What Are the Tax Types and Tax Benefits in Singapore?

Nov 25, 2022 elitestage No Comment

Singapour

Last time, I shared with you the tax system in Singapore. So what are the tax types in Singapore? If you register a company, what are the tax benefits, and today we will take you through them.

The main taxes currently in force in Singapore are: corporate income tax, personal income tax, consumption tax, real estate tax, stamp duty and withholding tax. In addition, there is also a labour tax levied on Singapore companies that bring in foreign workers.So let’s take a look at each of them.

Corporate Income Tax

Singapore adopts the territorial taxation principle, which means that only income derived from or received in Singapore is taxed. Income earned by individuals or companies in other countries is not taxed in Singapore.Corporate income tax rate: 17%.Depending on the time of incorporation and tax year, companies incorporated in Singapore are able to enjoy significant income tax exemptions, e.g. full exemption on the first S$100,000 of profits, 75% reduction on the next S$200,000 of profits, etc. No corporate tax is levied in Singapore on capital gains, dividends or income received from overseas, etc. which are exempt from tax in Singapore.

Corporate Income Tax Exemption Scheme

Newly incorporated Singapore companies

For newly incorporated Singapore companies, they are eligible for the first 3 years of the Government Tax Exemption Scheme, with the following tax exemptions.1. the first S$100,000 of taxable income at a tax rate of only 4.25%.2. only half of the next S$100,000 of taxable income is taxed at 8.5%.3. the portion exceeding S$200,000 is taxed at the normal rate of 17%.

That is, the effective tax rate for the first S$200,000 of taxable profits of an eligible newly registered Singapore company is 6.375%!

All Singapore companies

For all Singapore companies, the tax exemption amounts are as follows.1. 75% tax relief on the first S$10,000 of taxable income at a tax rate of only 4.25%.2. 50% tax relief on the next S$190,000 of taxable income, i.e. only 8.5% tax.3. The portion above S$200,000 is taxed at the normal rate of 17%.

That is, the effective tax rate for the first S$200,000 of taxable profits of all Singapore companies is 8.2875%!

Tax exemption on income derived from sources outside Singapore

1. tax exemption on dividends from overseas sources.2. tax exemption on profits from overseas branches.3. Tax exemption on service charges from overseas sources

What other tax benefits are available to my company?

The Government has introduced several tax incentives.- Foreign Tax Credit (FTC) If your taxable income in Singapore has been taxed in another country, you can claim a credit. The credit is capped at the lower of the actual foreign tax and the amount of Singapore tax payable.-Double tax deductionfor internationalisation You can claim a double tax deduction of up to S$150,000 per annum for expenses incurred for market expansion and investment development activities such as business travel, market research or participation in foreign exhibitions.

– Pioneer Certificate Incentive Companies with the ‘Pioneer Certificate’ designation can enjoy tax exemptions for up to 15 years. If your business is related to research and development, IT or an industry that has not yet been launched on a large scale, your company can apply for Pioneer status.

– Development and Expansion Incentive offers a concessionary tax rate of 5% or 10% for companies developing new or expanding businesses, provided they are beneficial to the overall economy of Singapore.

– Singapore International Trader Concession

To encourage global traders to trade internationally in Singapore, a reduced corporate income tax rate of 5% or 10% for 5-10 years is offered to government-approved “global traders”; this concession is assessed by the International Enterprise Singapore (IES).

– Singapore Finance and Treasury Centre Incentive

This policy is to encourage multinational companies to set up Finance and Treasury Centres (FTCs) in Singapore to engage in finance, financing and other financial services. FTCs can claim a concessionary corporate income tax rate of 10% on income derived from eligible activities for a period of 10 years, renewable up to a maximum of 20 years

– Singapore Regional/International Headquarters Scheme

Multinational companies that locate their Regional Headquarters (RHQ) or International Headquarters (IHQ) in Singapore are entitled to a lower corporate income tax rate of 15% for 3-5 years for RHQs and 10% or less for 5-20 years for IHQs.

The main purpose of this policy is to encourage multinational companies to locate their regional or international headquarters in Singapore. Specific incentives can be negotiated with the Enterprise Development Board (EDB), which can tailor the package to suit the size of the company and its contribution to Singapore.

