Singapore Corporate Tax Rate, Exemptions, Filing Requirements – Complete Guide
Singapore is one of the leading destinations for entrepreneurs. The country provides numerous incentives and benefits for new start-up companies, both local and foreign, to help business owners set up profitable ventures.
Some benefits include corporate-friendly policies, excellent infrastructure, a thriving business landscape, strategic location, easily accessible capital, tax exemptions, etc. All these advantages comprise a conducive corporate climate for attracting global investment holding companies.
However, companies come pouring in due to one benefit that stands tall above the rest – Singapore corporate tax rate. The wealthiest island nation of all Asian countries has the best corporate tax rates in this part of the world.
This Singapore corporate tax rate guide will help you understand the corporate income tax rate, tax exemptions, filing requirements, and more.
Who pays the corporate income tax rate in Singapore?
The Singapore income tax act applies to all business organizations, regardless of their tax residency status. Every company operating in Singapore must pay corporate income tax on revenue generated in the country.
On the other hand, a foreign company can generate income over-shore and bring it into Singapore. However, that revenue falls under taxable income, and those companies must pay Singapore corporate tax.
Singapore’s territorial tax system applies unique criteria when qualifying taxable income. Under this system, all income generated on the territory of Singapore or remitted to the country from offshore sources is considered tax-payable.
- Profits and gains for any business niche or trade;
- Investment revenues such as rental property development income and interest;
- Profits, premiums, and royalties from properties;
- All gains viewed as revenue.
Current Singapore Corporate Income Tax Rates
Singapore keeps its current headline tax rate for companies at 17% flat and imposes this tax rate based on a company’s chargeable income. The estimated chargeable income differs between an organization’s deductible costs and taxable income.
Singapore will treat any ongoing, recurring, or remitted revenue earned from the country as taxable income. Deductible business expenses are costs spent by a business organization to generate revenue.
Tip: Business owners should know that the corporate income tax rate is usually higher than the applicable effective rate. That’s because the government offers numerous tax exemptions and incentives to new start-up companies and existing enterprises.
The Status of a Tax Resident in Singapore
Singapore companies have access to several advantages they can claim compared to non-tax resident enterprises. Understanding which business organizations can become Singapore tax residents is vital to claiming the many government-offered benefits.
Singapore resident companies are business organizations that operate in the country and whose management makes decisions in the nation. However, do not mistake the place of residence and incorporation for the eligibility requirement for receiving the tax-resident status.
A company can conduct business in Singapore and still not be a tax resident. If the Board of Directors resides outside Singapore, the business organization won’t qualify for receiving the tax resident status. That’s why a branch of a foreign company based in Singapore isn’t receiving the tax resident status.
The basis of tax computation for resident and foreign companies is virtually the same. However, Singapore tax-resident companies have the advantage of tapping into a few many perks:
- Access to Double Taxation Agreements (DTAs);
- Tax exemptions on foreign-sourced service income, foreign branch profits, and dividends;
- New start-up tax exemptions.
General Singapore Tax Incentives
A tax resident in Singapore has access to numerous tax incentives for incorporating their business operations in the nation. Here are the top five tax incentives according to the Year of Assessment (YA) 2020.
Partial Tax Exemption
Newly incorporated companies in Singapore have access to the partial tax exemption of 75% for the first S$100,000 of normal chargeable income. This start-up tax exemption applies to all tax-resident start-up companies.
Start-Up Tax Exemption Scheme
Under the Start-Up Tax Exemption Scheme, newly incorporated companies can claim a partial tax exemption of 50% on the subsequent S$100,000 taxable income for the first 3YAs.
Territorial Tax System
Singapore tax computation is subject to a territorial tax system. However, Singapore has signed a double taxation treaty with numerous nations, allowing companies to avoid double taxation of individual income derived from a country that accepted the treaty.
Foreign Company Income Tax Exemption Schemes
Foreign-sourced income is subject to tax exemption in Singapore if the tax has already been collected over the shore. However, if a company’s taxable income still falls under the tax act, the organization can be exempted from tax or availed of tax reduction in a foreign country.
A Single-Tier Corporate Income Tax System
Singapore abides by a single-tier corporate income tax system. In other words, the country imposes taxes only on taxable income. Shareholders can sign off any dividend as tax-free.
