Filing Corporate Tax In Singapore

Corporate income tax (CIT) is a tax on the profits a company makes, calculated on the chargeable income after deducting allowable expenses. In Singapore, this tax is paid to the Inland Revenue Authority of Singapore (IRAS). To help businesses save on taxes, Singapore offers a range of tax incentives, deductions, and exemptions that can lower taxable income, making it an attractive environment for companies to thrive. With the support of taxation services, businesses can take advantage of these opportunities to reduce their CIT liability while ensuring compliance with local regulations.

Singapore’s corporate tax system is simple, with a flat rate, territorial approach, and a single-tier dividend system, which offers benefits and clarity for businesses.

What Is A Single-Tier System?

Singapore uses a single-tier tax system, which means that company profits are taxed only once. When profits are distributed to shareholders as dividends, these dividends are not taxed again. This is different from a two-tier system, where both the company’s profits and the dividends to shareholders are taxed.

Understanding Flat-Rate Taxation

Singapore has a flat tax rate of 17% for corporate income tax, which applies uniformly to both domestic and international companies. This rate has been stable since 2010 but has been gradually lowered from 26% in 1997, reflecting Singapore’s efforts to maintain a competitive business environment.

Understanding The Territorial Tax System

Singapore operates under a territorial tax system, which taxes businesses based on the location where income is generated. Here’s how it works:

• Local Income from Singapore Activities: Income earned within Singapore is taxed at 17%.
• Income Generated Outside Singapore: Only income that is “received and remitted” to Singapore is taxed. For example, a company registered in Singapore but earning income abroad will only be taxed on the money transferred to its Singapore bank account. This income is assessed by the Inland Revenue Authority of Singapore (IRAS) on a case-by-case basis.

Double Taxation Agreements (Dtas)

To avoid double taxation on income earned internationally, Singapore has signed Double Taxation Agreements (DTAs) with numerous countries. These treaties ensure that businesses are not taxed twice on the same income once in the foreign country and again in Singapore.

Corporate Tax Exemption Schemes

Singapore offers two main tax exemption schemes to support business growth: the Start-up Tax Exemption (SUTE) and the Partial Tax Exemption (PTE). These schemes offer significant tax savings, especially for new businesses.

Start-Up Tax Exemption (Sute)

SUTE applies to new companies for the first three years of assessment. The scheme was updated in 2020, and the tax exemptions are as follows:

• First $100,000 of chargeable income: 75% exempt (Effective tax rate: 4.25%)
• Next $100,000 of chargeable income: 50% exempt (Effective tax rate: 8.5%)

For companies established before 2020, the structure was slightly different, offering a 100% exemption on the first $100,000 and a 50% exemption on the next $200,000.

Partial Tax Exemption (Pte)

PTE applies to businesses after their third year of assessment. It provides:

• First $10,000 of chargeable income: 75% exempt (Effective tax rate: 4.25%)
• Next $190,000 of chargeable income: 50% exempt (Effective tax rate: 8.5%)

Criteria For Tax Exemptions

To qualify for tax exemptions, companies must meet certain criteria:

• Incorporation: The company must be incorporated in Singapore.
• Tax Residency: The company must be a tax resident of Singapore, meaning its management and control are based in Singapore.
• Shareholder Limit: The company should have no more than 20 shareholders, all of whom must be individuals (not corporate entities). At least one shareholder must own 10% or more of the company’s shares.

Corporate Income Tax Rebate

Corporate income tax rebates reduce the overall tax payable. Unlike tax exemptions, which reduce the taxable income, these rebates are applied directly to the tax owed.

For YA 2019, the rebate rate was 20%, with a maximum limit of S$10,000. For YA 2020, the rebate increased to 25%, with a cap of S$15,000.

Corporate Income Tax Payment Procedure

There are a few steps for businesses to follow when filing their corporate taxes in Singapore:

1. Estimated Chargeable Income (ECI): Within 3 months of the company’s financial year-end, businesses must file the ECI form with IRAS, estimating the taxable income.
2. Form C-S or Form C: This form reports total earnings and any losses for the year. It must be submitted by November 30 (for e-filing). E-filing is mandatory since YA 2020.
3. Notice of Assessment (NOA): IRAS will issue this document to confirm the tax liability based on the submitted forms. Companies must settle the tax due within 30 days of receiving the NOA.
4. Tax Payment: If the company owes more than the estimated tax, the additional tax must be paid within a month of receiving the NOA. Refunds may be issued if the company has overpaid.

Conclusion

Singapore offers a business-friendly corporate tax system with a competitive 17% tax rate, various exemptions, and rebates to help companies reduce their tax liabilities. Programs like SUTE and PTE, along with double taxation agreements, provide additional opportunities for tax savings. The straightforward filing process ensures that businesses can efficiently manage their tax obligations. By leveraging these benefits, companies can not only comply with local regulations but also enhance their growth potential in both domestic and international markets.