Doing Business in Singapore – Singapore Tax System
Singapore has one of the planet’s mildest tax systems, and for this reason, it is appreciated by overseas entrepreneurs pursuing more financial freedom and opportunities for growing business. Singapore has already become a tax haven for over 3 thousand international corporations lured by this country’ unparalleled governmental incentives and exceptionally high quality of life. The mild personal income tax that starts from 0%, low corporate and Good and Services Tax accompanied with tax reliefs and absence of such business frustrations as dividend and capital gain taxes outline a new reality of running business.
Numbers impress. Singaporeans are the world’s 3rd wealthiest nation (according to the GDP per capita), but at the same time, its revenue from taxes makes only 14.2% of its GDP. For comparison: in the US, it is 26.9% while in the UK it is 39%). Singapore’s taxes (both personal and corporate) are below Asia’s average despite the country has the best standards of living, doing business, security, and healthcare in Asia. Overseas corporations and entrepreneurs that consider Singapore as an ultimate destination for their regional businesses must know the pillars Singaporean taxation is based on.
Features of Business Taxation in Singapore
- The authority that manages corporate and individual taxes in Singapore is called the Inland Revenue Authority of Singapore. Operating since 1960, IRAS has bent every effort to streamline and innovate the national tax system and fostering the world’s most efficient tax administration. The authority is responsible not only for collecting taxes and duties but also for strategising the state’s tax legislation and policies that would encourage the influx of foreign capital.
- All incomes earned by individuals and corporations through professional activity and trade must be taxed in Singapore.
- Tax residence of the company, which defines whether the company will pay taxes in Singapore or not, is based on where control and management of the company (crucial decisions made by the board of directors) takes place – in Singapore or abroad. For example, the Branch Office registered in Singapore is considered the non-tax-resident and isn’t obliged to pay the corporate tax because the Office’s management and control are done from overseas (within its parent company).
- Tax residents that earn their income in Singapore must get it taxed according to the local taxes. Singaporean resident companies are eligible for tax exemptions for their Singapore-sourced income (as startup companies), as well as for overseas-sourced dividends and overseas branch’s incomes and services.
- In some cases, incomes earned abroad (dividends, service revenues, revenues of the Branch etc.) can also be taxed in Singapore if the revenue was transmitted to the country.
- In Singapore, there are no such things as death, inheritance, and capital gain taxes.
- Company Must Register for Paying Taxes in Singapore if:
- it is incorporated in Singapore and registered according to the Company Act;
- it is a foreign company incorporated in Singapore as a Branch;
- it is a foreign company registered abroad.
Benefits of Singapore Business Taxation
Singapore’s business enjoys one of the planet’s lowest corporate taxes – only 17%. For comparison: in the US, corporate taxes may reach 40%; in Australia, it is 30% while Asia’s average is 22%. Such outstanding tax policy helps Singapore to lure hordes of investors and entrepreneurs and develop the country’s startup ecosystem. BERI’s report (2015) praises Singapore for having the best investment potential. 17% aren’t the final rate as well. Companies can get it decreased thanks to lavish governmental tax incentives and rebates.
- Tax rebate for new startups with limited liability: pay 0% for the first earned 100k SGD (during first 3 consecutive years) and only 8.5% for the next earned 200k SGD. Only firms registered as the Private Limited and having no more than 20 shareholders (during the relevant accounting period) can qualify for this rebate. The shares mustn’t be held by corporations, but physical bodies, and at least one of them must hold 10% of the issued shares. After exceeding the limit of first 300k SGD of revenue, the company’s income will be taxed at the rate of 17%.
- If the company’s normal changeable income doesn’t exceed 300k SGD, it gets 75% of first 10k SGD and 50% of the rest (290k SGD of income) exempted (thus, you save up to 152.5k SGD).
- The government regularly comes up with various corporate tax rebates: for example, during 2016-17, companies can get a one-time rebate of 30% (but no more than 20k SGD per the accounting period).
The significant feature of Singapore corporate taxation is its one-tier structure: after the company pays its corporate tax, its revenue is no longer subjected to the dividend tax.
Personal Income Tax
Taxation of personal incomes is based on the principle of tax residence (it differs from the country residence):
- Tax residents (citizens, Singapore Permanent Residence, and foreigners working in Singapore longer than 183 days a year) enjoy one of the world’s lowest income taxes. The rate starts from 0% for those whose salary is no more than 20k SGD a year. Next 10k SGD will cost you 2%, another 10k SGD – 3.5%, then 7% for the next 40k SGD, and so on. The maximum fixed rate is 20% today, and it is for those who earn more than 320k SGD a year. The government plans to increase this “rich” rate to 22% in 2017, but even then Singapore’s personal income tax for top earners will remain among the world’s lowest. For comparison: it is more than 50% in Japan and Finland, 45% in Australia, 40% in the US while Asia’s average is 27%.
- Incomes of non-residents (individuals who live and work in Singapore for a period shorter than 183 days a year) are taxed at the flat rate of 15%.
