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Discussing the Salient Facts Related to Competitive Corporate Tax Regime in Singapore

Posted last August 7, 2015, 6:29 am in Business report article

Being strategically located in Asia, Singapore is a major international transportation hub with busiest port and airports in the world. Additionally, the location of Singapore on many seas and air trade routes offers it an added advantage. Supported by excellent financial infrastructure and pro-business environment, Singapore ranks in the World’s Most Competitive Economies Report published by IMD. Also, Singapore is the world’s easiest place to do business in terms of supporting regulation, intellectual property protection and a range of dispute resolution channels.

Along with skilled English-speaking workforce in Singapore, the liberal and flexible tax system played a key role in projecting Singapore as a favorite company incorporation destination. The best thing about Singapore is almost 96% resident population in Singapore is above 15 years of age and is literate. Here we will discuss, the position of Singapore for outbound investment, especially for foreigners entering the emerging Asian market.

The Competitive Corporate Tax Regime in Singapore

  • Singapore taxation regime taxes individuals and corporations for the income they earn in Singapore. In addition to that, a consumption tax called as the Goods and Service tax and a Property tax on ownership of the property is also levied. However, there is no capital gains tax in Singapore.
  • Singapore has a territorial tax system, meaning the companies is subjected to tax for only the income accrued or derived in Singapore and the foreign income received in Singapore. The foreign sourced income, foreign branch profits and foreign sourced service income received in Singapore by a Singapore incorporated company is exempt from taxes if the company meets certain criteria prescribed by IRAS.
  • The headline corporate tax in Singapore is 17%. Nevertheless, the same does not reflect the accurately effective corporate tax rate. Due to applicable tax exemptions and tax incentives, the effective corporate tax rate in Singapore can be significantly decreased. The newly incorporated companies in Singapore meeting certain conditions are applicable for tax exemption in the first three consecutive Years of Assessment (YA). Remember due to numerous business incentive schemes the corporate tax rate allocable on taxable income incurred from qualifying business activities can turn out to be as low as 5% to 10%.
  •  Thus, after considering the corporate income tax rebate the effective corporate tax rate for the newly incorporated Singapore Company can be as low as 4%; whereas, the same is 5.9% for existing tax paying companies. Please remember, the chargeable income above S$30,000 is taxed at 17% before corporate income tax rebate.
  • Due to the one-tier corporate tax system adopted by Singapore, the corporate profits are taxed at the corporate level. Therefore, the dividends distributed by the Singapore tax resident companies are tax exempt after they have paid their corporate taxes. Above all, there is no withholding tax in Singapore on dividends.
  • The best thing about Singapore tax regime is it does not have a capital gains tax. The income tax in Singapore is imposed on the income earned by disposal of shares/investment only if the gain is considered as revenue gain sourced in Singapore.
  • One of the reasons, why increasing number of global entrepreneurs are interested in Singapore company registration is because of the extensive range of tax incentives offered by the Singapore government to the incoming investors. Singapore offers two distinctive types of tax incentives. The Singapore Economic Development Board under the authority of the Economic Expansion Incentives Act offers one and the other is granted by various other government bodies under the Singapore income tax itself.
  • Some of the prime tax incentives schemes are Financial Sector Incentives Scheme Headquarter Program also comprising of Regional Headquarters tax incentive and international Headquarter tax incentive. Apart from that under Global Trader Program, the qualifying taxable income is taxed at a concessionary income tax rate of 5% to 10%.

Conclusion:

For a company to access the immense benefits of the corporate tax regime in Singapore, it has to be a Singapore tax resident. Having understood the fact, many investors and multinational organizations are interested in Singapore company incorporation. Alas, competitive tax regime is not the only reason to start a business in Singapore, but the tremendous opportunities for markets, technologies, talents and business growth also plays a major role in motivating global entrepreneurs to set up company in Singapore.