Complete guide to corporate tax in Singapore in 2023
Singapore has never failed to attract entrepreneurs to start their business, majorly due to its pro-business environment and best tax structures.
Unlike many countries that have high business tax rates and strict policy impositions, Singapore's income tax sounds like a promising option with transparent taxations, lower tax rates, and business-friendly regulations – not to mention their exceptional infrastructure.
This guide highlights how the tax system works in Singapore, corporate tax benefits and who can avail them, accounting standards requirements, and how you can structure your taxable income to reduce taxes.
Get to know when you are eligible to pay Singapore corporate income tax and the amount of tax levied for different income sources.
Singapore follows the single taxation system where shareholders are not liable to pay taxes, and it’s on the company’s end based on the income generated.
Regarding who is eligible to pay taxes, every business owner should pay business tax in Singapore despite their profit margin.
And tax is applicable for tax resident and non-tax resident foreign companies running a business here.
But Singapore tax residents enjoy many other benefits and privileges than the latter.
A company is considered a Singapore tax resident, not just based on its incorporation status and details.
It is eligible to proclaim itself as a native tax resident only when the company control and management activities happen in Singapore in the past year of assessment. (YA is the term to denote the financial year where you review income and assets).
A company could have been incorporated in Singapore, but its critical decisions and virtual board meetings should happen in Singapore to gain the status mentioned above.
Singapore’s corporate tax system is devised and controlled by IRAS (Inland Revenue Authority of Singapore).
The current tax rate is 17%. But there are many exemptions and reductions applicable under different grounds. So, the comprehensive tax rate would be lower than 17%.
Singapore’s tax system follows a territorial approach when imposing taxes on taxable income.
Taxation applies to revenue generated within Singapore but is not applicable for income from foreign sources if they meet certain conditions. Ex: business profit accrued from other countries or investments in foreign companies.
You will see more about the applicable Singapore corporate tax rebates and increments in detail in the upcoming sections.
Corporate tax in Singapore is based on the company's taxable income generated in a given year. Taxable income is not the same as profit.
There are a few categories of income that are applicable to tax deductions. The revenue accrued from foreign sources in Singapore is eligible for tax exemption.
So, to compute the Singapore tax rate for business, deduct the components that are eligible for tax deductions from the overall gain.
Here is how the adjustments are made, to sum up the taxable parts of the revenue.
Singapore offers this exclusive tax deduction to newly incorporated companies.
75% of their income tax will be deducted from the first SGD 100,000 chargeable income for consecutive years.
To avail of this, the company should meet the following requirements.
• Should be incorporated in Singapore
• Should be a tax resident
• The minimum number of shareholders should be 20, where one of them or more should possess 10% of shares.
• They can also claim an additional tax deduction on their first SGD 100,000 taxable income and bring down the tax rate to 8.5%. Any income that exceeds the above limit will be liable for taxation.
In Singapore, income accrued through the following medium is subjected to tax exemptions and deductions.
• Profit made from the business set outside Singapore
• Income obtained through foreign investments
• Royalty, premium, and other gains.
• Other sources of income
The following is a rough calculation that depicts the adjustments (additions and subtractions) to deduce taxable income.
The below table is the generic structure of taxable income computed.
Certain tax rates in Singapore for companies change from company to company, like business expenses reduction or other deductions.
Companies can also make use of Singapore tax calculator tools to deduce business expenses eligible for taxes and pay business taxes online.
The taxable parts of the profit made by the company can be broadly divided into three categories.
Capital gains denotes the income generated by selling any of the company-owned assets.
It could be a property, company’s share, patent, or a piece of equipment or art.
It’s eligible to be called capital gain if the selling price is higher than the price at which it’s bought. This category also includes the commission charges and depreciation costs.
In Singapore, corporate capital gains tax is exempted. That is, when you decide to invest in another company and sell it at a higher price later, you don’t have to pay taxes on the profit generated.
This adjustment helps certain professionals and companies a lot whose work regularly involves buying and selling assets. Ex. Investors.
There are a few scenarios where the profit by selling an asset is considered as business income rather than a capital gain.
Therefore, before making adjustments, companies should rather look into it and conclude if it’s capital gain or not.
Zero tax on capital gain has indeed removed the cap on profit accrued by selling company-owned properties and helps businesses bag more.
Your business income is the revenue you generate from selling your products or services and other investments.
Singapore levies a 17% tax on business income for both native and foreign companies.
