Since it gained independence in 1965, the island city-state of Singapore has risen to a position of prominence in the international business community. Its stable political environment, well-developed infrastructure, strategic location and business-friendly policies are just a few factors that have contributed to its success. Singapore is now recognised globally as one of the most competitive Asian economies and also one of the easiest places to do business in the world.
Singapore also boasts one of the most effective taxation systems in the world, with famously low corporate rates and abundant incentives. This tax regime has consistently been a major draw for foreign investors and entrepreneurs looking to establish a regional base of operations in Asia. In particular, th following are among the most favourable tax policies for those living and doing business in Singapore:
Corporate Income Tax Rates in Singapore
Singapore’s vaunted business-friendliness is due in part to its attractive corporate income tax rates. The Singapore corporate tax rate is capped at 17%. As in many other jurisdictions, however, this flat rate is not necessarily indicative of the effective corporate tax rate for a particular company. In many cases, applicable tax exemptions and incentives, tax depreciation rules and other factors may lower the effective rate further.
Single-Tier Taxation System
Singapore uses a single-tier corporate income tax system and thus does not enforce double taxation. Companies are taxed on their chargeable income only, and no taxes are levied on the dividends these companies pay to their shareholders. Singapore likewise does not impose any taxes on capital gains such as foreign exchange gains or profits gained from selling fixed assets.
Available Tax Exemptions and Incentives
The Inland Revenue Authority of Singapore (IRAS) grants generous tax breaks and other incentives to eligible companies. These exemptions are especially advantageous for small- to medium-sized businesses operating in Singapore.
The following general tax exemptions are currently available in Singapore:
- Partial tax exemption for companies – Companies incorporated in Singapore are entitled to a partial tax exemption of up to SGD 102,500 on the first SGD 200,000 of their chargeable income.
- Tax exemption for start-up companies – New start-ups in Singapore that have earned their first SGD 200,000 of income within 3 consecutive years of business can claim a tax exemption of up to SGD 125,000. Organizations must be incorporated in Singapore to qualify for this exemption. They must also have a maximum of 20 shareholders, where at least one shareholder holds at least 10% of company shares.
All new start-up companies are eligible for the abovementioned tax exemption, with two exceptions. Organisations whose primary activities have to do with investment holding and organisations engaged in property development, whether for investment, sale or both do not qualify for the exemption. This is because Investment holding companies’ income comes only from passive sources such as interest and dividends. Real estate companies, meanwhile, incorporate new companies whenever they establish a new property development.
The start-up tax exemption is not intended for these companies, as it is designed mainly to encourage and support entrepreneurial endeavours. However, real estate and investment holding companies do qualify for the partial tax exemption.
In addition to the general tax incentives listed above, additional concessionary tax rates and income tax incentives are available for businesses in specific industries. These industries are considered priority industries whose activities generally fall in line with the state’s desired direction for Singapore’s economic development. Examples of such industries include financial services, banks, tourism, e-commerce, shipping, global trading and others.
The primary purpose of tax treaties is to help companies that operate in two countries avoid double taxation. When a company does business in two countries, tax treaties dictate how that company’s income will be taxed by each country.
The Singapore government is committed to encouraging international trade and investment. With this in mind, the city-state maintains Avoidance of Double Taxation Agreements (DTAs) with over 85 countries and territories around the world. The Singapore government also hopes to establish more tax treaties with additional countries in the years to come.
Furthermore, Singapore has also granted unilateral tax credits to companies based in the country. Under this policy, all Singapore companies doing business in countries that do not have tax agreements with Singapore can receive a tax credit on any income they earn from those countries.
Tax Resident Companies
Companies that are controlled and managed from within Singapore are typically considered tax residents of the country. Control and management pertain to crucial business decision-making, as well as major discussions of company strategy and policy. If the company’s executive director and other top management personnel are located in Singapore, for example, the company may qualify as a tax resident company.
Tax resident companies in Singapore have access to the following benefits:
- They qualify for the tax exemption scheme for new start-up companies.
- They may apply for a tax exemption on foreign-sourced service income, branch profits, and dividends, provided they fulfil certain conditions stipulated in section 13(8) of the Income Tax Act.
- They are entitled to all benefits and privileges outlined in the DTAs Singapore holds with any treaty countries and territories.
On the whole, Singapore’s tax regime is one of the most progressive in the world. This system aims to drive economic activity and enable enterprises based in the country to achieve a sustainable growth trajectory in the long term.