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Overview Of Singapore Taxation
This tax guide is to provide you an Overview Of Singapore Taxation. All businesses need to pay income tax as long as their income was derived from or remitted into Singapore. There are other taxes you may need to pay (e.g. withholding, goods and services, property, stamp duty) depending on your business. The most common forms of taxes that a foreign investor needs to consider are described below.
Corporate Tax Information You Must Know
Business income is taxed at a flat corporate tax rate of 17 percent.
There are tax exemption schemes available for companies which help to lower the effective corporate tax rate at different tiers.
Tax Exemption Scheme for New Start-up Companies
Any newly incorporated company that meets the conditions (as stated below) will have the privilege to enjoy the tax exemption for new start-up companies for each of the first three years of tax assessment. The qualifying conditions are as follow:
- be incorporated in Singapore
- be tax resident in Singapore
- possesses not more than 20 shareholders with at least one of the shareholders being an individual shareholder holding at least 10% of ordinary shares.
The tax exemption is open to all new companies except these two types of companies:
- A company whose principal activity is that of investment holding; and
- A company which undertakes property development for sale, for investment, or for both investment and sale.
BEFORE YA 2020
Chargeable income Effective Tax Rate First $100,000 0% Next $200,000 8.5% Thereafter 17%
YA 2020 ONWARDS
Chargeable income Effective Tax Rate First $100,000 4.25 % Next $100,000 8.5% Thereafter 17%
Partial Tax Exemption for Companies
Companies in their 4th tax assessment year onwards and all other companies will have the privilege to enjoy partial tax exemption indefinitely.
BEFORE YA 2020
Chargeable income Effective Tax Rate First $10,000 4.25% Next $290,000 8.5% Thereafter 17%
YA 2020 ONWARDS
Chargeable income Effective Tax Rate First $10,000 4.25% Next $190,000 8.5% Thereafter 17%
You may refer to tax exemption scheme for new start-up companies for more information.
Capital gains are not subject to tax in Singapore. For instance, if a trading company sells office property, the profit on the sale is not subject to tax.
Singapore-resident companies can issue exempt dividends, i.e. shareholders are not taxed on such dividend income.
Double taxation agreements are agreements signed between countries. They help Singapore-resident companies avoid paying taxes twice on the same income.
You have to pay your taxes within one month of receiving a Notice of Assessment. For taxes arising from estimated chargeable income (ECI), you can either pay the taxes at once or by monthly installments using GIRO. You should pay your taxes promptly or you may have to pay penalty fees. If you disagree with the tax assessment, you can write to IRAS and state the reasons why you feel the tax assessment is incorrect. Please note that you must still pay your taxes within one month of the Notice of Assessment even if you object to the assessment.
Foreign-sourced dividends, foreign branch profits and foreign-sourced service income remitted into Singapore on or after 1 June 2003 by a Singapore resident company will be tax exempt if:
- the headline tax rate of the foreign country from which income is received is at least 15 percent in the year the income is received, and
- the foreign income had been subjected to tax in the foreign country from which it was received.
- IRAS is satisfied that the tax exemption would be beneficial to the person resident in Singapore. (In certain cases, the person will be more beneficial to claim Foreign Tax Credit compared to claim Full Tax Exemption on the foreign source income)
Generally, income derived by a company is only taxable in Singapore if it is accrued in or derived from Singapore (i.e. sourced in Singapore) or is income received in Singapore from outside Singapore. Whether or not a companys trading/service income is considered Singapore-sourced is a question of fact. Where it is confirmed that the trading/service income is foreign-sourced, it would not be subject to tax in Singapore if it is not remitted to Singapore.
A foreign-sourced income is considered to be received in Singapore when the income is:
a. remitted to, transmitted or brought into Singapore; or
b. applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; or
c. applied to purchase any movable property, which is brought into Singapore.
You can refer to IRAS website for more information on what is taxable income:
What is Taxable Income?