But the company can choose to pay income generated in Singapore or income generated in other countries and received here.
It can be from either one of these sources or all of them.
• Income received through trading.
• Income through investments in other companies
• Royalty and premium and other such income received by the company
There are other tax exemptions available for the above income through which the company can reduce the tax rate %.
These tax incentives and deductions do not apply to branch offices of foreign companies located in India (those that are not incorporated in Singapore).
So, companies are generally set up as subsidiaries instead of branch offices to enjoy tax benefits.
As mentioned already, Singapore follows a single taxation system where dividends share on profit are not capped with taxes and only the company pays taxes on overall income generated.
Dividends, also known as shareholders, receive a part of a business's profit.
The profit either gets utilized for business activities, divided among the shareholders or combined.
Singapore offers a significant upper hand for firms and shareholders by not implementing a double tax system standard in countries like the US.
Here, the money shared among dividends is considered their income, and hence taxes are imposed, which lowers shareholders’ profit from their investments.
But the shareholders who invest in Singapore companies enjoy their zero-taxation privileges and get the maximum out of the profit made.
So, neither the company nor the shareholders are liable to pay taxes for the profit shareholders take home.
The tax filing process starts after the end of the financial year.
As a first step, companies should file the ECI form letting the IRAS know their chargeable income is computed at the year-end.
Companies should aim to submit within three months from the financial year-end.
This rule applies to every company except those whose chargeable income does not exceed SGD 5 million.
This category is exempted from filing the ECI as they don’t have chargeable income for the previous financial year.
This is an online application process. Taxpayers should log in to their IRAS tax portal account and submit the ECI form.
You will use the same IRS portal for filing Singapore corporate tax returns. In the previous step, taxpayers filed for estimated income, whereas here, it is for the actual income of the financial year.
Whether the company has made a profit or incurred a loss, they must file tax returns.
In case of failures, it can apply to get stroked off. Striking off denotes deregistering the company.
There are two business tax forms that a business should submit under different circumstances.
For the most part, companies fill out Form C along with supporting documents, financial statements, and proof to claim deductions.
If a company fits under the following categories, then it should submit Form C-S.
• The company is registered in Singapore.
• The company’s generated income must be SGD 5 million or lower than that
• The company must be taxed at standard rates (17%) without any tax exemptions. There shouldn’t be any factor contributing to reduced tax rates.
• The company shouldn't be eligible for any investment allowances or credits based on income from foreign sources.
Companies with income less than SGD 200,000 or even lower than that are required to submit Form C-S lite.
Along with form C-S/Form C-S lite, companies must also provide their audited/unaudited financial statements, supporting documents, tax computation statements, and the form declaration for the purpose of writing down allowances.
Notice of Assessment, or simply NOA is a document prepared by IRAS after analyzing the records and tax returns you filed.
This document is like a tax bill that shows the total value of chargeable income as well as the tax you owe to the government.
You would also notice other instructions like how to pay off the tax, deadlines, etc.
IRAS also sends NOA if an individual or company misses to file form C or form C-S.
This NOA is sent out around the end of April, and each taxpayer receives it at different times.
When there are no misestimations in NOA received, the company can pay its taxes within the deadline mentioned.
The payment has to be made within 30 days from the reception of NOA.
IRAS portal is the place to make payments online. There are multiple wallet options available: Internet banking bill pay or fund transfer, GIRO, Singpost, and AXS.
Business owners call Singapore a tax haven country for the tax benefits and exemptions they enjoy here.
Other than the tax deduction rates that bring down the corporate tax rate from 17% to somewhat lower, there are other specific benefits like the following.
Those who have incorporated their business not just enjoy single taxation benefits in Singapore can also enjoy them in other countries with which Singapore has signed a DTA agreement.
The company can appeal for tax reduction in the international taxes owed to other governments.
It is possible to claim the amount had the tax been already paid in Singapore.
Also, shareholders of a company don’t have to pay taxes for the share of the profit they take home to.
To encourage the latest startups to earn more and pay less tax, Singapore has introduced a new startup tax exemption scheme to facilitate reasonable tax rates during the initial growing stage of the company.
The company is eligible to get waived off from the taxation for the first SGD 100,000 chargeable income.
This waive-off policy is applicable for the first 3 years of assessment.
Furthermore, they can get a 50% tax exemption on their following SGD 200,000 chargeable income within the same duration.
