowable for exemption is SGD300,000.
What happens to the corporate tax rate after the full tax exemption is fully utilized?
Partial tax exemption applies, with a maximum amount of chargeable income allowable for exemption capped at SGD300,000:
Changes in corporate income tax rate effective from YA2020 onwards
From YA2020 onwards, Singapore has revised its tax rates for newly start-up companies and the existing companies in general.
The full tax exemption for newly start-up companies is not applicable from YA2020 onwards. If your company’s first 3 YAs fall under the new scheme, the revised tax exemption scheme applies with a cap of SGD200,000.
Here is the revised tax exemption scheme for newly start-up companies (applicable where any of its first 3 YAs falls in or after YA2020)
For existing companies, here is the revised tax exemption scheme, capped at SGD200,000 of chargeable income:
Corporate Income Tax (CIT) Rebate
Singapore has also introduced the Corporate Income Tax (CIT) Rebate to help reduce your tax bills. The amount of rebate has changed over the YAs, and here is the overview:
Tax Residency Status of Company
In Singapore, the tax residency of the company is determined by where the business is controlled and managed. A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore, and “where” the control of management is exercised is a question of fact.
What constitutes as control and management?
It can be management decisions or making decisions on strategic matters (e.g. company policy and strategy).
A key factor to determine where the control and management takes place is to observe on the location where the company holds its Board of Directors meetings, where strategic decisions are made.
Do note that the place of incorporation of a company does not necessarily indicate that the company is a tax-resident.
While tax resident and non-tax resident companies are generally taxed in the same manner, tax-resident companies do enjoy certain benefits, and some of these relate to income from foreign sources.
Certificate of Residence (COR)
Singapore tax residents that derive income from other countries may apply for a Certificate of Residence (COR), which is a letter certifying that the company is a tax resident in Singapore. Tax residence require this certificate to claim benefits under Double Taxation Agreements (DTAs) Singapore has concluded with other jurisdictions.
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