You’ve probably heard this a lot: Singapore has one of the most attractive corporate tax rates in the world. Being a pro-business nation, Singapore’s taxation system is structured to encourage local and foreign entrepreneurs to start their business here and attract foreign investments into the eco-system. At the same time, the Singapore government has also implemented various attractive tax incentives and assistance schemes to aid start-ups and SMEs.
In this article, we’ll introduce a general guide to the Singapore corporate taxation system.
What Is The Corporation Tax In Singapore?
Singapore has a one-tier corporate tax system. This means that the corporate income tax rate is pegged a flat rate of 17%, regardless of whether a company is a local or foreign entity.
How About Sole Proprietorships & Partnerships’ Tax Rate?
Profits earned from Sole Proprietorships and Partnerships are taxed at the proprietors or partners’ personal income tax. Where the sole proprietor or partner is a company, its income from the Sole Proprietorship or share of income from the Partnership will be taxed at the corporate tax rate.
Are There Tax Exemption Schemes & Rebates For Singapore Companies?
As mentioned above, there are various tax incentives, exemption schemes and rebates in Singapore, which help start-ups and SMEs lower their effective tax payable considerably.
1. Tax Exemption Scheme for New Start-up Companies
Under the scheme, qualifying new companies are given the following tax exemption:
|Years of Assessment (YA)||Tax Exemption|
|2020 onwards (where any of the first 3 YAs falls in or after YA 2020)||75% exemption for the first $100,000 of normal chargeable income; andA further 50% exemption for the next $100,000 of normal chargeable income.|
|2010 to 2019 (where any of the first 3 YAs* falls in or before YA 2019)||Full exemption for the first $100,000 of normal chargeable income; andA further 50% exemption for the next $200,000 of normal chargeable income.|
To qualify, the start-up:
- Must be incorporated in Singapore;
- Is a tax resident in Singapore for that YA;
- Has no more than 20 shareholders throughout the basis period for that YA where:
- All of the shareholders are individuals “beneficially and directly” holding the shares in their own names; or
- At least one shareholder is an individual “beneficially and directly” holding at least 10% of the issued ordinary shares of the company.
The qualifying company can also enjoy partial tax exemption of 50% of the next SGD200,000 of its taxable income.
2. Partial Tax Exemption for all Companies
All companies, including companies limited by guarantee, can enjoy:
|Years of Assessment (YA)||Tax Exemption|
|2020 onwards||75% exemption for the first $10,000 of normal chargeable income; andA further 50% exemption for the next $190,000 of normal chargeable income.|
|2010 to 2019||75% tax exemption for the first $10,000 of normal chargeable income; andA further 50% exemption for the next $290,000 of normal chargeable income.|
3. Corporate Income Tax Rebate
The corporate income tax rebate is given to all companies to help them cope with rising business costs and is applicable from YA 2013 to YA 2020. They will receive a corporate income tax rebate of the following:
|Years of Assessment (YA)||Corporate Income Tax Rebate|
|2013 to 2015||30%, capped at $30,000 per YA|
|2016||50%, capped at $20,000 per YA|
|2017||50%, capped at $25,000 per YA|
|2018||40%, capped at $15,000 for YA|
|2019||20%, capped at $10,000 for YA 2019|
|2020||25%, capped at $15,000 for YA 2020|
The corporate income tax rebate is computed on the tax payable after deducting tax set-offs (e.g. foreign tax credit).
For more details on the corporate income tax rebate and how the corporate income tax rebate is computed, please refer to Corporate Tax Rates, Corporate Income Tax Rebates and Tax Exemption Schemes.
What Is The Basis Period And Year Of Assessment?
As a general rule, a company is taxed on the income earned in the preceding financial year. For example, income earned in the Financial Year (FY) 2020 will be taxed in 2021, which is known as the Year of Assessment (YA).
