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Singapore Taxation

Singapore’s plethora of tax incentive schemes, low corporate income tax regime, even lower compliance costs, and absence of any bureaucratic hassle, makes it the first choice for companies looking to relocate to favourable corporate tax regimes.

Territorial Corporate Tax System

Singapore is strategically located in the middle of Asia, where East synergises with the West. An attractive location for global businesses to access cheap labour and booming markets.
The most important attraction for foreign companies remains the city-territorial tax system.
Some qualifying foreign-sourced incomes are also exempted from tax in Singapore, namely, dividends, branch profits and service income.

Singapore Has NO Capital Gain Tax

Singapore economy encourages the growth of capital and thus does not have a capital gain tax.
The criterias to be exempted from capital gain taxes are:-

Frequency of transactions (how often you buy and sell)
Reasons for buying and selling (Trade gain?)
Financial means to hold long term (Not flipping it)
The holding period of an investment

Singapore Has A Favourable Entrepreneurship Tax Benefits

For the first 3 years of business (private limited company) operation in Singapore, up to S$100,000 in nett profits are exempted from taxes if the company meet the required conditions:-

Be incorporated in Singapore;
Be tax resident in Singapore; and
Has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% shares.

Subsequently S$200,000 in nett profits are discounted at 50% for tax payments.
There are some companies that are not eligible for the tax exemption scheme:-

Company where activity is to develop properties for investment, sale or both
Company where activity is for investment holding

Headline Tax Rate

Singapore’s headline corporate tax rate is 17%.
The effective corporate tax rate is normally lower than the headline tax rate due to the applicable tax exemptions, tax incentives and depreciation rules etc.
Singapore follows a single-tier corporate tax system, where tax paid by a company on its profits is not imputed to the shareholders i.e. dividends are tax free.
All Singapore resident companies are eligible for partial tax exemption which effectively translates to about 8.5% tax rate on taxable income of up-to S$300,000 per annum.

One-Off Corporate Income Tax (CIT) Rebate For YA 2018

According to the Singapore Budget 2017, every Singapore company will be eligible for a corporate income tax rebate. Singapore companies can claim a one-time 20% corporate income tax rebate on corporate income tax payable for YA 2018, subject to a cap of S$10,000.

Income Tax Basis Period

Corporate income tax is assessed on a preceeding year basis.
The basis period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in the year preceding the YA.

Avoidance Of Double Taxation

Currently, Singapore has 76 comprehensive DTAs and 8 limited DTAs1 in force.
The main objective of a DTA is to minimise tax barriers to the cross-border flows of trade, investment, technical know-how and expertise between two treaty countries.
Through the provisions of a DTA, taxpayers engaged in cross-border business can enjoy certainty on the taxing rights of either country, benefit from the elimination of double taxation, and gain access to a platform to settle tax disputes.

Withholding Tax

Singapore implemented withholding tax law on incomes such as:-

Interest;
Royalty;
Rent and payment for other movable property;
Technical assistance and service fees;and
Management fees,etc

The withholding tax law ensures the collection of tax payable to non-residents on income generated in Singapore.
The tax withholding does not apply to Singapore resident companies or individuals.
Under the law, when a payment of a specified nature is made to a non-resident company or individual, a percentage of the payment has to be withheld and paid to Income Tax Authorities.

Industry Specific And Special Purpose Tax Incentives

In addition to the general tax exemptions/incentives, there are certain industry specific and special purpose income tax incentives and concessionary tax rates offered under the Singapore Income Tax Act.
In addition to the general tax exemptions/incentives, there are certain industry specific and special purpose income tax incentives and concessionary tax rates offered under the Singapore Income Tax Act.
The SME sector contributes more than 50 percent of economic output and 70 percent of employment in the country, and need all the help they can get to grow and establish themselves, especially in the initial few years of incorporation.

Merger & Acquisition Allowance Scheme

Aimed at facilitating M&A in Singapore’s this most economically vibrant sector. The scheme has helped in progressive restructuring of the country’s economy leading to high productivity growth.
The scheme provides an allowance of 5 percent of the value of acquisition, subject to a maximum of S$5 million for each year of assessment. Furthermore, the scheme provides stamp duty relief and deductibility of transaction costs.

