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Tax Services

Corporate Income Tax

Singapore’s corporate tax system is known for its competitive rates and pro-business policies, making it an attractive destination for both local and foreign companies. Here’s an overview of the key aspects of Singapore’s corporate tax:

 

  1. Corporate Tax Rate: Singapore has a flat corporate tax rate of 17% on chargeable income. This rate applies to both local and foreign companies.
  2. One-Tier Tax System: Singapore operates on a one-tier tax system, which means that corporate profits are taxed only at the corporate level. Shareholders receiving dividends from the company are not subject to further taxation on those dividends.
  3. Partial Tax Exemption: To support smaller companies, Singapore offers partial tax exemptions on taxable income:
    1. For the first SGD 300,000 of chargeable income, companies enjoy a 75% exemption.
    2. For the next SGD 200,000 of chargeable income, companies receive a 50% exemption.

    This effectively reduces the effective tax rate for smaller companies.

  4. Start-Up Tax Exemption Scheme: Qualifying start-up companies can benefit from additional tax exemptions:
    1. For the first SGD 100,000 of chargeable income, companies receive a 75% exemption.
    2. For the next SGD 100,000 of chargeable income, companies receive a 50% exemption.
  5. Foreign-Sourced Income: Singapore follows a territorial tax system, which means that only income earned within Singapore or received in Singapore from overseas is taxed. Foreign-sourced income is generally exempt from taxation, with certain exceptions.
  6. Notional Interest Deduction (NID): To encourage businesses to fund their operations with equity instead of debt, Singapore introduced the NID scheme. This scheme provides a deduction for notional interest on equity used to fund certain business activities.
  7. Avoidance of Double Taxation: Singapore has an extensive network of Avoidance of Double Taxation Agreements (DTAs) with various countries. These agreements aim to prevent double taxation by providing mechanisms to allocate taxing rights between countries.
  8. Goods and Services Tax (GST): In addition to corporate tax, companies must also consider Singapore’s Goods and Services Tax (GST) when conducting business. GST is a value-added tax of 7% on the supply of goods and services.
  9. Tax Incentives for Specific Industries: Singapore offers various tax incentives to attract investments in specific industries, such as finance, technology, and research and development.
  10. R&D Tax Incentives: Singapore provides tax incentives to encourage companies to undertake research and development activities within the country.
  11. Enhanced Capital Allowances (ECAs): Companies can claim capital allowances on qualifying fixed assets, allowing for tax deductions on capital expenditures.

 

It’s important for companies to understand the tax regulations and take advantage of the available exemptions and incentives to optimize their tax liabilities. Consulting with tax professionals and understanding the specific circumstances of your business is recommended for accurate and compliant tax planning.

Taxable Income

In Singapore, taxable income refers to the portion of a company’s or an individual’s income that is subject to taxation. It is the income that is used as the basis for calculating the amount of tax owed to the government. Singapore’s tax system is based on a territorial principle, meaning that only income earned within Singapore or received in Singapore from overseas is generally subject to taxation.

 

For companies, taxable income is calculated as follows:

Revenue – Allowable Deductions = Chargeable Income

 

  1. Revenue: This includes the company’s total income from all sources, such as sales revenue, service fees, interest income, rental income, and other forms of income.
  2. Allowable Deductions: Certain expenses and allowances are deductible from the company’s revenue to arrive at its taxable income. Allowable deductions can include operating expenses, business-related costs, depreciation, employee wages and benefits, and other expenses incurred to generate income.
  3. Chargeable Income: This is the amount on which the corporate tax rate is applied to calculate the actual tax liability. The current corporate tax rate in Singapore is 17%, but there are exemptions and deductions available that can lower the effective tax rate.

 

For individuals, taxable income includes various types of earnings, and deductions are applied to arrive at the taxable income amount:

 

  1. Employment Income: This includes salaries, wages, bonuses, and other compensation earned from employment.
  2. Trade, Business, Profession, or Vocation Income: This covers income from self-employment, business activities, and freelance work.
  3. Rent and Royalty Income: Income earned from renting out property or receiving royalties.
  4. Interest, Dividend, and Other Investment Income: Income earned from investments, such as interest from bank accounts, dividends from shares, and other investment-related income.
  5. Allowable Deductions: Individuals can claim certain deductions to reduce their taxable income. Deductions can include items like employment-related expenses, business expenses, and approved donations.
  6. Chargeable Income: The taxable income amount is subject to progressive tax rates for individuals in Singapore, with higher income levels being taxed at higher rates.

 

It’s important to note that there are specific exemptions, deductions, and incentives available in Singapore to help lower the overall tax burden for both companies and individuals. Consulting with tax professionals or experts who are well-versed in Singapore’s tax regulations can help ensure accurate calculation and optimization of taxable income and tax liabilities.

