Singapore is highly regarded for its taxation system. Its various tax incentives and competitive tax rates continue to impress and attract foreign investments (Also see Foreigners’ guide to starting a business in Singapore). As a result, its commercial industry propels the country as a global investment hub. Take a look at Singapore’s taxation system.
Competitive tax rates
To consistently be an attractive business destination, Singapore had decreased its tax rates over the years. The current headline tax rate of this country is 17%. Way back in 1997, its corporate tax is as high as 26%, or a staggering 9% reduction.
Generous tax incentives.
Qualified resident corporations enjoy a 0% tax exemption on their first S$100,000 of income and a discounted 8.5% rate on the next S$200,000. Thus, a company earning S$700,000 will be exempt on the first S$100,000, will be taxed 8.5% on the next S$200,000 and finally 17% on its income above S$300,000 (that is, S$400,000).
These incentives are particularly appealing to start-ups and small and medium enterprises. This spurs the growth of new entrants into the Singaporean market (Also see Accounting Standards in Singapore). To further attract more investors, the Singapore Income Tax Act had instigated several special purpose and industry-specific tax incentives.
New start-ups (Also see 4 Accounting Tips For Singapore Startup Companies) are further encouraged through 50% tax reduction on its income from S$100,000 to S$300,000. Thus, instead of charging them on the whole S$200,000 range, they will be exempted for half of it. So, if the taxable income is S$150,000, they will be exempted on the first S$100,000 and also on the next S$25,000, and will be taxed 8.5% on the next S$25,000.
To qualify for this start-up perk, the company should be incorporated in Singapore and be a tax resident of Singapore for the year of assessment. Furthermore, the company should have shares owned by individuals or have at least one individual owning 10% of the shares.
No double taxation
Singapore has adopted a single-tier corporate income tax system, meaning all income will pass just one level of taxation. Income tax by businesses are deemed as final tax, so dividends received by shareholders are no longer taxable.
Furthermore, there is no capital gains tax in Singapore. Capital gains tax are those that are levied against gains on sale of stocks, fixed assets, foreign exchange translations and the likes.
Tax Basis Period
The year of assessment is the year tax will be assessed on a business. It is generally the year preceding the year of assessment. Thus, if the business calendar year is January 1 – December 31, 2015, then tax will be assessed on 2016. If for example the company uses fiscal year ending April 30, 2015, then tax will be collected in 2016.
Tax forms to be submitted
In general, companies will have to submit two corporate income tax returns every year to the Internal Revenue Authority. The first one is the Estimated Chargeable Income Form within the first three months after the end of the company’s financial year. This form indicates the income and expenses of the company for the basis year.
Second one is the Form C-S or Form C. This return needs to be submitted every November 30 of each year.
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