To evaluate the amount of tax payable by a business, the Inland Revenue Authority of Singapore (IRAS) looks at its income, expenses, etc. during the Financial Year (FY). This FY is known as the “basis period“. The basis period is generally 12 months right before the YA, and it doesn’t have to start on the 1 January of each year as it depends on your company’s FY End. Below are some examples of different FY Ends:
|Financial Year End||Basic Period||YA|
|31 Mar of each year||1 Apr 2019-31 Mar 2020||2021|
|30 Jun of each year||1 Jul 2019-30 Jun 2020||2021|
|31 Dec of each year||1 Jan 2019-31 Dec 2020||2021|
The above applies to new and existing companies.
How Do I Attribute Of Profits/Losses For New Companies?
If a company is new and has operated for more than 12 months before closing its first set of accounts, its profits or losses must be apportioned and attributed to two different YAs since the basis period cannot exceed 12 months. In such a case, the company should identify the income earned and expenses incurred for each of the two YAs, based on the actual dates the income earned and the expenses incurred. If this cannot be done, time apportionment basis can be applied (i.e. apportion based on the number of days in the corresponding YAs).
Final Note on Corporate Tax: There is no tax on capital gains in Singapore. Similarly, capital losses are not tax-deductible either. Also, all dividends paid by a company are exempt from tax in the hands of the shareholders. If you need to read up about how to do your annual corporate tax filing, please read our article All You Need to Know about Filing Annual Corporate Income Tax Returns.
Singapore Goods & Services Tax
Introduced in 1994, the Goods & Services Tax (GST) is a tax on goods and services produced in Singapore or imported into Singapore, and are purchased and consumed locally. If your business has an annual turnover that exceeds or is likely to exceed SGD1 million, it is required to register for GST.
Here are some basic facts about Singapore GST:
- The prevailing GST rate is 7% (although the government plans to increase this to 9%).
- Your company can register for GST voluntarily even if its annual turnover does not exceed SGD1 million.
- You can apply for exemption from GST registration if most of your goods or services are exported overseas (zero-rated supplies).
For detailed information about GST, please refer to our article Everything You Need to Know About Goods and Services Tax (GST).
Singapore Personal Income Tax
Singapore adopts a progressive system of personal income tax rates for resident taxpayers, ranging from zero to a maximum of 22%. How much one pays depends on one’s tax residency status. You are considered a tax resident if you are a:
- Singapore citizen or PR residing in Singapore except for temporary absences; or
- Foreigner who has stayed/worked in Singapore (excludes Director of a company) for 183 days or more in the year before the year-of-assessment.
The prevailing rates for a tax resident are as follows:
|Personal Income Tax in Singapore|
|Income||Tax Rate (from 2017 onwards)|
|Tax rate on first $20,000||0%|
|Tax rate on next $10,000||2%|
|Tax rate on next $10,000||3.5%|
|Tax rate on next $40,000||7%|
|Tax rate on next $40,000||11.5%|
|Tax rate on next $40,000||15%|
|Tax rate on next $40,000||18%|
|Tax rate on next $40,000||19%|
|Tax rate on next $40,000||19.5|
|Tax rate on next $40,000||20%|
|Tax rate on above $320,000||22%|
Capital gains, income earned overseas and dividends received from a Singapore company are not subject to personal tax in Singapore.
Other Types Of Taxes
Here’s a list of some other types of taxes in Singapore:
- Property Tax is a wealth tax imposed on property owners. A progressive property tax rate system applies, depending on the types of property and whether it is owner-occupied or rented out.
- Motor Vehicle Taxes are taxes, other than import duties, that are imposed on motor vehicles.
- Customs & Excise Duties are imposed on relatively few products, as Singapore is known to be a free port. Some of the products with customs & excise duties include tobacco, petroleum products and liquors.
- Betting Taxes are duties imposed on private lottery, betting and sweepstakes.
- Stamp Duties are imposed on commercial and legal documents concerning stocks and shares, and immovable property.
- Foreign Worker Levy is imposed on Singapore companies that hire foreign workers. Levy rates are regularly reviewed and adjusted as required.