Singapore Corporate Income Tax
As has been mentioned, the current corporate tax rate in Singapore is 17%. All companies that conduct business operations in Singapore, regardless of resident status, are taxed at this corporate tax rate of 17% unless their profits are tax-exempt or specifically subject to lower tax rates. Once again, this figure is much lower than the corporate tax rates of Singapore’s peers in terms of nominal GDP per capita. Denmark has a corporate tax rate of 22%, the United States 27%, and Australia 30%. This low corporate tax rate serves Singapore well in attracting foreign companies to relocate to or conduct business operations in the country.
Start-up tax exemption
Qualifying start-up companies are eligible for both a partial tax exemption and a three-year start-up tax exemption. Starting from YA 2020, 75% of the company’s first S$10,000 of chargeable income will be tax-exempt, followed by 50% of the company’s next S$190,000 of chargeable income. This start-up exemption is not available to property development and investment holding companies. In addition, for YA 2018, there is a 40% corporate tax rebate which is capped at S$15,000. In YA 2019, there will also be a rebate of 20% of tax payable for the year of assessment. This rebate is capped at S$10,000. The exemptions and rebates mentioned have caused Singapore’s effective corporate tax rate to therefore be far lower than its nominal rate.
Singapore Tax Resident
Any dividends paid by a Singapore resident company are sourced in Singapore. This is because the location of the source of the dividend income is the location in which the company is considered to be a tax resident. According to Section 2 of the Act, a company is regarded as a tax resident of Singapore if the control and management of its business is exercised there. The place of control and management is usually considered to be the place where the company’s board of directors holds its meetings. On the other hand, where non-resident companies conducting business in Singapore pay dividends, the source of the payments is not in Singapore. The non-resident company in question will also not be subject to the provisions of the Singapore Companies Act, as well as those of the Act.
One-tier Corporate Tax System
Singapore has been using a one-tier corporate tax system since 2003. This one-tier system replaced the full imputation system that had been used from 1948 to 2003. The one-tier system makes the income tax paid by companies the final tax; this tax will not be imputed back to the company’s shareholders. This stands in contrast to the full imputation system, in which any corporate tax paid in relation to dividends is imputed to the shareholders. Shareholders will also avoid being taxed on the Singapore dividends received under the one-tier system. However, the one-tier system may also increase the tax burden on companies that depend on borrowings to fund equity investments in Singapore subsidiaries. This is because any interest costs attributable to Singapore dividends are not deductible, as the dividends are not taxable. Hence, these companies may be subject to higher overall tax costs.
It is interesting to note that Singapore’s personal and corporate tax rates have been trending in opposite directions. In 2016, the maximum personal tax rate in Singapore was raised to 22%, the highest maximum rate since 2004. Conversely, the current corporate tax rate of 17% is well below historic corporate tax rates; as recently as 2000, Singapore’s corporate tax rate stood at 26%.
Other Taxes in Singapore
Personal and corporate income taxes are not the only taxes required to be paid in Singapore. There are also the following: stamp duty, goods and services tax (GST), and property tax.
Stamp duty is a tax imposed on any dutiable documents related to any immovable property, stock, or shares in Singapore. Dutiable documents include the following: lease or tenancy agreements for properties, transfer documents for properties, and mortgages for properties. Lease or tenancy agreements for properties are signed when a taxpayer rents a property. For these, stamp duty is based on either the actual rent or market rent. The higher figure is to be
used. Transfer documents for properties are related to buyer’s stamp duty (BSD), additional buyer’s stamp duty (ABSD), and seller’s stamp duty (SSD). BSD rates of up to 3% will be applied to any acquisition of non-residential properties. This figure rises to 4% when dealing with residential properties.
Additional buyer’s stamp duty (ABSD)
Residential properties are those defined as a property or component of one whose permitted use is for residential or mixed purposes, one of which is residential, at the date of purchase or acquisition. Liable buyers must also pay ABSD in addition to BSD. ABSD rates were most recently updated on July 6, 2018. These rates depend on the following factors: whether the buyer is an individual or an entity, the residential status of the buyer, and the count of residential properties owned by the buyer. ABSD rates range from as low as 0%, imposed on Singapore citizens purchasing their first residential property, to 25% plus an additional 5%, to be imposed on housing developers buying any residential property.
