Corporate Tax in Singapore: How to Pay, Tax Rate and Tax Exemptions
Singapore has one of the most attractive corporate tax regimes in Asia, with low and transparent tax rates and an efficient tax filing/reporting system.
This article will provide you with a brief overview of corporate taxes in Singapore as well as the procedures involved in paying your taxes.
Who Must Pay Corporate Taxes in Singapore?
Regardless of tax-residency status, all companies are required to pay corporate tax under the Income Tax Act on any chargeable income derived from Singapore or foreign income remitted into Singapore.
However, Singapore tax-resident companies enjoy several benefits over non-tax resident companies.
When is a company considered a Singapore tax-resident?
A company will be considered tax-resident in Singapore if its control and management had been exercised in Singapore for the preceding Year of Assessment (YA).
The YA is a 12-month period in which the company’s income will be assessed. For example, for YA 2018, the 12-month period would generally be from 1 April 2016 to 31 March 2017.
In determining where the company’s control and management is exercised, it is more dependent on the location where its strategic decisions are made (this will generally be the location of the company’s board meetings), rather than the company’s place of incorporation.
What are the benefits a Singapore tax-resident company enjoys?
The benefits enjoyed by tax-resident companies include:
- A Singapore tax-resident company can avoid double taxation of certain incomes in countries which Singapore has signed Avoidance of Double Taxation Agreements (DTAs) with. This means that the company is eligible for tax exemption or reduction on any income which has already been taxed in the foreign country. Similarly, if the income has already been taxed in Singapore, the company may claim tax exemption or reduction in the foreign country.
- A Singapore tax-resident company may be eligible for tax-exemptions on foreign dividends, foreign branch profits and service incomes from foreign countries provided that such incomes have already been subject to corporate tax in the foreign country. To qualify for such exemptions, the foreign country in question must have a corporate tax of at least 15% and the Inland Revenue Authority of Singapore (IRAS) considers the exemption to be beneficial to the company.
- For the first 3 YAs, a Singapore tax-resident company may qualify for 100% tax exemption on its first S$100,000 of chargeable income and a further 50% tax exemption on the next S$200,000 of chargeable income. (With effect from YA 2020, this will be reduced to 75% tax exemption on the first S$100,000 of chargeable income and 50% tax exemption on the next S$100,000 of chargeable income.)
In addition to corporate taxes, all companies are also required to pay withholding tax (tax which must be paid on payments to foreign companies) when they make payments in respect of certain categories of services to non-resident companies.
Read more about the payments which are liable for withholding tax in our other article.
By When Do I Need to File Corporate Tax?
Corporate tax must be filed annually by:
- 15 December if filing online; or
- 30 November if the company wishes to physically file the Income Tax Return.
Late filing of corporate tax is an offence. The company’s officers (e.g. their directors) may be prosecuted in court.
In court, the company’s officers and the company may be fined up to $10,000 and $1,000 respectively. The company may be allowed to settle its fine through paying a composition amount of between $200 and $1,000.
In any case, the company will still have to file its outstanding corporate tax documents.
How Much Corporate Tax Rate Do I Need to Pay?
What is the corporate tax rate in Singapore?
Singapore corporate tax is levied at a flat rate of 17% on chargeable income.
A company can calculate its chargeable income by taking its taxable revenues (any ongoing or recurring source of income derived from Singapore or remitted into Singapore) and subtracting deductible expenses.
Deductible expenses refer generally to any expenses “wholly and exclusively incurred … in the production of income”. This means that the company must be able to show why the expenditure was necessary to earn the income.
A non-exhaustive list of deductible expenses may be found on IRAS’ website.
Claiming and carrying forward of capital allowances
A company may claim capital allowances (tax relief on any physical or tangible capital assets acquired by the company) in the form of further tax deductions to cover the cost of writing off any machinery or plant acquired for the purposes of its business.
The amount of capital allowances claimable annually may be calculated as the cost price of the asset divided by the number of years taken to completely write it off.
As a general rule, computers, prescribed automation equipment and assets costing up to S$5,000 can be written off in 1 year, while all other assets eligible for capital allowances can be written off over the course of 3 years.
Any unutilised capital allowances can be carried forward indefinitely to subsequent YAs provided that there is no substantial changes in the company’s shareholdings or principal business activities.
