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Business in Singapore
Singapore, a dynamic city-state nestled in Southeast Asia with a population of approximately 5 million residents, stands as a global beacon of business excellence. A notable feature is its cosmopolitan composition, with nearly 29% of its inhabitants being foreigners. This diversity is complemented by Singapore’s historical ties with Britain, preserving English as the primary business language and embracing the English common law system. The Singapore Dollar serves as the local currency, and the nation’s financial integrity is underscored by its absence from the blacklists of most onshore jurisdictions.
Singapore’s allure as a global trading jurisdiction is undeniable, attracting over 7,000 multinational corporations spanning various economic sectors. Its business-friendly environment, bolstered by a highly educated workforce and efficient infrastructure, makes it a preferred destination for international investments. Beyond business, Singapore’s strategic location elevates it as a crucial sea and air transportation hub, facilitating not only regional but also global trade and finance. As the fourth-largest financial center worldwide, Singapore safeguards bank secrecy through both Common Law’s contractual duty of confidentiality and statutory regulations outlined in the Banking Act.
For a comprehensive overview of business entities in Singapore, please refer to Annex 1. The country’s territorial tax system offers a range of opportunities for tax-effective structuring of foreign investments, with a corporate tax rate of 17%. Singapore’s multifaceted strengths combine to create an ideal ecosystem for businesses to thrive in a globalized landscape. Whether you seek a well-regulated business environment, a strategic gateway to Asia, or a dynamic financial center, Singapore continues to be an exceptional choice, providing the stability and growth prospects that businesses of all sizes desire in an ever-evolving world economy.
Advantages of Singapore Tax System
- Singapore company has to pay tax in Singapore on taxable income that is accrued in or derived from Singapore; or received in Singapore from outside Singapore.
- Capital gains are not taxable. These include gains on sale of fixed assets and gains on foreign exchange on capital transactions.
- Singapore Company enjoys tax exemption scheme for new startup companies for first 3 years.
- A Singapore Company is taxed on the income earned in the preceding financial year. This means that income earned in the financial year 2021 will be tax in 2022. In tax terms, 2022 is the Year of Assessment (YA), as it is the year in which the Company’s income is assessed to tax.
- Dividends are generally not taxable in Singapore.
- Under the one-tier corporate tax system, the tax paid by a Singapore company is final. Therefore, the shareholders would not be taxed on dividends paid by a Singapore resident company.
- Singapore tax resident companies may enjoy tax exemption on specified foreign-sourced income that is remitted into Singapore.
- Singapore has double taxation treaties with more than 80 Countries.
Tax Exemption Scheme for New Start-Up Companies
Starting Year of Assessment (YA) 2020, the tax exemptions for qualifying companies for their first 3 consecutive YAs are as follows:
YA 2020 onwards
- 75% exemption on the first $100,000 of normal chargeable income (income to be taxed at the prevailing Corporate Income Tax rate of 17%) ; and
- A further 50% exemption on the next $100,000 of normal chargeable income (income to be taxed at the prevailing Corporate Income Tax rate of 17%).
This exemption scheme applies to qualifying companies only for their first 3 consecutive YAs. From the fourth YA onwards, companies can enjoy the partial tax exemption.
Sample Tax Computation
| Samples of Singapore tax computation based on net profit S$300,000 for year 1 to 4 for non investment activities ** | |||||
| Year 1 to 3 | Year 4 onward | ||||
| Reference | S$ | S$ | Reference | S$ | S$ |
| Chargeable Income (before exempt amount) | 300,000.00 | Chargeable Income (before exempt amount) | 300,000.00 | ||
| Less : Exempt amount | Less : Exempt amount | ||||
| 75% on first S$100,000 | (75,000.00) | 75% on first S$10,000 | (7,500.00) | ||
| 50% on next S$100,000 | (50,000.00) | (125,000.00) | 50% on next S$190,000 | (95,000.00) | (102,500.00) |
| Total S$200,000 | Total S$200,000 | ||||
| Chargeable income | 175,000.00 | Chargeable income | 197,500.00 | ||
| Tax payable (17%) | 29,750.00 | Tax payable (17%) | 33,575.00 | ||
| Less * CIT rebate (subject to budget announcement) | – | Less * CIT rebate (subject to budget announcement) | – | ||
| Tax payable | 29,750.00 | Tax payable | 33,575.00 | ||
| * Corporate Income Tax (CIT) rebates are given to companies to ease their business costs and to support their restructuring. These rebates are announced on a yearly budget. In the past it range from 25% to 50% with a maximum capped amount. | |||||
| ** Company with investment holding will use the sample tax calculation from year 4 since incorporation. | |||||
Qualifying Conditions for Tax Exemption Scheme for New Start-Up Companies
All new start-up companies are eligible for the tax exemption scheme, except:
- Companies whose principal activity are that of investment holding
- Companies that undertake property development for sale, investment, or both
Rationale for Exception
Investment holding companies derive only passive incomes such as dividend and interest income, while the real estate industry typically incorporates a new company for each new property development. The start-up tax exemption for encouraging entrepreneurship is not intended for such companies. These companies will be given partial tax exemption. To qualify for tax exemption for start-ups, eligible companies must satisfy these three qualifying conditions:
- The company must be incorporated in Singapore;
- The company must be a tax resident in Singapore for that YA;
- The company must not have more than 20 shareholders throughout the basis period for that YA where:
- all of the shareholders are individuals; or
- at least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company.
Tax Residency of a Company
Under Singapore tax law, the tax residency of a company is determined by where the business is controlled and managed. The residency status of a company may change from year to year.
Generally, a company is considered a Singapore tax resident for a particular Year of Assessment (YA) if the control and management of its business was exercised in Singapore in the preceding calendar year. For example, a company is a Singapore tax resident for YA 2021 if the control and management of its business was exercised in Singapore for the whole of 2020.
A company is a non-resident when the control and management of its business is not exercised in Singapore.
‘Control and management’ is defined as the making of decisions on strategic matters, such as those concerning the company’s policy and strategy. Where the control and management of a company is exercised is a question of fact. Usually, the location of the company’s Board of Directors meetings where strategic decisions are made determines where the control and management is exercised. Under certain scenarios, holding Board of Directors meetings in Singapore may not be sufficient and IRAS will consider other factors to determine if the control and management of the business is indeed exercised in Singapore.
Some examples of scenarios where the control and management of a company is considered not exercised in Singapore include:
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