- Individuals who spend in Singapore no more than 60 days a year are tax exempts.
Capital Gain Tax
The traditional capital gain tax on profits got from selling properties (or foreign exchange) isn’t imposed in Singapore unless a company buys and sells commercial property regularly and professionally. Companies having such specialisation may be taxed. The authorities will analyse every situation based on the frequency of deals, period of holds, and reasons for such deals. FYI, as there is no capital gain tax, your capital loss won’t result in getting the tax deduction as well.
Goods and Services Tax
- Singapore’s GST is among the lowest on our planet – only 7%. For comparison: it is 27% in Hungary, 25% in Norway, Denmark and Sweden, 20% in the UK and France, and 18% in Israel.
- This tax is applied to the services and goods that are offered inside Singapore or imported. Export goods and such items as property leasing and selling, financial services, and precious metals are tax exempt.
- Companies whose yearly sales turnover is expected to reach 1 million SGD must undergo registration for paying the GST. After registration, the value of this tax is added to the cost of services and products, and the difference is taken by the IRAS.
- Registering your business for paying the GST is positive for your company’s image: doing so, you inform your customers that your business is well-established and reliable.
- There are certain schemes that allow companies to claim the paid GST afterwards. But if you wish to avoid paying the GST and claiming back it afterwards, it is reasonable to buy goods and services from sellers who aren’t GST-registered.
Avoidance of Double Taxation
Over 70 countries have signed treaties with Singapore for avoiding double taxation. If a Singaporean company earns a profit abroad and pays the relevant tax there, the same tax isn’t imposed again in Singapore and the opposite. If the country you earned your income in doesn’t have such an agreement with Singapore signed, the company is allowed to claim tax exemptions from the Ministry of Finance on a case-by-case basis.
Companies that are parts of one group and have synchronised accounting periods can transfer their losses between each other. For instance, if the company bears losses, it can pass its expenses (unabsorbed allowances or unutilised donations) to any other company of the same group. The Group Relief isn’t intended for investment allowances or losses having a foreign source.
Other Taxes Applicable to Doing Business
- Withholding Tax. If a company/individual makes a special payment (royalty, interest, rental, and so on) to a non-resident, the withholding tax must be paid: a certain percentage of the amount is withheld in order to be submitted to the IRAS afterwards. This way, the IRAS ensures that Singapore-sourced profit of non-residents is taxed.
- Excise and Import Duties. Companies that are specialised in such “excise” goods as tobacco, petrol, liquors or motor vehicles, will have to pay the excise and import duties. Singapore follows a free port policy, and, therefore, the list of excise goods is very short.
- Stamp Duty. A company that issues legal/business documents concerning shares and real estate (such as lease agreements, transferring shares, mortgages etc.) must pay the Stamp Duty.
- Foreign Worker Levy. A Singaporean company that hires a foreigner holding either the S Pass or the Work Permit must pay a monthly levy for such worker based on the level of his/her expertise and skills. Such measure was intended to reduce the influx of under-skilled foreigners.
Taxation of Foreign-sourced Profit
According to Singapore’s Income Tax Act, the corporate tax is applied to the profit that was earned inside Singapore or received in Singapore (transmitted to Singapore).
Sometimes it is hard to determine the source’s location, and each business situation requires a custom tax advice. It is essential to figure out which operation caused this profit, where it took place, and where the contract was concluded, negotiated, and executed. Receiving the profit in Singapore means that funds (in any form) were brought to SG (transmitted/remitted or physically brought to SG) after being earned through the company’s business activity. Overseas-located funds are considered “received in Singapore” if you use them for paying your debt in Singapore or buying goods and any kind of movable property overseas with subsequent shipping them to Singapore. Whether you must pay taxes from your foreign-sourced profit or not also depends on whether you have already paid the foreign tax for this profit or not. If your Singaporean firm haven’t yet paid the tax abroad, its income will be subject to a tax in Singapore. Although it can be hardly possible for a Singaporean company to totally avoid paying taxes, it can still save a lot by avoiding double taxation and benefiting from various tax exemptions.
Annual Filing Requirements for Business
- Filing for personal income tax is based on the standard calendar year that starts on the January 1. Before April 15, individuals must file their income taxes for the previous calendar year.
- Corporate bodies don’t have a fixed fiscal year: each company decides about its financial year on its own. No later than on the November 30, companies must file their tax returns (using the Form C) along with their audited accounts for the financial year that ends in the preceding calendar year. For example, before Nov. 30, 2015, you filed tax returns for your financial year that ended anytime between Jan. 1, 2014 and Dec. 31, 2014.
- A company must submit its Estimated Chargeable Income during 3 months after its accounting period ends.
- For the relevant accounting period, companies are required to maintain their documentation (financial transactions, source documents, bank statements, and so on) during 5 years.
Singapore is a perfect choice for companies who would like to save some money on paying taxes. Due to the one-tier tax system, one of the planet’s lowest corporate taxes, avoidance of double taxation, group relief and various tax incentives, doing business in Singapore is really a profitable decision.