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Understand tax in
This guide offers a comprehensive overview of the essential elements of tax and accounting in Singapore. Singapore’s status as a major financial center is reinforced by its well-organized tax and accounting frameworks. For businesses, this translates to favorable tax rates and a broad network of international agreements, while also requiring compliance with government policies and standards.
Corporate tax in Singapore
Your Singapore-based company will be taxed on income accrued in or derived from Singapore, including:
- Gains or profits from any trade or business
- Income from investments, e.g. interest and rental
- Royalties, premiums, and any other profits from property
- Other gains of an income nature
For foreign sourced income received in Singapore, these are taxable unless they can be exempted under specific scenarios.
Headline corporate tax rate
Since January 1, 2003, Singapore has implemented a single-tier corporate income tax system. Under this system, the tax paid by your company on its chargeable income is considered final, meaning that dividends distributed to shareholders are not subject to additional taxation. Singapore’s current standard corporate tax rate is capped at 17%. To remain an appealing business hub and competitive, this rate has been maintained at 17%.
Your effective tax rate might be lower than the headline rate depending on the tax exemptions your business qualifies for. Additionally, there are various industry-specific tax incentives and concessionary rates available. Moreover, Singapore does not impose taxes on capital gains, such as those from the sale of fixed assets or foreign exchange gains from capital transactions.
Income tax basis period
In Singapore, corporate income is assessed on a preceding year basis. This means that the basis period for any year of assessment (YA) refers to the financial year ending (FYE) in the year preceding the YA.
For example, in current year, you will be filing a corporate tax return for your company’s financial year that ended anytime between 1 January to 31 December . Your company’s accounts should be prepared up to the financial year end each year.
Income tax filing due date
In Singapore, the deadline for filing corporate taxes is November 30. Companies must submit a complete set of returns to the Inland Revenue Authority of Singapore (IRAS), which includes Form C/Form C-S, along with audited or unaudited financial statements and tax computations.
Other important taxes
To effectively manage employees and ensure compliance in Singapore, it is crucial to understand the personal income tax regulations.
Personal Income Tax
Tax residents in Singapore are taxed on a progressive rate from 0% to 24%. Filing of personal income tax returns is mandatory if their annual income is SG$20,000 or more. Tax residents do not need to pay tax if their annual income is less than SG$20,000.
On the other hand, non-residents are taxed at a flat rate of 15% on their employment income or at resident rates, whichever results in a higher tax amount. Other types of income, such as directors’ fees, are taxed at 24%.
If your company has five or more employees, you will need to join the Auto-Inclusion Scheme (AIS). This involves submitting your employees’ income details to the IRAS, which will simplify the filing process for them. Moving forward, they will only need to verify and submit their personal income tax returns.
Goods and Services Tax
Similar to value-added tax (VAT) in other countries, the Goods and Services Tax (GST) is a consumption tax imposed on the supply of goods and services, as well as on the import of goods into Singapore. Currently at 9%, GST is an indirect tax applied to the selling price of goods and services provided by businesses registered for GST.
Keep in mind that businesses incorporated in Singapore are not automatically registered to charge GST. You need to regularly evaluate whether GST registration is necessary. Registration becomes mandatory when:
- your taxable turnover exceeds SG$1 million at the end of the calendar year; or
- you are currently making sales and can reasonably expect your business turnover to exceed SG$1 million in the next 12 months.
You may also voluntarily register for GST.
You can choose to register for GST voluntarily. After registering, you will be required to e-file your GST return to the IRAS every quarter. If no tax is owed for the period, you can submit a ‘nil’ return. Be aware that late submissions of the GST return will result in penalties.
Withholding Tax
Withholding tax is an important component of Singapore’s tax system, especially for non-resident companies. A company is classified as non-resident if its control and management are carried out outside of Singapore, which includes:
- Companies incorporated outside Singapore that have operations in Singapore
- Singapore-incorporated offices that are managed and/or controlled outside Singapore
- Singapore branches of foreign companies
As a non-resident company, you may be subject to the withholding tax on certain types of income. Withholding tax requires a payer to deduct tax from payments, such as royalties, interest, or technical services fees made to a non-resident company. The payer then remits this tax to the IRAS. This ensures that tax is collected on income earned in Singapore by non-resident entities.
The withholding tax rate will vary based on the type of payment. The primary impact is that it may reduce the net income received by your non-resident company. To provide relief, Singapore has double tax treaties with various countries to prevent companies from being taxed by both jurisdictions.
Double taxation agreements
As a company considering international business ventures, taxation can be a concern, especially if you face the possibility of being taxed twice on the same income in both the host country and your home country. Singapore’s extensive network of over 80 double taxation agreements (DTAs) can help simplify your tax responsibilities.
• What is a double taxation agreement?
A double taxation agreement (DTA) is a bilateral accord between two countries designed to avoid the issue of double taxation that could arise from their respective domestic tax laws. Only residents of the countries involved can benefit from the DTA. The definition of a resident is specified in the relevant DTA and is used for applying its provisions. This applies to both individuals and corporations or other entities.
• Types of income covered under DTAs
The types of income typically covered under a DTA include:
- Income from immovable property
- Shipping and transport
- Royalties
- Dividends
- Capital gains
- Interest income
- Director fees
- Employment income
- Professional fees
• Claiming relief under a DTA
To claim relief for foreign income earned from a treaty country, you need to provide a Certificate of Residence to that foreign country. This certificate verifies your tax residency in Singapore and allows you to benefit from the relevant tax treaty.
Alternatively, if you are a tax resident of a treaty country, you must submit a completed Certificate of Residence, certified by the tax authority of that country, to the IRAS.