The Singapore government’s Regional Headquarters (RHQ) scheme attracts multinational companies to set up regional headquarters in Singapore (e.g. for South East Asian activities) through tax incentives such as the following tax incentives for RHQ companies that can meet the minimum requirements of having at least S$500,000 in capital and at least S$5 million in annual business expenditure in Singapore.

– A 15% tax on incremental taxable income.

– A 3-year tax exemption with a 2-year extension

– Multinational companies that exceed the minimum requirements of the Regional Headquarter Incentive Scheme (RHQ) may be eligible for International Headquarter (IHQ) incentives, which are more generous, such as

– 0, 5% or 10% tax on taxable income, depending on the contribution, negotiated with the Singapore Economic Development Board.

– A tax holiday of 5 to 20 years.

Taxable income for regional and international headquarters is defined as income from management, technical assistance and other support services, as well as taxable interest and licence fees. Singapore exempts dividends received by regional or international headquarters from tax and exempts dividends paid by regional and international headquarters from withholding tax.

Personal Income Tax

Singapore personal income tax is levied on resident individuals and non-resident individuals. Resident individuals include Singaporeans, permanent residents of Singapore, and foreign individuals (other than company directors) who have resided or worked in Singapore for 183 days or more in a tax year; non-resident individuals are foreign individuals who have resided or worked in Singapore for less than 183 days in a tax year.Singapore has a cumulative tax rate system where the personal income tax rate remains between 0% – 22%, except for the personal income tax credit.

From 2024 onwards, the maximum personal income tax rate will be increased to 24%

Goods and Services Tax (GST)

Singapore’s consumption tax, known as Goods and Services Tax (GST), is a tax on imported goods and all services provided in Singapore, equivalent to China’s Value Added Tax (VAT), with the burden of the tax borne by the ultimate consumer.Since 1 July 2007, the GST rate in Singapore has been 7%. The sale and rental of residential property and most financial services are exempt from GST. The GST rate on exports of goods and services is zero. From 2023, the GST rate will be increased to 8% and Singapore’s budgets for the past two years have mentioned that the final GST rate will be gradually increased to 9%.From 1 January 2020, Singapore has made significant changes to the GST on the electronic digital services sector. OVR (Overseas vendor registration) and GST is charged to individuals or companies that are not registered for GST.What are the conditions under which a company needs to register for GST?

A business needs to register for GST if its GST-chargeable business income for the current year or its GST-chargeable income for the next 12 months is expected to exceed S$1 million.

A registered GST taxpayer.

-Require to file and pay GST on a regular basis (usually monthly or quarterly), and are allowed a credit for input tax incurred on the purchase of goods and services

-If the GST payable for the period is not sufficient to offset the input tax incurred, the GST taxpayer can apply to the tax authorities for a refund of the difference between the actual input tax incurred and the output tax payable

Concessions.

The zero GST rate is applicable when certain conditions are met for income derived from services provided by a Singapore enterprise to an offshore enterprise.

Real Estate Tax

Real Estate Tax is a tax on all immovable property such as houses, buildings and land. The owner of real estate is liable to pay real estate tax on the real estate he owns. Real property tax is paid annually, with the full year’s real property tax being paid in January each year on the annual value of the real property. The annual value of the immovable property is estimated on the basis of the annual rental income from the immovable property and the estimated rental income does not include furniture, fittings and service charges for rentals.The same basis applies to immovable property whether it is rented out, self-occupied or vacant. The annual value of the immovable property is reviewed annually by the Inland Revenue Authority of Singapore (IRAS) to determine if any changes are required. The Inland Revenue Department will notify the taxpayer if there is a change in the annual value of the immovable property. The current rate of the commercial real estate tax is 10%. A progressive tax rate of 0%-16%applies to individuals living in their own homes, and 10%-20%if the home is used for rental purposes.

Stamp Tax

Stamp duty is a tax levied on documents relating to real estate and shares. Stamp duty is payable on documents executed in Singapore within 14 days of the date of execution, and on documents executed outside Singapore within 30 days of receipt. Different tax rates apply to different types of documents and the exact rates are based on the relevant documents.

Withholding Tax

Under Singapore law, when a payer makes a payment of a specific nature (e.g. concessions, interest, fees for technical services, etc.) to a non-resident company or individual (known as the recipient), a percentage of that payment must be withheld and paid to the Inland Revenue Authority (IRAS), and this withheld amount is known as Withholding Tax (WHT).In Singapore, no withholding tax is payable on dividends paid to shareholders.

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