You can refer to IRAS tax guide book at IRAS e-Tax Guide for more information on what is foreign sourced income
The following criteria will be assessed by IRAS to determine whether income is foreign sourced or not:-
- in which country the company resides
- nature and principal activities of the company
- detailed description of the companys operations and where they are carried out
- location of the companys suppliers and customers
- where the control and management of the company is located
- whether or not the company is trading through an agent(s) in Singapore — if so, provide details of the arrangement between the company and the agent(s)
- reason why the company is incorporated in Singapore if it is not carrying on business in Singapore
- country in which the company will be subject to tax
- any staff in Singapore
- any bank accounts in Singapore
As a conclusion, your Company’s foreign source income will not be subjected to Company income tax if it is not remitted into Singapore.
You can consider to utilise the foreign source income funding for other purposes like
1) Loan to the foreign related company
2) Settle overseas supplier
3) Buying of overseas property
For foreign income received by an individual in Singapore, it was tax exempted always.
Goods and Services Tax (GST) Information You Must Know
GST is a tax on goods and services purchased or consumed locally. It is compulsory for businesses to come forward to register for GST when their turnover exceeds $1mil per year. Businesses that do not exceed $1mil in turnover may register for GST voluntarily.Here is a quick overview of GST and how it affects your business. It is not meant to be an in-depth guide to GST:
- GST is a tax charged on the goods and services produced in Singapore and on the importation of goods into Singapore. The current rate is 7 percent.
- Your business must be registered to collect GST if your annual turnover exceeds or is likely to exceed S$1 million from the sale of taxable goods and services.
- You can apply for exemption from GST registration if most of your goods or services are exported or supplied internationally (“zero-rated supplies”).
Personal TaxSole-proprietors are considered “self-employed”. The business income is treated as part of your total personal income and taxed at personal income tax rates.As your business income forms part of your personal income, the two are calculated together when you file your tax returns.
Your business income is reported separately (Form B or B1) and added to all your other personal income. The total is then subject to personal income taxes.Taxes are charged progressively (0 percent – 20 percent) on your chargeable income. Chargeable income is your business/trade income plus any other personal income, minus all deductions, reliefs and rebates. Please refer to Income tax rates?for details about the tax rate.For non-resident individuals, your employment income is taxed at 15 percent or the resident rate, whichever gives rise to a higher tax amount. Additionally, director’s fees, consultation fees and all other income that you received will be taxed at 20 percent from YA 2005 forward.From YA 2017, the tax rates for non-resident individuals (except certain reduced final withholding tax rates) will be raised to 22% from YA 2017. This is to maintain parity between the tax rates of non-resident individuals and the top marginal tax rate of resident individuals. Click here for more information.
Withholding tax is a tax on payments made to non-residents including employees, business partners and overseas agents. Here is a quick overview of withholding tax and how it affects your business:When you make payments of a specified nature to a non-resident, you must withhold a certain percentage of that payment as “withholding tax“.
For management fees, technical and other service fees paid to a non-resident company, the withholding tax rate is the same as the corporate tax rate. The current corporate tax rate is 17 percent. For payments made to non-resident individuals, tax is to be withheld at 20 percent of the gross payment.
For time charter fees, voyage charter fees and bareboat charter fees, the withholding tax rate is 1 percent to 3 percent.
For other types of payments, the withholding tax rate is 10 percent or 15 percent.
Where a double tax agreement is applicable, the rates specified in the agreements of the respective countries apply.
For director fee paid to the Non-resident Board Director, the Company will need to withhold the tax of 20%.
However, if you are the Company Executive director and receive monthly salary, the salary is not subject to withholding tax. (Subject to personal income tax at year end)
For tax purposes, an executive director is defined as:
– holds the job title of director e.g. marketing director or managing director and
– is involved in the daily running of the business operations
For more information about Withholding Tax, please refer to IRAS web site at Withholding tax (for payment to non-residents or non-resident companies)
Stamp duty is a tax on documents relating to immovable properties, stocks or shares.Once the document is signed and dated, stamp duty needs to be paid:
- within 14 days after the date of the document if the document is signed in Singapore, or
- within 30 days after the date of its receipt in Singapore if the document is signed overseas.
For more information about Stamp Duty, please refer to IRAS web site at Stamp duty