Effective since YA 2020, startups are eligible for 75% tax exemption for their first SGD 100,000 and 50% for the first SGD 200,000.
Those who haven’t claimed their new startup exemption can claim partial tax exemption now.
A company or dividend making a profit from their investments in a foreign country is exempted from paying tax in Singapore, provided they have already been taxed in the other country.
But the income generated must have already been taxed at a minimum of 15%.
Besides the necessary tax exemptions discussed above (the new startup exemption scheme), Singapore offers multiple other tax incentives and exemptions to its corporate taxpayers.
Here are some of the Singapore corporate tax exemptions taxpayers get to enjoy:
An overview of Tax exemptions discussed so far
• Capital gains are the amount received by selling an asset/property of the company. So whether it’s a property or a tangible or intangible asset, no corporate tax is associated with it.
• And the same applies to renovation and refurbishment work like fixing the furniture, machinery, etc.
• Full tax exemptions are available for companies on income from foreign sources.
• Single taxation and partnerships with other countries to reduce the double taxation burden for taxpayers who trade in other countries.
This scheme involves tax deductions for companies whose work revolves around innovation.
Any Singapore registered company can claim this as this has been mainly introduced to promote innovation and new inventions.
The qualifying activities whose expenses are eligible for a tax deduction are R&D activities, design projects investment, patents, trademarks registration, IPR license acquisition, employee training, and investments in IT and automation equipment (buying or leasing).
The tax deduction % when the company engages in any one of the above activities is 400% (a maximum of SGD 400,000).
To be able to utilize this, the company should not have more than 200 employees and their revenue shouldn’t exceed SGD 100 million.
To encourage companies to be involved in charity activities, the Singapore government and the IRAS are providing a 250% tax deduction on the expenses spent on charitable contributions.
This deduction is applicable to the salary paid to volunteers if involved.
Any registered company, partnership, or charity club is eligible for this, and the qualifying expenses are charity expenditure (donated goods, sponsored money, etc.) and the basic salary of the volunteers.
Any company involved in developing value-added projects (upgrading current projects, investing in new projects, and more like this) is taxed at less than 5% of the expenses incurred for a maximum period of 10 years.
Companies involved in technologically advanced product manufacturing can be eligible for a complete tax write-off for a period of 5 to 15 years for each product or activity.
IDI was introduced to encourage the companies to commercialize their patented/copyrighted products and receive maximum returns.
IRAS allows 5% or 10% of reduced taxes on income/royalties during the incentive period of 10 years.
Singapore’s economic development board has formulated the regional headquarters award to encourage companies to base their primary operations in Singapore.
The incentive period is three years, and the company can enjoy paying taxes at a reduced rate of 15% upon qualifying.
The essential criteria to be eligible for this are:
• To own a paid capital of SGD 200,000 at the beginning of the incentive year
• And to own SGD 500,000 at the end.
Other than these, there are many incentives available for specific sectors like finance, insurance, trading, and so on.
IRAS has its own ways of dealing with late taxpayers and tax escapers.
They expect taxpayers to pay within 30 days from when the NOA is received.
Following are some of the retribution a corporate taxpayer must endure if they submit incorrect corporate tax forms.
• Legal actions like imprisonment up to 3 years or SGD 5000 fine charges
• Penalty imposition up to 200% of the unreceived taxes
Ensure you don’t leave out anything while filing taxes and have proper supporting documents for tax write-offs.
For late payments, IRAS charges 5% of late fees from the tax amount, and for every missing month after that, a 1% late fee is imposed until the end of the YA.
At this point, the penalty fee % is 12% at the end of the YA, which doesn’t include the initial 5% penalty.
They can also take further action if the penalty fee is not paid or the tax payment is delayed furthermore.
There are cases where the company files an objection to one or many tax rates stated in their NOA.
Whether it’s approved or not, the company should go ahead and pay taxes and carry forward the additional amount for the next year or get it refunded.
The majority of the companies understand how serious tax evasion crime is in Singapore and pay their tax on time.
If, for some reason, they delay the tax payment and do not pay the penalty fee, too, they will be summoned to court.
They still have pretty good chances of getting away by paying taxes and a nominal fine before the date the court assigns.
Not being able to present in court can result in an arrest warrant issued and later imprisonment.
If the tax is still outstanding for two or more years, then the penalty would be double than what the company owes to the IRAS.
Along with this, there is a penalty of up to SGD 1000 too.
