Brief Introduction to Singapore Corporate Tax Regime

1. General Overview

Singapore corporate tax rate is one of the lowest in the Asia Pacific Region. With effect from Year of Assessment 2010 (Basic period ending 2009), the Singapore corporate tax rate will be 17% (prior to YA2010, it was 18%).

Singapore tax system is territorial in nature. I.e. Income tax is levied on the net income of companies from sources within Singapore and on foreign source income if remitted into Singapore. Non-resident Singapore companies and businesses are taxed on the same basis.

When deriving chargeable income, expenses incurred wholly and exclusively for the generation of the income are deductible against the incomes. Generally, an expense will not be deductible if it is:

• prohibited under the Income Tax Act;
• capital in nature; or
• a contingent liability.

There is no capital gain tax in Singapore.

With effect from 2002, Singapore has implemented a one-tier corporate tax system. Under this system, the income tax payable on the normal chargeable income of a company is a final tax and shareholders will not be taxed on such dividend income.

Singapore does not levy a withholding tax on dividends.

Interest, royalties or rental of equipment payments to non-residents are subject to a 15% withholding tax.

 

2. Corporate Tax Rates – Tax Filing from Year of Assessment 2010 Onwards

In January 2009, Singapore government introduced further tax cuts and benefits that can be utilized when filing taxes from YA2010 and beyond. The corporate tax rate for all new and existing companies with tax filing from YA2010 onwards year has been reduced to 17% with the following additional tax exemptions and incentives.

• Full Tax Exemption

Full corporate tax exemption will be granted on normal chargeable income of a qualifying company up to $100,000, for each of its first three consecutive tax filing years. In addition, another 50% tax exemption will be given to the next S$200,000 of chargeable income.

To qualify for this full corporate tax exemption for a relevant year under the scheme, a Singapore company must:

• be a company incorporated in Singapore
• be a tax resident in Singapore for that year
• have no more than 20 shareholders throughout the basis period relating to that year;
• have all shareholders who are individuals throughout the basis period relating to that year

Thus, the effective tax rate could be summarized as follows:

Chargeable income	Effective tax rate
1st S$100,000	nil
Next S$200,000	8.5%
Amount excess S$300,000	17%

For companies that do not qualified for full tax exemption, they will be tax based on the following partial corporate tax exemption.

• Partial Tax Exemption

Partial exemption on up to $300,000 of a company’s chargeable income (other than Singapore dividends) that is subject to tax at the normal corporate tax rate is given as follows:

• up to the first $10,000, 75% of the income shall be exempt from tax;
• up to the next $290,000, 50% of the income shall be exempt from tax.

Thus, the effective tax rate after the first three years (and company that does not qualify for Full Tax Exemption) could be summarized as follows:

Chargeable income	Effective tax rate
1st S$10,000	4.5%
Next S$290,000	8.5%
Amount excess S$300,000	17%

 

3. Corporate Tax Filing Due Date

 A newly incorporated Singapore company that has income accrued in or derived from Singapore or received in Singapore from outside Singapore is required to declare its income by completing an Income Tax Form for companies, known as Form C, each year. The company has to submit its completed Form C with the accounts, tax computation and supporting documents by 31st July each year.

• First Time Filing:

The first set of Form C that a newly incorporated company has to submit to IRAS depends on the financial-year-end of the company.

Example:

 If a company has commenced business upon its incorporation, the first Form C that the company need to submit is as follows:

 Date of Incorporation 2009 2009

1st Financial Year End Any date in year 2009

(For e.g. 31/12/2009) Any date in year 2010

(For e.g. 31/03/2010)

First Form C To be filed by 31/07/2010 To be filed by 31/07/2011

• Filing Subsequently:

Subsequently, the company has to submit its completed Form C with the accounts, tax computation and supporting documents by 31st July each year. It is not necessary to request for the Income Tax Form (Form C) every year. The company will receive Form C in March each year, after the first year in which it had received its first Form C.

 

4. Tax Exemptions on Foreign-Sourced Income Remitted into Singapore

 With effect from 1 June 2003, A Singapore-resident company can now enjoy tax exemption from its foreign-sourced dividends, foreign branch profits, and foreign-sourced service income that is remitted into Singapore. Prior to the change, the Singapore tax position was all income earned or received by a Singapore tax resident were subject to Singapore income tax.

To qualify the tax exemption of foreign source income

” The highest corporate tax rate (Headline tax rate) of the foreign country from which income is received from is at least 15% in the year the income is received; and

” The foreign income had been subjected to tax in the foreign country from which they were received

Definition of foreign income:

A dividend is considered foreign-sourced if it is paid by a company that is not tax resident in Singapore. This treatment applies even though the dividend received may constitute the income of a trade or business carried on in Singapore by a resident of Singapore. In addition, there is no shareholding requirement to be met in order to enjoy the tax exemption on the foreign-soured dividend.

A foreign branch refers to a business operation of a company registered as a branch (i.e. not a foreign incorporated company) in a foreign jurisdiction. Profit of a foreign branch refer to profit arising from a trade or business carried on by the foreign branch. It does not cover non-trade or non-business income (such as interest income or royalty income) of the foreign branch.

Service income (as distinguished from employment income) refers to professional, technical, consultancy or other services provided by a person in the course of its trade, profession or business. Service income is considered to be foreign-sourced if the service is provided through a fixed place of operation in a foreign country.

 

5. Tax Treaties

 Singapore has tax treaties for the avoidance of double taxation with more than 40 countries including Australia, Belgium, Canada, France, Germany, India, Indonesia, Israel, Italy, Japan, Malaysia, Mauritius, the Netherlands, New Zealand, People’s Republic of China, Philippines, Thailand, Switzerland and the United Kingdom.

 

6. Advantages of Using Singapore as Holding Companies for Dividends and Capital Gains

 As mentioned above, the Singapore tax system is territorial and foreign source income is taxed if it is remitted into Singapore. (Please refer to section 2.5 above, where some foreign sourced incomes are exempted from Singapore tax when some criteria are met). Foreign source income which is retained outside Singapore is not taxed in Singapore.

Beside the exemption provided on foreign sourced income mentioned under Section 2.5 above, Singapore is attractive as a holding company as it gives tax credit for foreign tax paid. I.e. although dividends received in Singapore by resident companies are taxable (if the two criteria under section 2.5 not met) tax credit is allowed for foreign tax paid. The tax credits allowed may include the foreign tax paid on the underlying corporate profits out of which the foreign source dividend has been paid. As such when foreign tax credits in aggregate exceed 20% (and 18% for YA 2008 onward), there is no Singapore tax payable on the dividend.

These exemptions make Werrona an attractive entity for holding foreign investments. If the foreign source income has borne tax at a rate of 18% or more, Werrona does not pay any Singapore tax on that income and may distribute dividends out of such income to its shareholders on a tax-exempt basis.

As Singapore does not tax capital gains further benefits may arise to Werrona upon the disposal of its investment in the foreign company.

 

7. Taxation for Non-Resident Companies

 A company is resident in Singapore if the central management and control of its business is exercised in Singapore. Given that such management and control is normally vested with its Board of Directors, a company is generally treated as being resident in the country where its Board meets.

It is generally beneficial to hold the board of directors’ meeting in Singapore as resident tax rates are generally lower than those of non-resident. In addition, non-resident Singapore companies are not entitled to the benefits of double tax treaties.

 

8. Other Related Information

 Annual accounts must be prepared and submitted to the Singapore Inland Revenue Authority (IRAS).

If corporate turnover is less than S$5 million, the Singapore Company is not required to file audited returns, if all the shareholders of the company are individuals.