What is withholding tax?

Singapore withholding tax is a tax levied on certain types of payments made to non-resident individuals or entities, including foreign companies, for services rendered in Singapore or for the use of certain assets located in Singapore. The tax is “withheld” or deducted at the source of payment before the funds are remitted to the non-resident recipient. The purpose of withholding tax is to ensure that the Singapore government collects taxes on income earned within its jurisdiction by non-residents.

 

Here are some key points about Singapore withholding tax:

 

  1. Types of Payments: Withholding tax applies to various types of payments, including but not limited to:
    1. Royalties: Payments for the use of intellectual property, such as copyrights, patents, and trademarks.
    2. Interest: Payments for the use of borrowed funds.
    3. Management Fees: Payments for management or technical services provided by non-residents.
    4. Services Fees: Payments for services rendered in Singapore by non-residents.
    5. Rent: Payments for the use of movable property (e.g., equipment) located in Singapore.
  2. Rates: The withholding tax rates vary depending on the type of payment and the relevant tax treaties between Singapore and the recipient’s country of residence. Rates can range from 0% (under certain tax treaties) to 15%. For example, the withholding tax rate on royalties is generally 10%.
  3. Exemptions and Reductions: Singapore has tax treaties with many countries to avoid double taxation and provide reduced withholding tax rates on certain types of income. These treaties may also exempt certain payments from withholding tax under specific conditions.
  4. Tax Clearance: Before making a payment to a non-resident, the payer is responsible for determining whether withholding tax applies. If so, the payer must withhold the tax and remit it to the Inland Revenue Authority of Singapore (IRAS) within a specified time frame.
  5. Form and Reporting: The payer must file the relevant withholding tax forms and submit them to IRAS along with the withheld tax amount. The forms and procedures vary based on the type of payment and the recipient’s country of residence.
  6. Certificate of Residence: Non-resident recipients can apply for a Certificate of Residence (COR) from their country’s tax authority to claim reduced withholding tax rates under tax treaties.
  7. Penalties for Non-Compliance: Failing to withhold and remit the appropriate withholding tax can result in penalties and interest charges for the payer.
  8. Special Cases: There are some cases where withholding tax doesn’t apply, such as payments to Singapore tax residents and payments below certain thresholds.

 

It’s important for businesses and individuals making payments to non-residents in Singapore to understand the withholding tax requirements, rates, and exemptions that apply to their specific situations. Seeking advice from tax professionals or consulting IRAS guidelines can help ensure compliance with Singapore’s withholding tax regulations.

Under what circumstances do you need to pay withholding tax?

In Singapore, withholding tax is typically applicable in various circumstances involving payments made to non-resident individuals or entities. Here are some common scenarios under which you might need to pay withholding tax in Singapore:

 

  1. Royalties: If you make payments to non-residents for the use of intellectual property rights, such as copyrights, patents, trademarks, or trade secrets, withholding tax may be applicable. This includes payments for the use or right to use software, music, literary works, and more.
  2. Interest: Payments of interest to non-residents for the use of borrowed funds, including loans, debentures, and bonds, may be subject to withholding tax. Note that interest on certain types of loans, such as loans from banks, is exempt from withholding tax.
  3. Management Fees and Services Fees: Payments to non-resident service providers or consultants for management, technical, or other services rendered in Singapore might attract withholding tax. This includes fees for advisory, consultancy, or technical services.
  4. Rent and Movable Property Use: Payments made to non-residents for the use of movable property located in Singapore, such as equipment, machinery, and vehicles, can be subject to withholding tax.
  5. Commissions: Payments of commission or brokerage fees to non-residents for services related to the sale of goods or the arranging of transactions may fall under withholding tax provisions.
  6. Contracts for Service: Payments to non-residents under a contract for service, particularly if the services are provided in Singapore, might be subject to withholding tax.
  7. Use of Satellite Equipment: Payments made for the use of satellite equipment located in Singapore may be subject to withholding tax.
  8. Technical Assistance Fees: Payments for technical assistance provided by non-residents might be subject to withholding tax if the assistance is used in Singapore.

 

It’s important to note that the applicability of withholding tax depends on the specific type of payment, the nature of the transaction, and the recipient’s tax residency and country of residence. Additionally, Singapore has a network of Avoidance of Double Taxation Agreements (DTAs) with many countries, which can affect the withholding tax rates and exemptions for specific payments.

 

To determine whether withholding tax is applicable and to understand the specific rates, exemptions, and reporting requirements, it’s advisable to consult with tax professionals or refer to official guidelines from the Inland Revenue Authority of Singapore (IRAS). Proper understanding and compliance with Singapore’s withholding tax regulations are essential to avoid penalties and ensure accurate tax reporting.

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