If the company cannot pay, it will have to undergo imprisonment for six months.
As a part of enforcement actions, IRAS can impose travel restrictions order (TRO) to prevent the taxpayer from leaving Singapore.
Singapore's tax system understands the financial nature of businesses and is willing to listen if they are going through tough times financially.
Rather than escaping, the company can formally contact and get help on time before they are forced with late payment fees.
They can submit a late fee waiver form in the IRAS portal as a first step.
IRAS considers tax evasion a criminal offense. Tax evasion is when a company wrongly reports its accounting information intentionally to reduce its tax liability.
When it’s found, the company is in for some unannounced visits from IRAS officials who rummage through the company’s accounting ledgers and files to uncover unreported accounts.
They might arrange meetings with the company’s board members to investigate further.
If found guilty, the following repercussions must be faced by the company. It depends on the gravity of the misdeed and the cooperation rendered during the investigation process.
• Penalty charges that can shoot up to 400% of the uncharged taxes
• Fine amount up to SGD 50,000 or imprisonment up to 5 years.
Singapore companies should document their accounting and prepare year-end accounting records in the format prescribed by SFRS (Singapore’s Financial Reporting Standards).
The standards of SFRS are almost equivalent to the International Financial Reporting Standards.
Companies must document their accounting on an accrual-based approach where the expenses and transactions are recorded and the financial liabilities and bills that are due in the future.
IRAS has introduced SFRS for small entities to simplify accounting for small companies.
When they meet the following criteria, they can follow this simpler version of standards meant for small companies.
• When the company’s revenue doesn’t cross SGD 10 million
• Not having more than 50 employees
• The total value of assets owned by the company shouldn’t be more than SGD 10 million.
A Singapore corporate taxpayer must maintain the following records for up to five years from the YA when they filed them for the first time.
• Substantial document proof for business transactions made like invoices, receipts, credit and debit notes, purchase orders, import and export documents, etc.
• Bank statements
• Accounts registers are maintained by the company to record the expenses and income like ledgers, cash registers, etc.
These records are stored mainly for the purpose of accurate computation of taxes as IRAS is not going to request these documents to be submitted.
Improper accounting records can result in under or overestimating taxes, leading you to trouble if detected by IRAS.
Whether documents are requested or not, it is a good practice to store and maintain every payment-related record to be ready to claim deductions if they may come your way.
The immense relief is Singapore corporate tax systems don’t cap your income with fixed tax rates and offer various deductions and exemptions schemes.
Focusing on areas of spending where you can reduce the tax percentage or get that written off is one primary way to reduce your tax liability and create your corporate tax reduction strategy.
Every company would like to show preference to involve in charity activities and doing their part for society.
In Singapore, approved charity work is eligible for tax exemption, including the wages of the volunteers involved.
You are eligible to claim back a tax percentage of 250%, depending on the donation category.
Being a pro-growth environment, Singapore always uplifts startups and enterprises to use advanced technology and develop remarkable and substantial inventions.
To facilitate this, they have introduced multiple schemes like ICI, PTI, etc. (refer to incentives and exemptions section above).
Being aware of the tax write-off schemes and categories relevant to your industry is a must.
Watch the official IRAS website for any updates as these schemes have deadlines and expiry dates, and look out for any new scheme announcements.
The initial growing years can be challenging to make a profit and sustain without succumbing to loans.
You can enjoy a 75% tax exemption on your first SGD 100,000 income, which can considerably bring down your tax rates.
Following that, there is also a partial tax exemption applicable for your next income milestone of SGD 200,000.
It’s considered a boon to occupy a space in an exponentially growing, pro-development region like Singapore, where there is no trace of bureaucracy.
The taxpayer can enjoy maximum benefits while paying a reduced amount of tax.
But to get your taxes and chargeable tax estimations in place, a strong accounting formation is required so that one can keep the records in one place while also making safe business transactions.
Successfully growing Singapore SMBs strongly vouch for Volopay as their most robust accounting and finance management partner as it has modernized the way they make payments.
Our customers find it convenient to handle all of their expenses (invoice, bill payments, subscriptions, payroll, reimbursements, etc.) in one user-friendly suite that keeps records of these transactions.
So, anything that goes out cannot escape while the tax is computed. Sort out your payments while taking care of your taxes and their applicable deductions.
Volopay can be your best accountant who saves humongous time and effort into the year-end accounts closing.