Singapore has been the center of attraction for most of the organizations because the government tries to keep corporate income taxes as low as possible and gives different tax incentives to influence investors to come and invest in their business world. The country works on single-tier territorial program that is based on the flat-rate corporate income tax. The general business friendliness and effective rates are the two dominating factors to affect Singapore’s economic growth, balance of payment and foreign investment.
Let’s now have a look at how income rates are applied and what could be the possible tax incentives on corporate level.
Single-tier Income Tax System
Ever since January 1st 2003, Singapore has been working with the single-tier corporate system that keeps stakeholders safe from double taxation, meaning that the company is liable to pay tax on its taxable income whereas, individual shareholders are exempted by paying tax. Also, the capital gains on investment are not taxable i.e. gain on foreign exchange, sale of fixed assets etc.
Corporate Income Tax and General tax Exemption
• Headline Tax Rate
The Singapore’s authority has fixed the headline corporate tax rate at 17%. With the aim to reduce corporate taxation in Singapore, the government has been trying to reduce the tax rate and they are successful in taking it down from 26% (in 1997-2000) to 17% (from 2010 and onwards.
• General Tax Incentives
While operating in Singapore, companies are held eligible to enjoy the following general tax incentives/exemptions. After applying these tax exemptions, the corporate income tax rate for mid-sized or small companies is significantly reduced:
No Tax on Taxable Income Up to S$100K
A newly incorporated company enjoys no taxation for the first three years of its operations. The exemption is applied on the first $100K taxable income and requires the company to meet the following conditions:
• Incorporated within Singapore
• A tax resident company
• Shareholders are not more than 20 from which, at least one should hold 10% or more shares of the company
Taxation on Income Up To S$300K
There is a partial tax exemption for Singapore resident companies, which requires them to pay income tax t 8.5% on their taxable income up to $300K per annum. The income above $300K will be charged with a flat rate of 17%, which is the general headline corporate tax rate.
Every company is charged with a suitable percentage of corporate income tax rate and it is important for the company to comply with the conditions so as to avail tax exemptions as well.