Singapore is often called as the Delaware of Asia because of its business friendly taxation policies. For many business owners, tax – low corporate & personal tax rates, one-tier tax system and extensive double taxation treaties, is the main reason to setup a business in Singapore. The Republic of Singapore has pro-business taxation rates and provides many tax related incentives to promote entrepreneurship. Singapore has one of the world’s simplest and most rational taxation systems in place. It levies no tax on capital gains or on dividends. The rates of Goods and Service Taxes in Singapore is probably the lowest.
Singapore Tax Residency
In order to claim tax exemptions and benefits provided by the Singapore Government, a Singapore registered company must be tax resident company in Singapore. It means company’s control and management powers has to be exercised in Singapore only. The Company’s primary business decisions and policies are made during the Board meetings, which must be held in Singapore.
Corporate Taxation Rate
Singapore has probably the lowest corporate tax rate in the world. Presently it is capped at 17% on the Company’s chargeable income. In simple words, a Singapore Company is required to pay corporation tax at the rate of 17% on its income after deducting all expenses i.e. profits. Income tax is charged on territorial basis which means any income accrued in or derived in, as well as foreign-sourced income remitted in Singapore shall be treated as company’s income in Singapore for corporate taxation purposes. Also unutilised losses can be carried forward to subsequent years to offset against the income of those years until all business losses are fully utilised.
Zero Tax on Capital Gains & Dividends
There is no tax on capital gains and dividends in Singapore. But the Govt. may impose capital gain tax if you buy or sell properties/investments quite frequently.
Tax Incentives and Exemptions for Start-ups
A local Singaporean can prepare and file his/her incorporation application on his own, but the engagement of a registered agent is mandatory for a foreign national in order to set-up a company in Singapore. A registered agent can be a law firm, an accounting firm, a company secretary or any person providing company secretary services in Singapore. Pratham Legal is also a registered agent helping business owners in setting up their company in Singapore.
With a view to support start-ups in initial years, Inland Revenue Authority of Singapore(‘IRAS’) came up with a tax exemption scheme for start-ups in the year 2005. Under the present scheme start-ups are not required to pay any corporate income tax for the first three years after the incorporation. In order to qualify for Start-up tax exemption scheme, a Start-up must satisfy the following conditions –
- the company must be a tax resident of Singapore. It means it must be registered in Singapore and its Board meetings must be held within the territorial limits of Singapore;
- the company must not have more than 20 individual shareholders or at least 1 shareholder is holding at least 10% of the total issued shares capital of the company;
- the company must not be a property or investment holding company;
In or after the year 2020 the maximum exemption available to a start-up is capped at $125,000. In simple words newly incorporated companies satisfying the above mentioned conditions shall be exempted from 75% of the corporate income tax rate for the first $100,000 earned in Singapore for the first three financial year from the date of incorporation. Further profits earned outside Singapore boarders are not subject to local taxes, in case of certain conditions are met.
Illustrative table for Income Tax filings for newly incorporated companies in the first three years –
|Taxable Income (In SGD)||Tax Rate|
|0 – 100,000||4.25%|
|100,001 – 200,000||8.50%|
|200,001 – 2,000,000||17%|
Double Taxation Avoidance Agreements (DTA) and Unilateral Tax Credits
Once you finalized your Registered Agent, the next step is to finalise your company name and arrange for some basic KYC documents of promoter and file the same with Accounting and Corporate Regulatory Authority (ACRA), Singapore. The proposed name should not be identical or too similar to any existing local company. Further, it should not infringe any trademark and should not be obscene and is not already reserved. Name approval generally takes one day. However, if the proposed name requires any other regulatory body’s approval, it may take longer to get the name approval. The name once approved will be available for 120 days and no extension shall be granted after the expiry of 120 days, which means incorporation application must be filed within 120 days of getting name approval from the Accounting and Corporate Regulatory Authority. ACRA’s fee for filing name application is $ 15.
The Government of Singapore has entered into Double Taxation Avoidance Agreement with over 50 countries including some of the most influential economic nations in the world such as the United States, People’s Republic of China, United Kingdom, Canada, France, Germany and India.
These Double Taxation Avoidance Agreements ensures that National and Multi-Nationals Companies gets benefited and do not suffer from double taxation. Furthermore, Singapore also provides Unilateral Tax Credits, which becomes applicable onto countries, which has not signed Double Taxation Avoidance Agreement with Singapore.
These Unilateral Tax Credits makes it very unlikely for Singapore Companies to suffer losses on account of double taxation. Furthermore, Singapore Government has signed various trade related treaties with other countries too to facilitate trade and commerce.
In simple terms, if you have paid taxes in a foreign country, the same income will not be taxed again in Singapore.
Some Other Tax Exemptions
In addition to the tax exemptions and incentives provided above, an incorporated company can further reduce its taxable income through setting up various employee welfare schemes. The expenses done in these employees welfare schemes can be classified as business expenses and will reduce business’s profits, which ultimately helps in reducing tax liability.
In Singapore, certain payments shall be subject to withholding tax, such as payments made to non-resident companies, individuals for services rendered in Singapore, and income derived in Singapore. The company must withhold part of the payment and pay it to the Inland Revenue Authority of Singapore. The most common types of payments, which are subject to withholding tax are: –
- interest, commission, fee in relation to any loan or indebtedness;
- royalty, rent or other payments for the use of or right to use any movable property;
- payments of management fees;
- payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information
Singapore company registration is a very strong choice. The stable economy, strong workforce, stable political system, independent judiciary and media, high rates of contract enforcement and intellectual property protection and business-friendly tax and government policies let you get up and running sooner – so that you can spend less time in paperwork and more time growing your business
The Next Steps
We at Pratham Legal help people to set up their businesses in Singapore.
If you need more information on Singapore Corporate Taxation System or willing to register your Start-up or Company in Singapore, please get in touch with Mr. Prashant Kumar at email@example.com | +91 9821008011 (WhatsApp). To know more about Pratham Legal, please visit www.prathamlegal.com