Singapore Tax Paradise

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Singapore taxes are much lower than most other developed nations and over the years, it has continued to slide down further.

Rikvin give the low down on tax in Singapore.

Singapore has a reputation for attractive tax rates, positive and encouraging business policies. Singapore taxes are much lower than most other developed nations and over the years, it has continued to slide down further. Singapore practice territorial and single-tier tax system. The body responsible for administering, assessing and collecting Singapore tax is the Inland Revenue Authority of Singapore (IRAS). A large number of foreign companies and business professional are attracted to do business in Singapore owing to its low taxes and impressive world-class infrastructure.

Tax Residency of Companies:

In Singapore, the tax residence status of a company depends on where the control and management of its business is exercised.  A company is considered   tax resident in Singapore if the control and management of its business is exercised from Singapore.

A Singapore branch of a foreign company is generally not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same. However, there are some benefits that a resident company enjoys which a   non-resident would not.

These are:

Benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

Tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.

Tax exemption scheme for new start-up companies.

Singapore resident companies are also eligible for partial tax exemptions in the form of lower effective tax rates capped at 8.5% on the first S$300K of its chargeable profits per year of assessment.

Singapore tax exemptions are allowed on foreign sourced profits and dividends that are remitted to Singapore if the headline tax of that country from where the income was sourced is a minimum of fifteen percent and the foreign income had been subjected to tax in the foreign country from which they were received. Irrespective of the headline tax rates of the foreign country, these foreign incomes will be fully exempt from Singapore taxes if not repatriated or remitted directly or indirectly to Singapore.

A resident company enjoys tax benefits bestowed under the Avoidance of Double Taxation Agreements. An Avoidance of Double Taxation Agreement between Singapore and another country prevents double taxation of income earned in one country by a resident of the other country. It clarifies the taxing rights between Singapore and her treaty partner on different types of income arising from cross-border economic activities between the two countries. The agreements also provide for reduction or exemption of tax on certain types of income.

A non-resident company does not get to enjoy these Singapore tax benefits. Singapore Companies are taxed at a flat rate of 17% on income originating in Singapore.  However, the income is not liable to Singapore income tax if received outside Singapore.

Tax Exempt Dividends:

Singapore taxation follows the single tier tax system in which the profits earned by the Singapore business are taxed only one time. Therefore a shareholder of the Singapore Company will not have to pay any tax on the dividends he/she receives.

Capital gains or losses are not taxable or deductible in Singapore. There is allowance for full tax exemption on the first hundred thousand dollars for the first three years of assessment for a new company incorporated in Singapore provided the company is a tax resident of Singapore.

In Singapore the statutory income of year of assessment is based on the assessable income of the preceding year (i.e. accounting year for companies / calendar year for individuals). There are various tax incentives for different industries. The granting of tax incentives is mainly administered by the Economic Development Board (EDB).

Where a tax incentive is granted the company will enjoy the tax incentive for the period granted and its qualifying income will either be exempt from tax or taxed at a lower rate than the corporate tax rate which is currently at 17%.

Goods & Services Tax (GST)

Goods and Services Tax (GST) is a tax on the supply of goods and services made in Singapore by a taxable person in the course or furtherance of any business carried on by him and on the importation of goods into Singapore. Every Singapore business must register for GST if their annual taxable turnover is more than S$1 million or currently making taxable supplies and the annual taxable turnover is expected to be more than S$1 million.

Taxable supplies cover both goods as well as services supplied in Singapore, goods supplied abroad from Singapore and any International services provided from Singapore. A Singapore business is expected to register for GST within thirty days from the time it is deemed liable.

After registration, businesses must charge and account for GST at the prevailing rate.  This is known as output tax.  GST registered businesses can also claim the GST incurred on their goods and services purchased assuming certain conditions are met.  This is known as input tax. GST is also levied on the import of goods from overseas which also claimed as input tax.  Singapore Customs is responsible for collecting the import GST.

Current rate of GST is 7%.