Carrying forward of net losses
Finally, where a company makes net losses in any YA, it may carry these losses forward to subsequent YAs to be deducted against future incomes provided that it satisfies the Shareholding Test, i.e. there is no substantial change in the company’s shareholdings between the last day of the year in which the losses were incurred, and the first day of the YA in which the losses are to be deducted.
This allows for a temporarily loss-making company to reduce future taxes payable.
How Do I Pay Corporate Tax?
1. File the Estimated Chargeable Income (ECI) form (unless exempted)
Filing procedure for ECI form
In Singapore, the process of paying corporate taxes generally begins by filing an Estimated Chargeable Income (ECI) form providing an estimate of the company’s chargeable income with IRAS within 3 months of their financial year end.
All companies are required to file an ECI unless it has an annual revenue of not more than S$5 million and there is no estimated chargeable income for that YA, in which case it would be exempt from filing an ECI.
2. File the annual Income Tax Return
Filing procedure for Annual Income Tax Return
The company must then file its annual Income Tax Return with IRAS.
The Income Tax Return is a report of the company’s actual income, thus differing from the ECI which is an estimate of the company’s income.
Companies must generally file their Income Tax Return using Form C, which requires the submission of financial statements, tax computation and supporting schedules.
However, a company may qualify to submit the simplified Form C-S instead if it meets the following conditions:
- The company is incorporated in Singapore.
- The company has annual revenue of S$5 million or less.
- The company’s income is taxed at the standard corporate tax rate of 17% (in other words, the company must not have income taxed at reduced tax rates, such as in certain promoted industries).
- The company is not claiming any special schemes such as investment allowances or foreign tax credits.
A dormant company (one which does not carry on business and has no income at all for that financial year) is also allowed to submit a simplified Form C-S/C for Dormant Company instead of the full Income Tax Return.
3. Receive IRAS’ Notice of Assessment (NOA)
The forms mentioned above may be filed online through the one-stop myTax Portal maintained by IRAS.
After filing the necessary forms, IRAS will review the forms and will then issue a Notice of Assessment (NOA) to the company by 31 May of the following year.
This NOA is meant to provide a detailed statement of the company’s tax liabilities as well as provide an opportunity for the company to object to IRAS’ tax assessment if it wishes to do so.
4. Pay the assessed corporate tax
Where there are no issues raised in the NOA, the company must proceed to pay the assessed corporate tax within 30 days from the date of the NOA.
This may be done through a variety of methods including interbank GIRO, internet banking, cheque or telegraphic transfer.
Penalties for Inaccurate Tax Filings
Where the Income Tax Returns have been inaccurately filed without any intention to evade taxes, IRAS could impose:
- Financial penalties of up to 200% of the tax undercharged;
- Fines of up to S$5,000; and/or
- Imprisonment of up to 3 years.
Read about the common tax-filing mistakes to avoid to ensure that corporate taxes are filed accurately.
Penalties for Late or Non-Payment of Corporate Tax
Failure to pay the assessed corporate tax on time may result in a 5% penalty, with subsequent penalties of 1% imposed for each month the tax remains unpaid (up to a total of 12% penalty).
IRAS may also take further enforcement or legal actions to recover the unpaid tax.
Penalties for tax evasion
Tax evasion is where a company/individual deliberately provides IRAS with false or incomplete information in order to reduce their tax liability or obtain inappropriate tax credits and refund.
Singapore treats tax evasion as a serious criminal offence and IRAS has a sophisticated programme to investigate suspected tax evasion cases.
This may include surprise visits to, or searches of, company premises and residences to uncover accounting records and other relevant documents as well as obtaining or verifying information from third-parties such as banks and financial institutions.
IRAS will usually arrange for meetings with the company in question to discuss any findings uncovered during investigations.
It may then impose penalties depending on the individual circumstances, taking into account the company’s cooperativeness during investigations and whether there was any intention to evade taxes.
An investigation may range between 15 – 24 months.
In cases where the income tax returns have been falsely declared with the intention to evade taxes, IRAS could impose:
- Financial penalties of up to 400% of the tax undercharged;
- Fines of up to S$50,000; and/or
- Imprisonment of up to 7 years for the relevant person.
In light of the severity of the above penalties, it is highly recommended to enlist the help of a qualified tax advisor and to ensure that tax filings and payments are performed in an accurate and timely manner. Check out our competitive rates for tax and other corporate services here.
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