There are many benefits of incorporating a company in Singapore: ease of doing business, first-rate financial hub with readiness of affordable funding, excellent connectivity, robust IP protection and legal system, and strategic location among the world’s leading emerging markets, among many others.
However, the key benefit from a corporate perspective is the attractive tax framework of the city-state. Singapore’s current tax rate is capped at 17%. In a deeper perspective, the effective tax rate for companies can be significantly lower owing to the tax exemption and incentive programs offered by the Singapore government.
Key Facts about Corporate Tax in Singapore
- Singapore uses a territorial tax system: With few exceptions, the government only levies tax on income generated within its borders or remitted from foreign countries.
- Singapore adopts a one-tier taxation system, under which all dividends are tax-exempt in the shareholder’s hands.
- Singapore levies taxes on an income-basis where only profits are taxed, while revenues are not taxed.
- In Singapore, there are no taxes on capital gains or dividend payments.
- Singapore has over 80 Avoidance of Double-Taxation treaties that eliminate or reduce taxes on foreign sourced income.
- Singapore offers generous incentives and tax breaks when investing in new and promising industries, R&D, and productivity-enhancing technologies.
Who Must Pay Corporate Taxes in Singapore?
Under the Income Tax Act, all companies are required to pay corporate tax on any chargeable income derived from Singapore or foreign income remitted into Singapore irrespective of tax-residency status. However, Singapore tax-resident companies enjoy several benefits over non-tax resident companies.
In Singapore, a company is considered tax-resident if its control and management had been exercised in the country for the preceding Year of Assessment (YA). For example, YA 2018, the 12-month period would end at 2017. It could be anywhere from February 2016 to January 2017, or January 2017 to December 2017. This is more dependent on where our company’s strategic decisions were made with respect to the location of our board meetings.
What is the Tax Filing Procedure?
Step 1: File the Estimated Chargeable Income (ECI) Form
In Singapore, companies begin the process of paying corporate taxes by filing the ECI form providing an estimate of its chargeable income with IRAS within 3 months from the end of their financial year. For example, if your financial year end is September 2019, you will have to file your ECI by December 2019. You can file your ECI form through myTax Portal at https://mytax.iras.gov.sg. ECI is a company’s taxable income after deducting tax-allowable expenses.
All companies MUST file an ECI with effect from YA2020 even if your company is dormant. YA2020 means your financial year ends in 2019.
Step 2: File the Corporate Income Tax Return
The Income Tax Return provides details of your company’s actual income, which differs from the ECI, which represents an estimation of your company’s income.
Companies need to file a Corporate Income Tax Return known as Form C with IRAS. Filing form C requires your company to attach financial statements, tax computations, detailed profit & loss statement, and other relevant supporting documents.
If you have a smaller company, you must meet certain conditions to file a simplified version of Form C called Form C-S that does not require the abovementioned additional documents. The conditions include:
- Your company is incorporated in Singapore;
- Your company has annual revenue of S$5 million or less;
- Your company’s income is taxed at the standard corporate tax rate of 17%; and
- Your company is not claiming any special schemes such as foreign tax credits or investment allowances.
You will have to e-file your Form C or Form C-S by 15 December. As an example, if your financial year ends at September 2019, you will need to file your ECI before December 2019, and your Form C or Form C-S before 15 December 2020.
Step 3: Receive IRAS’ Notice of Assessment (NOA)
NOA is an official notice from IRAS that states the amount of tax to be paid. You can file the forms online through the one-stop myTax Portal.
After filing, the IRAS conducts a thorough review of the forms and issues the NOA, which includes a detailed statement of the company’s tax liabilities.
The NOA also provides your company with an opportunity to dispute the tax assessment to the IRAS if deemed necessary.
Step 4: Pay the Calculated Corporate Tax
If you find no traces of miscalculations of corporate tax in the NOA, you must pay the amount within 30 days from the date shown on the document.
You can choose to remit the payment through various means, including cheques, interbank GIRO, internet banking, or telegraphic transfer.
Start-up companies in Singapore can enjoy an enhanced tax exemption scheme for their first three consecutive years of business. To qualify, they must be incorporated in Singapore and have a maximum of 20 shareholders. One shareholder must be an individual with a minimum of 10% of shares.
Singapore also offers tax exemptions for businesses in certain industries, such as qualifying foreign banks, offshore funds, and global trading companies.
A Singapore tax-resident company may be eligible for tax-exemptions on foreign dividends, foreign branch profits and service incomes from foreign countries if such incomes have already been subject to corporate tax in the foreign country.
From YA2020 onwards, for the first 3 YAs, a Singapore tax-resident company may qualify for a 75 % tax exemption on its first SGD$100, 000 of chargeable income and a further 50% tax exemption on the next SGD$100, 000 of chargeable income.
What are the Deadlines for Filing of Corporate Tax?
Companies must file their corporate tax annually, according to the following deadlines:
- Filing the Estimated Chargeable Income (ECI) is due within 3 months of companies’ financial year-end.
- Filing form C or form C-S is due by November 30 for paper filing or December 15 for electronic filing.
What are the Penalties for Non-payment of Corporate Tax?
Late filing of corporate tax is an offence as it may lead to the prosecution of the company’s directors in court to recover the unpaid tax. Failure to pay on time may result in a 5% penalty, with subsequent penalties of 1% levied for each month the tax remains unpaid (up to a total of 12% penalty).
If the Income Tax Returns have been inaccurately filed without any intention to evade taxes, IRAS could impose:
- Financial penalties of up to 200% of the tax undercharged;
- Fines of up to S$5,000; and/or
- Imprisonment of up to 3 years.
If the Income Tax Returns have been falsely declared with the intention to evade taxes, IRAS could impose:
- Financial penalties of up to 400% of the tax undercharged;
- Fines of up to S$50,000; and/or
- Imprisonment of up to 7 years of the relevant person.
Considering the strictness of the above penalties, we highly recommend that you hire a qualified tax advisor to ensure that your corporate taxes are filed and paid accurately and promptly. Tianlong Services can help you comply with Singapore’s accounting standards by keeping accurate and updated supporting records.