Ranked overall 1st in terms of ease of doing business by the World Bank, Singapore’s tax structure (ranked 4th) is one of the major contributing factors to this position. The headline corporate tax rate for Singapore in 2011 is 17%.
Single-Tier Income Tax System
Singapore’s corporate tax system is based on a one-tier structure, meaning that the tax paid by a company on its income is taken as the final tax amount due for the period. Furthermore, all dividends paid by the company are exempt from tax.
Income Tax Basis Period
In the preparation of financial statements and the computation of tax payable, the income derived in the preceding calendar year is used. This is considered as the basis year for income tax computation. For example, the basis period for the year of assessment 2011 is the period from 1 January 2010 to 31 December 2010.
General Tax Exemptions
Partial tax exemption for companies:
|First $ 10,000||@ 75%||= $ 7,500|
|Next $290,000||@ 50%||= $145,000|
Full tax-exemption scheme for start-up companies:
|First $100,000||@ 100%||= $100,000|
|Next $200,000||@ 50%||= $100,000|
Qualifying Conditions for exemption:
To qualify for the tax exemption for new start-up companies, your company must:
a) be incorporated in Singapore (other than a company limited by guarantee**);
b) be a tax resident* in Singapore for that YA;
c) have no more than 20 shareholders throughout the basis period for that YA where:
i) all of the shareholders are individuals beneficially and directly holding the shares in their own names; OR
ii) at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.
A company is said to be resident in Singapore if the control and management of its business is exercised in Singapore, as defined in the Income Tax Act. According to the tax residence of a company, the tax treatment will vary accordingly. For example, resident companies, upon fulfilling certain conditions, will be able to enjoy full tax exemption. However, it is still important to note that both resident and non-resident companies are liable to tax on income accrued in or derived from Singapore.
Determination of Taxable Income
The accounting profits of a firm liable for taxation in Singapore will be adjusted to determine its taxable income. This will be done in compliance with the tax laws that govern Singapore, as dictated in the Income Tax Act. The final taxable income is the amount after adjustments for qualifying deductions, capital allowances, relevant tax exemptions and incentives.
Deductibility of Losses
For taxation purposes, a company is allowed to offset any trade losses incurred against its statutory income or that of other related companies under the group relief scheme, subject to certain conditions. Any unutilised losses can be carried back or carried forward for offset against other years’ incomes, also subject to certain conditions.
Capital Allowances (CA)
Capital allowances are the tax recognition of wear and tear of plant and machinery of a company. These capital allowances, like tax losses, can be deducted in the determination of a company’s final taxable income and any unutilised CA can also be carried back or carried forward for offsetting against other year’s or other related company’s incomes, subject to certain conditions.
General Budget 2011 Updates
Production and Innovation Credit
PIC has been implemented in Budget 2011 to provide tax benefits for investments by businesses in a broad range of activities along the innovation value chain. The tax benefits under PIC will be effective from Years of Assessment (YA) 2011 to YA 2015.
- Acquisition or Leasing of Prescribed Automation Equipment
- Training of Employees
- Acquisition of IPRs
- Registration of certain IPRs
- Approved Design Projects
Tax Benefits under PIC:
1. 400% Tax Deduction/Allowances
a. For YA 2011 and YA 2012 – a combined cap of $800,000 of expenditure for each qualifying activity; and
b. For YA 2013 to YA 2015 – a combined cap of $1,200,000 of expenditure for each qualifying activity
For YA 2011 to YA 2015, all businesses can enjoy deduction/allowances at 400% on up to $400,000 of their expenditure per year on each of the six qualifying activities instead of the 100%/150% tax deduction/allowances under the existing tax rules.
2. Cash Payout Option
To support small and growing businesses which may be cash-constrained, to innovate and improve productivity, businesses can exercise an option to convert their expenditure into a non-taxable cash payout. They can convert up to $100,000 (subject to a minimum of $400) of their total expenditure in all the six qualifying activities into a cash payout. The rate of conversion of their expenditure is 30% which means a maximum cash payout of $30,000 per year.
Corporate Income Tax Rebate and SME Cash Grant
In a bid to aid companies battle rising costs, the following have been introduced:
1) A Corporate Income Tax (CIT) Rebate; or
2) A SME Cash Grant,
whichever is the higher amount.
Benefits under CIT and the Cash Grant:
1. Corporate Income Tax (CIT) Rebate
A 20% CIT rebate, subject to a cap of $10,000, will be allowed to each company for YA 2011. The rebate will be computed on the tax payable amount after deducting tax set-offs (e.g. double tax relief and unilateral tax credit).
2. One-Off SME Cash Grant
In recognition that many small companies are not taxable and would not be able to benefit from the CIT rebate, a one-off SME cash grant of 5% on total revenue, subject to a cap of $5,000 will separately be given to them. Like the CIT rebate, this SME cash grant initiative is aim at providing one-off support for companies’ increased business costs.
For a comprehensive list of other tax changes, please refer here.
Important Tax-related Dates
|Income tax returns (Form C)||30 November of each year|
|Withholding tax||15th of each month following payment (or deemed payment)|
|GST returns (GST F5)||One month after the end of prescribed accounting period. The prescribed accounting period can be 3 months (standard) or 1 month (optional)|