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Tax in Singapore | Overview Of Singapore Taxation
Investors come to Singapore for many different reasons. There’s the fact that setting up and operating a business in Singapore is fairly easy. And another vital reason why entrepreneurs are driven to run a business here is because of the advantageous tax in Singapore.
The International Revenue Authority of Singapore (IRAS) governs taxation in Singapore. When businesses earn or remit income in Singapore, they are required to compute for the tax corresponding to a portion of that income. They file and pay such tax with IRAS within a prescribed period, otherwise, they will be charged a penalty and interest for late filing.
Singapore’s taxation is very attractive with its low corporate and personal tax rates, extensive tax treaties, and tax relief measures. The country is also considered a tax haven because it offers tax benefits to offshore non-resident enterprises. Moreover, the state entices foreign investment by providing tax breaks to qualified foreign capital invested in the country.
Let’s dive deeper into Singapore’s taxation and see how each type of tax works and how it benefits the taxpayers. Here is an overview of the most common forms of tax that foreign investors have to consider when doing business in Singapore.
Singapore has a one-tier corporate tax system so stakeholders need not worry about double taxation. The corporate tax rate is fixed at 17%. The taxable income is computed by adding the company’s total taxable revenues, less total allowable expenses, and other allowances.
Companies in Singapore benefit from the various tax incentives afforded to them by the state. For example, starting 2020, newly incorporated companies are exempted from taxation for three consecutive years, provided they fall under the specific qualifications. Moreover, the taxation of non-resident companies is generally similar to that of a resident company. Therefore, if a company qualifies as a tax resident in Singapore, it can also avail of the different tax incentives and exemptions available to other companies in Singapore.
Estimated Chargeable Income (ECI) Filing
ECI is an estimate of your company’s taxable profits (after deducting tax-allowable expenses) for a Year of Assessment (YA). In general, your Singapore company has to file ECI within 3 months from the end of your financial year.
New Start-up Company Tax Exemption Scheme
From YA 2020 onwards, the tax exemption for new start-up companies for the first 3 years of assessment (“YA”) are as follows
- 75% tax exemption on the first S$100,000 of chargeable income
- 50% on the next S$100,000 of chargeable income
All new start-up companies are eligible for the tax exemption scheme, except:
- Companies whose principal activity are that of investment holding
- Companies that undertake property development for sale, investment, or both
The new start-up company must also:
- Be incorporated in Singapore
- Be a tax resident of Singapore for that YA
- Have its total share capital beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:
- All the shareholders are individuals; or
- At least 1 shareholder is an individual holding at least 10% of the issued ordinary shares of the company
Capital Gains Tax in Singapore
In Singapore, capital gains are not subjected to tax. For example, if a trading company sells its office property, the company does not have to pay tax on the capital gains generated from the sale.
Tax Exempted Dividend
Singapore Resident Companies can issue tax-free dividends, i.e. shareholders will not be taxed on these dividend income.
Companies or individuals may either source their income from within the country, outside or both. When it comes to foreign-sourced income, Singapore adopts the territorial basis of taxation. This means that income derived from abroad is taxable when remitted and received in Singapore.
Moreover, it is important to note that the remitted foreign-sourced income is only taxable when it belongs to a resident in Singapore. This means that the foreign income of nonresident individuals and foreign corporations can remit their income in Singapore without taxes. Therefore, they do not have to worry about taxation when using Singapore’s banking and fund management facilities.
For more information, can see Singapore Taxation on Foreign-Sourced Income
Goods and Services Tax (GST)
Goods and services tax is also known as value-added tax (VAT) in other countries. This is the broad-based consumption tax of various products and services in Singapore. It also encompasses the tax levied on the importation of goods and services in Singapore. The current GST rate is 7% (There will be increase in the GST rate from 7% to 8% from 1 January 2023 and subsequently to 9% from 1 January 2024) for every sale of taxable goods and the provision of taxable services.
The threshold for GST is $1 million. This means that when a company’s taxable turnover exceeds $1 million, it needs to be registered for GST. If the company does not reach this threshold, it is not required to pay for GST. However, company owners may still opt to voluntarily register as a GST taxpayer, if they think it prudent to do so.
Moreover, GST may be categorized into standard-rated, zero-rated, and exempt. Standard-rated supplies refer to the general list of goods and services which are subject to the 7% GST rate. The zero-rated supplies cover the exportation of products and the provision of international services, which are taxed at 0% GST. Exempt items include most financial services, sale or lease of residential properties, and importation of investment precious metals, which are not subject to GST.
For more information, please see Overview of Goods and Services Tax (GST) in Singapore
Personal tax is imposed on individuals earning an income. The personal tax in Singapore is one of the lowest in the world, starting at 0% and maxed at 22% for income over S$320,000. An individual who earns less than S$ 22,0000 is not required to pay the tax. It is also good to note that individuals working abroad are exempted from personal taxes. Additionally, no capital gain or inheritance tax is imposed in Singapore.
Tax rules may vary for each person depending on tax residency. Individuals considered as tax residents are subject to the graduated tax table in their income earned. These are those individuals who are Singaporean, a permanent resident of Singapore, or a foreigner who has stayed or worked here for at least 183 days. Meanwhile, Singapore nonresidents are those who stayed in Singapore for less than 183 days. These individuals are exempt from taxes on their employment income unless they are a director of a company, public entertainer, or professional.
Withholding tax is a tax deduction at the source. Generally, it is charged to a non-resident company or person who derives its income from providing services or carrying out works in Singapore. Taxation law requires that these non-resident entities withhold a certain percentage of the payment they receive from a Singapore company or individual. The amount withheld is then reported and paid to IRAS.
Withholding tax is levied only on income derived within Singapore. Only specific types of payments to non-residents for work or services done in Singapore. These payments include interest, commission, or fee on any loan or indebtedness. Royalty, management fees, and rent are also subject to withholding tax.
Stamp duty is an indirect tax imposed on documents relating to the transfer of immovable properties and shares. This tax is generally borne and paid by the buyer of such properties. It is computed based on prescribed rates applied to the market value of the property or consideration paid, whichever is higher.
Stamp duty on the share transfers is computed at 0.2% of the purchase price or the net asset value of the shares. Remember, that this stamp duty is only for the transfer of shares; thus, there is no stamp duty on the issuance or sale of shares listed on the stock exchange. Moreover, stamp duty on the transfer of immovable properties, whether residential or commercial runs from 1% to 4% on the purchase price or market value of the property. In addition to that, certain categories of residential property buyers are required to pay for an additional buyer’s stamp duty.
Convenient Business Dealings in Singapore
Singapore endeavors to make doing business easier and more attractive for investors. It is for this reason why the tax in Singapore is much lower, with lots of incentives and exemption clauses, compared to the taxation system of other countries. With Singapore’s tax system, investors get bigger tax savings and better business opportunities.
Do you want to learn more about Singapore? Contact 3E Accounting Singapore today to consult with experts on your tax issues or concerns. Our highly experienced professionals can advise you on matters from how to file income tax returns to settling disputes on overpayment of taxes. Get in touch with us and relieve all your worries.