Seller’s Stamp Duty (SSD)
SSD must be paid on all residential properties and lands that have been bought on or after February 20, 2010 and sold within the holding period. The amount of SSD to be paid depends on the type of property disposed or sold, the date of purchase or acquisition, the date of sale or disposal, and applicable rates.
SSD rates are calculated by applying the requisite SSD rate to either the selling price or market value of the property at the date of sale or disposal, whichever is higher. SSD can be as low as 0% or as high as 16%. There are also various stamp duty remissions and reliefs for the property, including those related to the aborted sale and purchase agreements, matrimonial proceedings, conveyance directions, and donations to an institution of a public character, among others.
Goods and services tax (GST)
GST is a consumption tax imposed on the import of goods from abroad, as well as most goods and services in Singapore. GST is currently the Singaporean government’s second-largest source of tax revenue, only trailing corporate tax. GST has been imposed at a 7% rate since 2007, though the government has made plans to increase this rate to 9% at some time in the future. Only the export of goods, services classified as international services, and sales in which goods are delivered from abroad to another foreign location are exempt from GST. Anything that is
not exempt from GST is known as a taxable supply. A person or business must register for GST if the total value of the person’s or business’s taxable supplies or taxable turnover exceeds or is expected to exceed S$1 million. However, persons or businesses whose taxable supplies or taxable turnover does not or is not expected to surpass S$1 million marks may also register for GST voluntarily. GST is divided into input and output tax. Input tax refers to GST incurred on one’s business purchases and expenses. If a business owner satisfies the conditions for claiming input tax, the owner may claim the tax on any business purchases and expenses. Output tax is GST charged and collected by a business. Output tax is to be paid to the IRAS. GST-registered businesses must submit GST returns to the IRAS one month after the end of each prescribed accounting period and report both input and output tax in the GST return. The difference between output and input tax is the net amount of GST payable to the IRAS or refunded by the IRAS.
Tourist Refund Scheme
On an individual level, tourists who buy goods from retailers who participate in the electronic Tourist Refund Scheme can claim a refund of GST paid on purchases made in Singapore, while travellers who bring goods into Singapore will receive GST relief on these items as long as they are intended for the traveller’s personal use and will not be put on sale. However, consumers who import goods into Singapore via mail must pay GST. The amount payable is based on the cost, insurance, and freight (CIF) value of the goods plus all duties payable.
Property tax is a wealth tax imposed under the Property Tax Act on immovable properties based in Singapore. Property tax is payable in advance in Singapore every year. Annual property tax is calculated by multiplying the property’s annual value (AV) with the relevant property tax rates. A property’s AV is tied to the estimated annual rent it would be able to fetch if the property were to be rented out. The IRAS takes factors such as the property’s size, the property’s condition, and rental costs of equivalent properties in the vicinity into consideration when deciding a property’s AV. Property tax rates on owner-occupied and non-owner-occupied residential properties are applied on a progressive scale. Owner-occupied residential properties are any properties in which the owner lives. The highest possible owner-occupied property tax rate is 16%, which is imposed on any properties with a value more than S$130,000. Non-owner-occupied residential properties abide by a distinct set of tax rates. For such properties, the highest tax rate is 20%, which is imposed on properties that have a value of over S$90,000. There is also an exclusion list, and properties on this list will always be taxed at 10%. Until January 1, 2014, there existed a property tax refund for vacant residential and non-residential properties, but it was removed. This was because the Singaporean government intended to align the property tax regime with its policy intent regarding property tax, which was to tax
property wealth in such a way that it disregards the question of whether the property is occupied. This also ensured that all vacant properties were treated equally with regard to taxation.
Singapore’s reasonable, business-friendly tax rates have played a significant role in the development of the country’s economy. Although Singapore’s tax rates may be relatively low, they are still substantial enough to sustain government mechanisms that require tax money to function. At the same time, because the tax rates are low, taxpayers are not overwhelmed by large tax bills. The tax reliefs and rebates that go with Singapore’s personal and corporate income taxes have also done much to ease the tax burden of many. Overall, Singapore’s tax rates appear to be suitable for most of its taxpayers – a highly desirable development, given the country’s status as a global corporate and financial hub.