Singapore Corporate Tax System

Key features of Singapore Corporate Tax Regime Singapore Corporate Tax Rate and Tax Exemption Scheme Singapore 1-Tier Corporate Tax System Singapore Tax Deductions Singapore Capital Allowances Unutilised Tax Losses, Capital Allowances and Donations

Key features of Singapore Corporate Tax Regime

Low tax rates (corporate tax - 17%, individual tax - 20%, GST - 7%) No capital gains taxes 1-Tier tax system with no dividend withholding tax Liberal rules for unutilised capital allowances / losses / donations set-offs Availability of group relief and carry-back tax mechanisms No thin capitalisation rules No foreign currency restrictions Availability of foreign tax credit / tax exemption for foreign-sourced income Availability of many types of tax incentives Wide tax treaty network

Singapore Corporate Tax Rate and Tax Exemption Scheme

Singapore only taxes income (not capital gains) on a territorial basis. Currently, companies are subject to income tax in Singapore at the prevailing corporate tax rate of 17% in respect of their income accrued in or derived from Singapore, or received in Singapore from outside Singapore. Newly incorporated companies and start-ups may enjoy a full tax exemption on their first S$300,000 income chargeable to tax at 17%, subject to qualifying conditions (See Example A below).

Example A: Company A has S$300,000 taxable profits in Year 1 (year of incorporation) and qualifies for the tax exemption scheme.

Singapore 1-Tier Corporate Tax System

With effect from 1 January 2008, all dividends paid by any Singapore tax resident company in Singapore are tax exempt (1-tier) dividends and such dividends are not subject to further tax in the hands of the shareholders. This 1-tier tax system benefits all Singapore Tax resident companies since they can now pay dividends out of its retained profits without the need to account for franking credits.

Singapore Tax Deductions

Generally, you may claim tax deduction for expenses that are incurred for business. To qualify for tax deduction, these conditions must be met:

The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses). Capital expenditure is not allowed as a tax deduction but certain expenditure may qualify for capital allowances (see below). The deduction must not be prohibited under the Singapore Income Tax Act (eg. domestic and private expenses). The expenses must be incurred. Contingent liability is not allowable as a tax deduction.

Currently, companies are allowed to deduct up to 400% of certain expenses such as qualifying R&D and staff training expenses under the Productivity and Innovation Credit (PIC) Scheme.

Singapore Capital Allowances

In Singapore, capital allowances are available on most classes of capital expenditure with some important exceptions. For example, capital allowances are not granted for capital expenditure on the acquisition of shares and other forms of securities, nor on land, goodwill, nor on the construction of office or residential property.

There are 2 categories of capital allowance available on plant and machinery - the "accelerated allowances" and the "normal allowances".

Under the system of accelerated allowances, tax relief for the full cost of an asset is given over three years, at a rate of 33 1/3% per annum, or in the case of computers and prescribed automation equipment over 1 year at 100% in the year of claim. As announced in the Singapore 2009 Budget Statement, capital expenditure incurred on plant and machinery acquired in the basis periods for the Years of Assessment 2010 and 2011 can be allowed an accelerated write-down over 2 years instead of 3 years.

Normal allowances consist of an "initial" allowance of 20% available for the Year of Assessment in the basis period for which the expenditure is incurred together with annual allowances in the first and subsequent years calculated on a straight line basis based on the economic life of the asset. The initial and annual allowances together give tax relief for no more than the full cost of the asset.

Currently, companies are allowed to deduct up to 400% of qualifying capital expenditure such as prescribed automation equipment (eg. laptops, desktop computers and printers) under the Productivity and Innovation Credit (PIC) Scheme.

Unutilised Tax Losses, Capital Allowances and Donations

Capital allowance, trade loss or donation in excess of a company's income from all sources (i.e. unabsorbed capital allowance, unabsorbed loss or unabsorbed donation) for a current year may be carried forward to future years and/or transferred to another company within the same group for set-off against the income of the other company, subject to conditions.

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