Singapore imposes corporate income tax (CIT) at a flat rate of 17 percent for both foreign and domestic companies, the lowest among all ASEAN member states. The country practices a single-tier corporate tax system, which means businesses pay CIT only on chargeable income (profits).
The low CIT rate has attracted a dynamic investment community to Singapore, comprising of more than 7,000 multinational firms, with more than half operating their Asia-Pacific business out of the country.
Foreign investors should seek the help of registered local tax advisors to better understand how they can stay compliant with the relevant regulations.
Who is Obligated to Pay?
Businesses that have their income derived from Singapore or income remitted to the country are obligated to pay corporate taxes at a rate of 17 percent on its chargeable income, regardless of whether it is a local or foreign company.
The tax residency of a company is determined by where the business is managed and controlled. The location of the company’s board of directors meetings, in which strategic decisions are made, is a key factor in determining where the control and management are exercised.
If the company’s board of directors or other key management personnel that control the business are based outside of Singapore, then the company will be considered a non-tax resident.
This is also the case if the company holds its board meetings outside the country, despite day-to-day operations occurring in Singapore.
Taxable incomes include:
- Profits from trade or business;
- Royalties and premiums;
- Rental property income; and
- Income from investments such as interests.
Benefits of Being a Tax Resident
Qualifying as a tax resident will mean the company is eligible for the multitude of tax incentives the country offers, which can lower the total effective CIT tax rate.
New startups can receive a tax exemption of 75 percent on the first S$100,000 (US$73,000) of chargeable income and a further 50 percent exemption on the next S$100,000 (US$73,000) of chargeable income (available for the first three years of operations).
All other companies will receive a tax exemption of 75 percent on the first S$10,000 (US$7,366) and a further 50 percent on the next S$190,000 (US$139,959) of chargeable income.
Tax residents can also enjoy the benefits country’s 90-plus double tax avoidance (DTA) agreements, which enable businesses to eliminate instances of double taxation between treaty signatory countries.
Small companies (those with annual revenue of under S$5 million (US$3.7 million)) that are incorporated in Singapore are also eligible for simplified taxable income reporting procedures.
Moreover, tax residents have the advantage of gaining access to the wider Asian markets through the country’s comprehensive free trade agreements (FTA).
Submitting Income Tax Returns
Companies are required to report their income tax returns to the Inland Revenue Authority of Singapore (IRAS) twice a year. This is completed by submitting the following two forms:
- The Estimated Chargeable Income (ECI), which must be submitted within three months of the end of the company’s financial year.
- Form C-S or Form C (CIT returns forms), which must be submitted by November 30 of each Year of Assessment (YA).
Companies with annual revenue of S$5 million (US$3.7 million) or less and an ECI of zero for the YA are exempted from submitting the ECI form. Some other institutes, such as foreign universities, are also exempt from submitting the ECI form.
Companies are required to fill out Form C-S or Form C even if they are making a loss. Form C-S is a simplified and streamlined version of Form C for smaller companies (those with annual revenue of under S$5 million (US$3.7 million)) and also exempts them from filing additional financial statements.
Dormant companies are also required to submit their income tax returns unless they meet the criteria for a waiver.