Correcting the Common Corporate Tax Myths in Singapore
Even if Singapore is known for having a progressive tax regime with low tax rates and attractive incentives, there are still corporate tax myths in Singapore. These myths might be the reason why some investors and entrepreneurs avoid investing in Singapore. They also do not have access to the truth.
Nothing is worse than listening to a financial expert, especially when it comes to taxes. Do people still have a lot of unanswered questions like if capital gains have tax? Can unaudited accounts be filed? These are only some concerns that investors have when they want to invest in Singapore.
This post will talk about the most common myths that you might encounter. You will not believe them because you know the actual information.
Debunk these myths by reading the following information.
Myth 1: All Companies Must File Audited Accounts
A lot of entrepreneurs believe that businesses have to file their audited accounts at the Accounting and Corporate Regulatory Authority in Singapore (ACRA), but this is not true. Not all businesses in Singapore must undergo an audit procedure before filling their yearly account. Some of these companies are Private Exempt Companies (PECs) that do not have to file an audited account.
Myth 2: There is Capital Gains Tax
Just because capital gains tax exists in almost all countries, it does not mean that Singapore also has it. The truth is, Singapore does not have capital gains tax in all companies. This is one of the corporate tax myths that you should put in mind. Besides, this is including gains because of fixed assets or foreign exchange gains with capital transactions. Based on the Inland Revenue Authority of Singapore (IRAS), there are plenty of situations in which income can count towards capital gains and can receive the tax exemption.
Myth 3: There Are No Tax Exemption Schemes Caused by Low Singapore Tax Rates
Another common myth is that there is no tax exemption schemes provision in Singapore due to company tax rates being low and competitive. The truth is, Singapore has three kinds of schemes for tax exemption that companies will find beneficial. There is the full tax exemption for startup companies, only a partial tax exemption scheme for companies, and an exemption if the income came from abroad. The truth is, it can be difficult to find these types of exemption schemes in other jurisdictions.
Tax Exemption for Startups
Singapore’s way of helping local companies succeed started in 2005 when they introduced the scheme for startups, which exempts a part of their income from being taxed. Based on this scheme, companies that meet the qualifying criteria will receive a tax exemption.
- Companies that started in 2020 onwards will be given a 75% tax exemption on their first S$100,000 of taxable income and a 50% exemption on the next taxable income of S$10,000.
- Companies that opened in 2010 to 2019 have a 100% tax exemption on the first taxable income of S$100,000 and another 50% on the next S$200,000 taxable income.
In order to qualify, the company should be incorporated and a tax resident in Singapore. The company’s shareholders must not be more than 20.
- The shareholders directly and beneficially have the shares under their names or at least one of them holds at least 10% of the company’s issued ordinary shares.
- Companies that are not allowed to use this scheme include companies with principal activities that are in investment holding, and those that develop properties for investment, sale, or both.
Partial Tax Exemption Scheme (PTE)
All companies can qualify for PTE unless they already claimed an exemption for new startups. Under this scheme, companies may enjoy these exemptions:
- If the company starts in 2020 and onwards, they have a tax exemption of 75% on their first normal chargeable income of S$10,000 and another 50% on the next normal chargeable income of S$190,000.
- If the company started in 2010 to 2019, they have a 75% tax exemption on the first S$10,000 of chargeable income and another 50% on the next normal chargeable income of S$290,000.
Foreign-sourced Income Tax Exemption
Certain kinds of foreign-sourced income with tax exemption include foreign-sourced dividends, foreign-sourced service income, and foreign branch profits.
For a company to qualify for the tax exemption, the foreign-sourced income that is remitted to Singapore must meet these conditions:
- The foreign jurisdiction headline tax rate must be at least 15% when the foreign income was received in Singapore.
- The foreign jurisdiction taxed foreign income.
- The government of Singapore believes that the tax exemption will benefit the person who is a resident of Singapore.
Myth 4: Double Taxation
If you are doing a Singapore company incorporation, or any foreign country, there is always a fear of double taxation. This is one of the most common corporate tax myths. For instance, you will get taxed based on your income level, and then another tax is applied at a personal level. A lot of people believe that this is also true in Singapore, but it is not. That is a myth because of their Double Taxation Agreements (DTAs) and membership with more than 74 counties around the world. That is why Singapore’s threat of double taxation is a lot less, making it a successful platform for business startups.
Myth 5: It is Difficult to Contest a Notice of Assessment
If there are some points in the Notice of Assessment that you do not agree with, you can contest the assessment that the tax authorities conduct. It is quite simple to contest the Notice of Assessment: file a Notice of objection with one out of three methods. You can file the Notice of Objection when you complete a form online, sending an email to the authorities concerned or by using the e-Service portal of the tax authorities. It is crucial to submit a letter of objection within 30 days from the NOA date. It does not matter if the NOA date is before or after January 1st because you do not have to go through a lot to ask for a review.
Myth 6: You Must Pay Your Taxes in Advance
This is one of the corporate tax myths that normally causes confusion. The corporate tax in Singapore will always be assessed and then paid on the preceding year. It never changes. Precisely, taxes can only be paid after the end of a financial year. The basis of the first tax bill depends on the ECI declaration of the IRAS within three months when the fiscal year ends. IRAS issues a final tax bill after the company will file a yearly corporate tax return.
Myth 7: You Must Pay Your Tax All at Once
One of the reasons why Singapore appeals to many companies is because of the financial flexibility it can offer. Do you think you are required to pay your taxes all at once? That is not true. In Singapore, you may settle your corporate taxes by paying in instalments. All you need to do is fill out an application form. After that, you can sign up for GIRO and still have the option to pay your tax all at once.
Main Facts About Corporate Tax
- Singapore levies its taxes on the profit and not revenue. A Singapore company’s profit will have a 17% tax.
- Singapore follows its own territorial tax system. That means the income from treaty countries avoids double taxation through a foreign tax credit that is covered by those treaties. If the country is non-treaty, they have a unilateral credit to respect foreign tax on foreign-sourced income. Singapore has a tax treaty with more than 80 countries so that double taxation of income can be avoided.
- Singapore follows a single-tier system for their taxes. Companies will only pay taxes based on their profits. The post-tax profit distribution applied to shareholders does not have a fee.
- Singapore has generous incentives and significant tax breaks when they invest in new industries, R&D, and productivity-enhancing industries or technologies.
- Certain kinds of foreign-sourced income are not taxable in Singapore.
- Singapore has a progressive tax regime. Applied to corporate income which continues to attract entrepreneurs from anywhere in the world to incorporate their company in Singapore. The corporate tax rate is only up to 17% and the Singapore tax system has a couple of business-friendly benefits and incentives.
You must not believe everything you hear because corporate tax myths can discourage you from moving forward. It is best to get the actual information before taking any further steps. These myths are the reason why some business investors do not want to incorporate a company in Singapore, but now that you know the truth, you can be sure that Singapore is a good place to set up a business. You can contact 3E Accounting for tax assistance in your business. We are an excellent corporate tax service provider.