Foreign-Sourced Income Tax Exemptions
Foreign companies can request tax exemption for three types of income:
- Foreign-sourced income obtained from over shore business operations;
- Shareholder dividends paid from foreign-sourced income;
- Foreign-sourced service income.
Foreign-sourced income can be exempted from tax if it meets the following criteria:
- The foreign corporate income tax rate must not exceed 15% at the moment of entering Singapore;
- The foreign country has already taxed the income;
- The income must comply with the Singapore government’s tax exemption regulation to be tax-exempt.
The DEI Scheme
The Development and Expansion Incentive (DEI) is an additional tax incentive program that Singapore companies can use to lower their taxable income. DEI applies to business organizations scaling up or upgrading their production efforts in Singapore.
A company can also harness the power of DEI by cooperating with the leading global industries. The DEI scheme allows companies to receive the benefit of paying a lower tax income rate of 10% for five years or request tax exemptions for all generated income.
However, companies must ensure compliance with the following requirements to qualify for DEI:
- Business enterprises must employ the local workforce and ensure training, skills, expertise, and seniority for Singapore workers;
- Companies must incur business expenses for Singapore’s economy;
- Business organizations must add expertise, technology, and innovative skill sets to the country’s corporate landscape.
Productivity and Innovation Credit (PIC) Scheme
Companies can qualify for PIC and receive a 400% investment allowance or tax deduction by launching the following projects:
- Singapore workforce training;
- Obtaining certifications and permits for licensed intellectual property rights;
- Registering plant varieties, designs, trademarks, and patents;
- Corporate research and development activities;
- DesignSingapore Council-approved design projects.
Investment Allowance Qualifying Companies
Singapore offers a generous, beneficial corporate program that allows companies to tap into an investment allowance. The program requires business organizations to submit qualifying projects to receive tax credits on capital expenditures.
Eligible projects can earn a company up to 100% of capital expenditures. The program extends the investment allowance benefit for up to five years, although there are situations where the users can prolong it for eight years.
The program encompasses the following projects:
- Manufacturing and launching a brand new, innovative product/service;
- Contributing to the ever-increasing production volume of existing products or services;
- Research and development contributions;
- Development of innovative engineering and technical services;
- Energy efficiency enhancement solutions;
- Water consumption decrease programs;
- Construction-based operations;
- Tourism-boosting efforts;
- Aircraft maintenance, overhaul, and repair services.
Singapore Corporate Tax Basis Period
The tax basis period refers to the year-round time window before a YA. The IRAS considers the profit made in a company’s financial year end for tax computation. According to their taxation regulations, the basis period for any YA is the end of the year preceding the ongoing YA.
Corporate Tax Filing Requirements in Singapore
A company eligible for taxation must abide by the IRAS regulations to complete its corporate tax formalities. Corporate income tax in Singapore requires new companies to file two documents with the IRAS.
Estimated Chargeable or Tax-Payable Income
Estimated chargeable income (ECI) is an official document that outlines a corporation’s tax-payable income. All companies must file this mandatory document to qualify for a corporate income tax rebate.
Thankfully, business organizations can submit this document online. As of YA 2020, Singapore has shifted to an online document filing system.
Tip: Singapore government requires companies to submit ECI 3 months before their FYE. A company doesn’t need to file an ECI if its annual chargeable income is equal to or less than five million. Since that comes off as no chargeable income for YA, it’s not subject to taxation.
Form C and Form C-S
Form C is a document that allows companies to file their corporate tax return. Aside from the form, companies must also submit financial statements for tax computation. Companies with annual revenues below S$5 million can use a simplified form version called Form C-S.
Form C-S is only applicable under the following circumstances:
- A company chose Singapore as the place of incorporation;
- Chargeable income is subject to a flat 17% headline corporate tax rate;
- The company hasn’t claimed tax benefits under an income tax exemption scheme.
The Due Date for Singapore Corporate Income Tax Filing
Both tax resident and non-resident companies must submit their income tax documentation by December 15th. Those who miss this stipulated deadline will be subject to paying hefty fines ranging from S$1,000–S$10,000. The penalty fines also apply to the officers of the business organization.
Paying Corporate Tax in Singapore
IRAS will review and process the submitted tax documentation and generate a Notice of Assessment (NOA) by May 31st, 2023. NOA is a detailed document that outlines the current tax liabilities of a business organization.
