Learn More About Corporate Taxes In Singapore For the Benefit of Your Business
The location of Singapore in Asia is strategic for many business reasons, and this is why it is such an attractive destination for global businesses around the world. It gives easy access to the vast markets of China, Indonesia, Vietnam, and India, and just as it has been observed in the past, thriving in these markets is relatively easy if you have the product or services needed by the masses. For businesses coming to Singapore to set bases, dealing with the corporate taxes in Singapore is one thing you will have on your plate, and it is something you may not want to take lightly because the repercussions may be very costly to you and your business.
Overview of the corporate tax system in Singapore
Arguably, the quasi-territorial tax system of Singapore is one of the biggest attraction for many companies in the country. A quasi-territorial tax system imposes a tax on all income realized or accrued from businesses in Singapore and also from income remitted into the country from doing business in foreign countries, though there are a few qualifying exemptions to this.
Capital gains tax or withholding tax on dividends are not applicable in Singapore. Additionally, there is no one-tier corporate tax system, inheritance tax, estate tax, capital acquisition tax, capital duty tax, or wealth tax in the city-state of Singapore. You will also be interested to know that there are very minimal restrictions on transactions involving foreign exchange, and capital movement within the city-state and this implies that both funds and capital can flow freely in and out of the city-state. It is such an excellent tax regime that has been responsible for attracting corporates and individual entrepreneurs to come and do business in Singapore. If you are one of them or you are keen on starting running your business in the city-state, here are a few highlights about corporate taxes in Singapore you should know about-:
The corporate tax rate
The corporate tax rate in Singapore is currently set at 17% and is believed to be amongst the lowest in corporate tax regimes in the world. The rate is calculated based on the company’s chargeable income, which is simply the amount of revenue generated once allowable expenses and other allowances have been deducted. Other than the rate being amongst the lowest in the world, the actual tax payable in most cases is usually lower than the 17% considering the fact that there are lots of government-sponsored schemes and incentives which further makes doing business in Singapore to be more affordable.
Corporate tax residency
The determination of the corporate tax residency in Singapore is the mandate of the Inland Revenue Authority of Singapore, and they do that be checking where the company in question is being controlled or managed from.
In other words, the IRAS will find out where the company’s major decisions on strategic matters are being made, such where the company usually hold its Board of Directors meetings. If that is usually done within Singapore, then the company is essentially a tax resident of Singapore and will be liable to pay corporate taxes in Singapore.
Determination of the Fiscal Year
Every company operating in Singapore has the freedom to determine on their own Financial Year End, FYE. It must not always be 31st of December, however, it is always a good thing to keep the fiscal year within the 365 days of a calendar year because this may make you enjoy the zero tax exemptions usually available for new businesses.
Requirements for annual filing of corporate taxes
- It is a legal requirement for every company in Singapore to file their annual returns as guided by the Accounting and Corporate Regulatory Authority. This must be done within one month after the Annual General Meeting is conducted. Since consolidated returns are not allowed in Singapore, every company must file their returns separately.
- Additionally, every company has to file their returns before 30th of November of the assessment year for all the income generated in the preceding accounting year.
How to calculate the taxable income
It is essential to have a clear understanding of how corporate taxes in Singapore are calculated so that you avoid some common mistakes which might prove to be very costly for the business. Regarding corporate taxes, taxable income upon which the corporate tax will be imposed refer to the followings:
- Profits or gains from any type of business, trade or venture done in Singapore
- Premiums, royalties, or profits from property
- Income achieved from investments such as rental, dividends, and interests
- Any gains that can be classified as revenue in nature
For the majority of the cases, deductible businesses expenses are expenses that are exclusively or wholly incurred in the process of generating the taxable income. For an expense to be deductible, it must meet the following conditions-:
- The expense must be incurred only through the production of income
- The expenses must not be a contingent liability. In other words, the expense must not be postulated on an event that may or may not occur.
- The expenses must be revenue and not capital in nature
- The expense should not qualify for deductions under the Income Tax Act.
Concessionary and prevailing corporate tax rates
It is possible for a business to have different streams of income, all of which may attract different tax rates, i.e. the current corporate tax rate and the concessionary tax rate. Some of the mistakes you should avoid when dealing with the two include:
- Wrong classification of non-qualifying income for the concessionary tax rates
- Wrong identification of common and direct expenses
- Adopting the wrong bases for allocating capital allowances and common expenses
About foreign sourced income and how to avoid double taxation
The other aspect of corporate taxes in Singapore you have to consider keenly is when your business is benefiting from foreign sourced incomes. If your company is a tax resident in Singapore, but you also have overseas operations that bring back money to your base in Singapore, such income is referred to as foreign-sourced and it is liable for taxation. In some cases, such income may be taxed twice – the first one when it is still overseas, and when it is remitted to Singapore. To avoid that, all you have to do is claim tax credits for the tax paid on the said income while still on the foreign country. This can be done under the Double Tax Relief and the Unilateral Tax Credit schemes.