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%. 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.
Merger & Acquisition (“M&A”) allowance scheme
As companies grow and expand their operations, they may organise themselves as multiple holding companies, subsidiaries and associate companies to accommodate different business units and to manage liabilities. 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 group. For more details on the group relief system, please refer to IRAS e-tax guide on group relief.
This was introduced to facilitate mergers and acquisitions, with a focus on developing a vibrant and dynamic SME sector. For further details of the M&A scheme and qualifying criteria, please refer to IRAS’ e-tax guide on the M&A scheme, which can be found on IRAS’ website.
Double Tax Deduction Scheme for Internationalisation
The Double Tax Deduction Scheme for Internationalisation (DTDi) provides 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.