CORPORATE INCOME TAX
Singapore is a small country with no natural resources. To promote economic growth and development, Singapore has adopted an open economy to foreign investments and international trade since its independence in 1965. This has allowed us to transform from a third world economy into a global business hub with substantive activities across diverse sectors over the past 50 years.
Located at the crossroads between the East and West, Singapore is an attractive location for global businesses to gain access to new and emerging markets in Asia. With its excellent infrastructure, robust and transparent regulatory environment, political stability, skilled workforce and a stable and efficient tax regime, Singapore has become a trusted hub for many businesses, with manufacturing as the largest sector in our economy.
Foreign-sourced income exemption regime
Singapore has a broad-based tax system that levies taxes on companies and individuals. We tax foreign-sourced income on a remittance basis. Double taxation is eliminated through the provision of a foreign tax credit for taxes suffered by the taxpayer abroad on the remitted income and through avoidance of double taxation agreements. To mirror and simplify the foreign tax credit administration for businesses, the foreign-sourced income exemption regime was introduced on 1 June 2003.
Start-up Tax Exemption scheme
Income derived by companies in Singapore is taxed at a flat rate of 17%. Our corporate income tax rate of 17% is on par with the global trend of falling corporate tax rates, as countries seek to improve their competitiveness by lowering their taxes on companies. To spur entrepreneurship, the start-up tax exemption scheme was introduced in 2004 to provide newly-incorporated companies some exemption on their taxable profits in their first three years of operations. Please refer to IRAS’ website for more details on the start-up tax exemption scheme and the qualifying conditions.
Partial Tax Exemption scheme
The Government also recognises that small and medium-sized enterprises (SMEs) are an important component of a vibrant economy. To help such companies grow and establish themselves, the Government has put in place a partial tax exemption scheme which lowers the taxable profits of these companies. While the partial tax exemption scheme is available to all companies, the exemption thresholds are designed to target the benefits at SMEs. For more details on the partial tax exemption scheme, please refer to IRAS’ website.
As companies grow and expand their operations, they tend to organise themselves into multiple holding companies, subsidiaries and associate companies to accommodate different business units and to manage liabilities. To facilitate risk-taking and entrepreneurial activities by such companies, the Government introduced the loss transfer system of group relief. Under Singapore’s group relief system, current year unutilised losses, donations, and unabsorbed capital allowances of related companies may be transferred to related companies within the group. This reduces the overall tax burden for the whole company group.
Productivity and Innovation Credit scheme
To remain commercially competitive and viable in a knowledge-based economy, it is imperative for businesses to invest in innovation, upgrade their operations and create new value. The Government encourages businesses to carry out high value-added activities by providing tax deduction on expenditure incurred to undertake qualifying research and development (R&D) activities as well as tax allowance on expenditure incurred to acquire qualifying intellectual property rights. The tax deduction and allowance were greatly enhanced under the Productivity and Innovation Credit (PIC) scheme introduced in Budget 2010 for Year of Assessment 2011-2015, and was extended in Budget 2014 for YA2016-YA2018. In Budget 2016, PIC scheme was announced to lapse in YA2018. This was in line with the Industry Transformation Programme to move towards more targeted measures.
Merger & Acquisition (“M&A”) allowance scheme
This was introduced in Budget 2010 (with enhancements made in Budget 2012, Budget 2015 and Budget 2016) to facilitate mergers and acquisitions, with a focus on developing a vibrant and dynamic SME sector.
Double Tax Deduction Scheme for Internationalisation
Singapore’s small domestic market limits the growth of businesses. Hence, it is necessary to encourage businesses to venture into overseas markets. The Double Tax Deduction Scheme for Internationalisation (DTDi) was introduced to provide support to businesses as they venture into the international markets.
Like many jurisdictions, Singapore adopts the use of tax incentives as one of the tools to develop new and high-growth activities. Tax incentives are granted only for qualifying activities and the associated income. Other non-qualifying activities and the associated income of a taxpayer will continue to be taxed at the corporate tax rate.