The corporate income tax rate in Singapore is 17 per cent. It is calculated on the basis of the company’s chargeable income i.e., taxable revenues less allowable expenses and other allowances. The rate itself is one of the lowest in the world. Yet, the effective tax payable can be even lower if a company utilizes the government subsidies and schemes.
One example is the government’s enhanced Productivity and Innovation Credit (PIC) Scheme. Should companies plan their PIC strategies well, they stand to save up to S$9.6 million in taxes per annum. This is possible as they can estimate their taxable income. Also, they can make provisions for investments in qualifying activities at the time of annual budgeting. But do note the PIC scheme will expire after YA 2018. Businesses who wish to elect for the cash payout option on qualifying expenditure must incur the expenditure by the last day of their basis period for YA 2018.
Who Can Claim the Tax Credits?
Any Singapore-incorporated company, with certain qualifying conditions, are eligible for tax credits and reliefs in the country.
Notably, Singapore has a territorial tax system. This means that tax is imposed on all income accrued in or derived from Singapore. The same is true for all foreign-sourced income remitted to the country. Though there are certain qualifying exemptions (dividends, branch profits, and service income). A general rule for all Singapore companies is they’re taxed on the income earned in the preceding financial year. This means that income earned in the financial year 2017 will be taxed in 2018.
What Tax Credits Are Applicable to All Companies in Singapore?
First, there is the corporate income tax (CIT) rebate. It is given to all companies to ease business costs and support restructuring by companies. This is applicable from YA 2013 to YA 2019. The rebate is computed on the tax payable after deducting tax set-offs (e.g. foreign tax credit), at the following rate:
- 20% corporate income tax rebate, capped at $10,000 for YA 2019;
- 40% corporate income tax rebate, capped at $15,000 for YA 2018;
- 50% corporate income tax rebate, capped at $25,000 for YA 2017;
- 50% corporate income tax rebate, capped at $20,000 for YA 2016; and
- 30% corporate income tax rebate, capped at $30,000 per YA for YA 2013 to YA 2015.
Second is the partial tax exemption applicable to all companies limited by guarantee:
- YA 2020 onwards – 75% exemption on the first $10,000 of normal chargeable income, and a further 50% tax exemption on the next $190,000 of normal chargeable income.
- YA 2010 to 2019 – 75% tax exemption on the first $10,000 of normal chargeable income, and a further 50% tax exemption on the next $290,000 of normal chargeable income.
What Tax Credits Are Applicable to New Start-ups in Singapore?
To encourage a vibrant entrepreneurial ecosystem in Singapore, qualifying new companies are given the following tax exemption for the first three consecutive YAs where the YA falls in:
- YA 2020 onwards – 75% exemption on the first $100,000 of normal chargeable income; and; a further 50% tax exemption on the next $100,000 of normal chargeable income.
- YA 2010 to 2019 – Full exemption on the first $100,000 of normal chargeable income; and a further 50% exemption on the next $200,000 of normal chargeable income.
What About My Company’s Foreign-sourced Income?
For Singapore tax resident companies who also do their business overseas, it’s quite common nowadays to have their foreign sourced income remitted to Singapore. Since the city-state follows a progressive tax framework based on territorial policy, this foreign-sourced income is also taxed.
Though, as detailed in Sections 13 (7A) to 13 (11) of the Income Tax Act (ITA) of Singapore, companies can benefit from the Foreign-sourced Income Exemption scheme (FSIE), which is applicable to foreign-sourced dividends, foreign branch profits, and foreign-sourced service income.
Related Article: Tax Credits for Foreign-sourced Income
How to Avoid Double Taxation in Singapore?
Sometimes, the foreign income of a Singapore tax resident company may be subject to taxation twice – once overseas, and then a second time when the income is remitted into Singapore.
For such cases, Singapore has a foreign tax credit (FTC) scheme, which allows the company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.
Under this, two types of credit or relief can be claimed.
- Double Tax Relief (DTR) – a credit relief offered under Singapore’s Avoidance of Double Tax Agreements (DTAs);
- Unilateral Tax Credit (UTC) – a UTC is applicable on foreign-sourced income received in Singapore by Singapore tax residents from territories that do not have DTAs with the city-state.
Related Article: Learn More About Foreign-sourced Income and Avoiding Double Taxation
In 2011, the government also introduced a Foreign Tax Credit (FTC) pooling system to give businesses greater flexibility in their FTC claims, reduce the taxes payable on foreign income, and to simplify tax compliance.
It must be noted that for Singapore-based companies to enjoy exemptions under the FTC or FSIE, the headline corporate tax rate in the foreign country from which the income is received must be at least 15 per cent, and the income must have already been subjected to tax in that particular country. No FTC will be given to a company in a loss position.
What Other Tax Credits Are Available for Companies in Singapore?
There are two more schemes – Group Relief (GR), and Loss Carry-Back Relief.
GR enables companies to deduct un-utilised capital allowances/ trade losses/donations of one company from the assessable income of another company in the same group. To qualify, the transferor and claimant must be incorporated in Singapore, belong to the same group, and have the same financial year end.
Loss Carry-Back Relief – Under this scheme, companies may carry-back unutilised capital allowances (CAs) and trade losses arising in a YA to reduce the amount of taxes payable in an immediately preceding YA. The scheme complements the existing policy of companies being able to carry forward their un-utilised CAs and trade losses to set off future incomes (i.e. loss carry-forward) or transfer un-utilised CAs and trade losses to related companies (i.e. Group Relief).
Related Article: Read More on Corporate and Personal Tax Planning
If you want help with any of the above, we are best placed to do so. Our reputation as one of leading Singapore tax agents and corporate services provider is unmatched. With our domain expertise, you can expect to optimise your corporate taxation. Please do contact us at Singapore Tax Accounting Services for a discussion on this and much more.
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