Pioneer Certificate Incentive And Development And Expansion Incentive

The above incentives provides tax exemption on income from qualifying activities to enterprises incurring significant capital expenditure in introducing leading edge technology and manufacturing skills to Singapore.
An approved company under the PC or DEI is eligible for a corporate tax exemption or a concessionary tax rate of 5% or 10%, respectively, on income derived from qualifying activities.
The incentive period is limited to five years. Extension of the incentive may be considered, subject to the company’s commitment to undertake further expansion plans.
The company is required to maintain a separate account in respect of any non-qualifying activity undertaken during the incentive period.
The income from the non-qualifying activity is not eligible for the incentive.

International/Regional Headquarters Award

Companies that meet requirements to setup IHQ or RHQ in Singapore will enjoy a concessionary tax rate of 15% (versus headline corporate tax rate of 17%) for 3+2 years on incremental qualifying income from abroad.
Income from approved qualifying activities less the base income.
For the purpose of supporting the company’s international growth. If the minimum requirements are fulfilled by the end of the third year within the incentive period, the concessionary tax benefit could be extended for another two years.

Development And Expansion Incentive

A qualifying company may be taxed at a reduced rate of not less than 5% on 'expansion income' during the tax relief period.
Expansion income is defined as income from qualifying activities that exceeds its base profit determined by the average annual income for the three years immediately preceding the tax relief period.
The initial tax relief period may be granted for a period not exceeding 10 years, and this may be extended for up to five years at a time, subject to a maximum total period of 20 years.

Finance & Treasury Centre (FTC) Tax Incentive

The Finance and Treasury Centre Incentive is aimed at encouraging companies to grow treasury management capabilities and use Singapore as a base for conducting treasury management activities for the region.
An approved company is eligible for a reduced corporate tax rate of 8% on income derived from qualifying FTC services and also eligible for withholding tax exemption on interest payments.
The incentive period is limited to five years. Extension of the incentive may be considered.

Integrated Investment Allowance (IIA)

The investment allowance is an incentive that can be enjoyed by a company that intends to carry on an approved project and incur fixed capital expenditure for that project.
In order to be eligible for investment allowances, the fixed capital expenditure must be incurred within the qualifying period of not more than five years.
The investment allowance is granted based on a specified percentage, not exceeding 100% of the fixed capital expenditure. It is granted in addition to the normal capital allowance and deducted from chargeable income. The amount of chargeable income so abated is exempt from tax.
Any unutilised investment allowances can be carried forward indefinitely to be utilised against subsequent years’ chargeable income without the need to satisfy any conditions, including the shareholding test or the business continuity test.

Singapore’s Group Relief System For Loss Transfer

Companies that reorganise themselves into multiple subsidiaries, or holding and associate companies do this to limit liabilities, save taxes and sometimes even to protect the brand-name.
To assist in such a reorganisation and hedge some of the risk-taking, the Singapore Government has introduced the loss transfer system of group relief, which permits transfer of current year not utilised losses, donations, and unabsorbed capital allowances within group companies.

Productivity, Research And Technology Schemes/Grants

The Scheme provides tax exemptions/deductions for six categories of qualifying activities and has been substantially expanded since its introduction.
Under the scheme in operation from 2011 to 2018, Singapore’s business entities can enjoy a 400 percent tax deductions/allowances and/or 60 percent cash payouts for investment in innovation and productivity improvements.

Research Incentive Scheme For Companies

Defrays cost of research and development activities in the areas of strategic technologies and to increase the company's industrial competitiveness.
Co-funding to support the development of strategic technologies, capabilities and the establishment of centres of competence in Singapore.
Supportable project costs include expenditure in the following:
Manpower cost (30% to 50% support)
Equipment, materials, consumables and software (30% support)
Singapore-based professional services (30% to 50% support)
IPRs, e.g. licensing, royalties, technology acquisition (30% support)

Initiatives In New Technology

This is a grant for encouraging capability development in applying new technologies, industrial R&D and professional know-how.
Co-funding to support manpower development in the application of new technologies, industrial R&D and professional know-how.
30% support for qualifying items for either trainee OR training cost, subjected to various sub-caps

Conclusion

Overall, Singapore’s plethora of tax incentive schemes, low corporate income tax regime, even lower compliance costs, and absence of any bureaucratic hassle, makes it the first choice for companies looking to relocate to favourable corporate tax regimes.