Singapore is often regarded as a tax haven because of lower tax rates and various tax incentives provided to taxpayers in order to attract and grab global investment opportunities. A single tier flat tax rate (currently 17% headline tax rate) is applicable to Singaporean corporations; which is one of the lowest tax rates across the world.
Single-Tier tax system means that there is no double taxation for shareholders or investors and one stream of income when taxed once cannot be taxed again. Hence, where an entity pays tax on its profits, all the dividend distributed to shareholders become exempt from tax. There is also no tax on capital gains (including capital gains on fixed assets and on foreign transactions).
Apart from the lowest tax rate, Government of Singapore has also introduced many tax exemptions and incentives for Singapore tax resident companies. Such exemptions/incentives further reduce the headline tax rate of 17% significantly. Some of these exemptions/incentives are:
- For newly incorporated entities, the tax rate is 0% for first $100,000 taxable income for first three (3) filing years; if that entity fulfils following three conditions:
- It is incorporated under the laws of Singapore
- It is a tax resident company of Singapore.
- It has not more than 20 shareholders, one of whom holds at least 10% shares of the entity.
- For first $300,000 taxable income per annum, the tax rate is 8.5% only. When taxable income exceeds $300,000, headline tax rate of 17% is charged.
INDUSTRY SPECIFIC EXEMPTIONS/INCENTIVES
- Tax incentives for financial services industry
- Trading income earned by financial institutes for and on behalf of non-resident clients is exempt from tax.
- Concessionary tax rates are applicable on fee received against investment advisory services.
- Withholding tax exemptions are available on all the payments made on qualifying OTC financial derivatives to non-resident persons.
- Withholding Tax Liberalisation for Banks –interest and all such qualifying payments to non-residents are exempt from withholding taxes till March 2021.
- Tax incentives to off-shore & on-shore funds: Specified investment income of qualifying off-shore and on-shore funds is exempt from tax. Specified income includes capital gains, profits, interest and dividend from designated investments.
- Tax incentives for legal Firms – A 10% concessionary rate is applicable to incremental income of approved law firms.
PRODUCTIVITY AND INNOVATION CREDIT (PIC) SCHEME
The PIC scheme -introduced in 2010 budget, allows the enterprises to enjoy up to 400% of tax deduction/allowances or get 60% cash payout on their investment in activities like innovation, research & development, training and automation from the assessment year 2011 to 2018. Following Six qualifying activities come under this scheme:
- Acquisition and licensing of Intellectual Property Rights
- Registration of trademarks, copyrights, patents and designs etc.
- Making of designs and get them approved by Singapore Design Council
- Research & development activities
- Leasing & acquisition of automation equipment and tool
- Employee training
DOUBLE TAX DEDUCTION FOR INTERNATIONALISATION
A Singaporean entity or individual can claim up to 200% tax deduction on first $100,000 eligible expenses on following four activities:
- Participation in Overseas’ trade fairs
- Participation in Local trade fairs duly approved by STB or IE Singapore
- Overseas travels and trips for business development
- Overseas trips for investment study
CAPITAL EXPENDITURE INVESTMENT ALLOWANCE
Where a company proposes to carry out a project —
- for the manufacture or increased manufacture of any product;
- for the provision of specialised engineering or technical service and
- for research and development;
- for construction operations;
- for reducing the consumption of water;
- in relation to any qualifying activity as defined in section 16;
- for the promotion of the tourist industry (other than a hotel) in Singapore;
for the operation of any space satellite, provision of maintenance, repair and overhaul services to any aircraft; or for improving energy efficiency, the company may apply to the Minister for the approval of an investment allowance in respect of the fixed capital expenditure for the project.
Further information on Corporate Tax Planning / Return Filing?
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