Profits Tax stands as a key pillar in Singapore's taxation framework, levied on the net profits generated by companies, businesses, and trade activities conducted within the city-state.
Determining Taxable Profits
Taxable profits in Singapore encompass net profits derived from local sources, covering various aspects:
- Trading Profits: Income generated from business activities and trade operations conducted within Singapore.
- Profits from Services: Income derived from providing services within the city-state.
- Profits from Property: Gains from property sales and rental income.
- Interest, Dividends, and Royalties: Income from these sources, subject to specific provisions.
The standard corporate tax rate in Singapore is 17%, applying uniformly to both corporations and unincorporated businesses.
Starting from the Year of Assessment 2020 (FY2020) and onwards, newly incorporated companies (Start-up) can benefit from the following tax exemptions during the initial three consecutive Years of Assessment (YAs):
- 75% Exemption on the First SG$100,000 of Normal Chargeable Income:
-
Additional 50% Tax Exemption on Taxable Income up to SG$100,000:
|
Chargeable income |
% exempted from Tax |
Amount exempted from Tax |
|
First $100,000 |
@75% |
=$75,000 |
|
Next $100,000 |
@50% |
=$50,000 |
|
Total $200,000 |
=$125,000 |
To qualify for this exemption, companies must meet the following criteria:
- Incorporation in Singapore.
- Tax residency in Singapore (Refer to the tax residency details below).
- No more than 20 shareholders, with at least one individual shareholder holding a minimum of 10% of shares.
Newly incorporated companies are eligible for an extra partial tax exemption, resulting in an effective tax rate of approximately 8.5% on taxable income up to SG$100,000 annually.
Taxable income exceeding SG$100,000 will be subject to the standard headline corporate tax rate of 17%.
After the first three years, companies in Singapore can benefit from a partial tax exemption:
|
Chargeable income |
% exempted from Tax |
Amount exempted from Tax |
|
First $10,000 |
@75% |
=$7,500 |
|
Next $190,000 |
@50% |
=$95,000 |
|
Total $200,000 |
=$102,500 |
Income tax filing due date
The due date for corporate tax filing for Singapore companies is 30 November (for hard copy forms) and 15 December (for e-filing).
A full set of returns, including Form C, audited and unaudited accounts, and tax computation, must be filed by the company. Form C is a declaration form that a business uses to report its income, while tax computation is a statement that shows adjustments made to the net profit or loss according to the business's accounting records in order to determine how much income is subject to taxes.
Tax implications for losses
In Singapore, a business can generally deduct permitted expenses from income for taxation reasons. Subject to certain restrictions, the loss can be carried forward indefinitely; nevertheless, it must be subtracted in the first year when there is a statutory income. The "proceeding year" basis is used for the deduction of the loss. It's crucial to remember that the losses can only be used if the principal activities and shareholding, if applicable, do not significantly alter.
Example:
Year X: A company incurs a loss of SGD 100,000.
Year X+1: The company generates a profit of SGD 50,000.
In this scenario, the company can carry forward the loss from Year X to offset the profit in Year X+1.
Exemptions and Deductions
Similar to Hong Kong, certain exemptions and deductions exist:
- Dividends Exclusion: Dividends received from a corporation subject to Singapore Profits Tax are excluded from the assessable profits of the recipient.
- Allowed Deductions: Generally, expenses incurred in the production of chargeable profits are deductible. However, specific prohibitions include domestic or private expenses, capital-related costs, and non-business-related taxes.
Double Taxation Relief
Singapore has an extensive network of Double Taxation Agreements (DTAs) with various jurisdictions. These agreements prevent double taxation on income earned in both Singapore and the respective contracting jurisdiction.
Conclusion
Profits Tax in Singapore is a fundamental element of the nation's fiscal landscape. Understanding taxable profits, exemptions, the declaration process, and leveraging anti-avoidance measures empowers businesses to ensure compliance with tax regulations while optimizing financial strategies.
Stay informed about the latest updates in Singapore's Profits Tax landscape by reaching out to us for expert guidance.