All enterprises in Singapore must pay the IRAS-assessed taxes within a 30-day deadline upon receiving NOA.
Companies have several payment methods for paying taxes:
- Telegraphic transfer;
- Online banking.
Corporate Tax Penalties in Singapore
IRAS will charge penalty fines for three scenarios.
Inaccurate Tax Filing
A company will face penalty fines if it files false tax or inaccurate tax paperwork. IRAS can charge a company with the following:
- Up to S$5,000 fine;
- 200% of the undercharged tax;
- 3-year jail time.
Late Tax Payment
IRAS charges a 5% penalty fine for late corporate tax payments. The longer the delay, the more a company must pay. If a business organization continues to delay, IRAS will charge an additional 1% for every following month until the company pays off the debt.
IRAS can take enforcement or legal action against companies that fail to meet tax payment deadlines.
Companies that try to furnish inaccurate or incomplete information to evade tax liability, gain ineligible tax benefits, or obtain a return, will face legal charges.
Tax evasion is a serious criminal offence followed by consequences such as:
- Up to 400% of the undercharged tax penalty fine;
- Up to S$50,000 in fines;
- Up to 7 years of jail time.
We strongly recommend avoiding tax evasion due to the punishment severity. Companies can hire professional tax consulting services to help them file accurate tax documentation on schedule.
Business organizations that generate income from foreign sources can qualify for tax incentives to decrease the tax burden. Singapore has signed tax treaties with over 80 countries, including Asia, Europe, and the Americas.
One of the most significant treaties is the Avoidance of Double Taxation Agreements (DTAs or DTAAs). DTAs allow enterprises to eliminate or reduce foreign income taxes already charged in countries over the shore.
In some cases, companies may also qualify for additional tax funds. For example, a company that has paid foreign tax dues in compliance with the DTA provisions may qualify for a tax credit.
However, they must meet the following criteria:
- The paid tax amount must be lower than the DTA provisions;
- The Singapore tax must not exceed the tax-payable income.
Double Taxation Relief (DTR)
Double Taxation Relief is a benefit that applies to business organizations that have paid excess tax in foreign countries. In such situations, companies can claim the extra funds as a tax credit in Singapore.
Under DTR, enterprises can deduct foreign income taxes from their Singapore corporate taxes and take those funds back from IRAS as tax relief.
Key Singapore Corporate Tax Takeaways
- Singapore imposes taxes on profits generated from income, not revenue;
- Singapore applies a flat 17% corporate income tax rate on all company profits;
- An effective tax rate can vary depending on tax exemptions and incentives available to tax-resident enterprises;
- In many cases, an effective tax rate is lower than the official corporate tax rate;
- Singapore calculates corporate taxes based on a territorial tax system;
- Thanks to tax treaties, tax-resident and non-resident companies can avoid double taxation;
- Since Singapore has signed tax treaties with over 80 countries, companies can qualify for tax credits and investment allowances under those contracts;
- Singapore has an agreement with non-treaty jurisdictions that involves giving unilateral tax credits minus foreign tax on all income generated offshore;
- Singapore’s territorial tax system is single-tiered. It allows business organizations only to pay taxes on taxable income generated from profits;
- Dividends and other post-tax income distributions to company shareholders are not subject to taxation in Singapore;
- Singapore doesn’t apply capital gains tax;
- All companies investing in productivity-enhancing technologies, research & development, and innovative industrial endeavours have access to tax breaks and benefits in Singapore.
Singapore business organizations can use various incentives and benefits to reduce their tax burden and tap into a thriving business landscape to attract global investors. Since the country has the most beneficial business environment globally, businesses are mainly pouring in and setting up offices all over Singapore.
The tax exemptions and incentives imposed on capital gains and dividends should be enough to put Singapore on the map as the perfect destination for new start-up companies. As one of the most favourable tax jurisdictions in Asia, most companies will find Singapore’s low headline tax rate more than acceptable.
With so many benefits and incentives, it’s hard to find a reason not to relocate your business to Singapore. The country is among rare business benefactors that allow companies to avoid the burden of paying extra taxes on foreign-sourced income for registering and incorporating in Singapore.
Low corporate tax rates, numerous benefits, and a favourable corporate climate make Singapore the leading destination for countless companies. Although hiring tax professionals to calculate your corporate taxes isn’t mandatory, we recommend utilizing professional assistance to ensure full compliance with Singapore taxation laws.