Tax Rates in Singapore
As the Global Financial Crisis rumbles on, with certain reduced growth rates on the horizon for Europe and the United States, multinationals are looking elsewhere to achieve their business goals. Asia, a region riddled with wars and ineffective economic policies for much of the past century, has finally stepped into the front line of global trade and commerce. Here we look at the taxes most applicable to foreign businesses and individuals in Singapore, i.e., corporate income tax, value-added tax, goods and service tax, standard tax on dividends and individual income tax. These rates are based on domestic laws and do not take into consideration reductions or exemptions provided by double tax treaties.
Corporate Income Tax
Singapore’s corporate tax rate is 17 percent, having decreased in previous years in order to attract investment.
A company’s tax residence status depends on where the control and management of its business is exercised. A company is deemed to be a tax resident in Singapore if the control and management of its business is exercised in Singapore. As such, a foreign company’s branch in Singapore is generally not treated as a tax resident in Singapore since the control and management is vested with an overseas parent company.
Tax treatment of resident and non-resident companies is generally the same, but resident companies are entitled to certain benefits that are not available to non-resident companies, such as being able to enjoy tax exemption on foreign-sourced dividends and service income as well as foreign branch profits upon meeting certain stipulated conditions.
Tax incentives are available under the Productivity and Innovation Credit (PIC) Scheme which encourages businesses, especially SMEs, to invest in productivity and innovation. Under the scheme, businesses can get cash payout or a 400 percent tax deduction/allowances on expenditure of up to SGD$400,000 on each of the following six activities:
1) Purchase/lease of prescribed automation equipment
2) Training expenditure
3) Acquisition of intellectual property
4) Registration of intellectual property
6) Design expenditure
Goods and Services Tax
Singapore imposes a Goods and Services Tax (GST), which is a consumption tax levied on the import of goods and supply of goods and services in Singapore. The GST rate is currently 7 percent.
Companies are required to conduct GST registration and collect GST only if its turnover exceeds SGD$1 million in any 12 consecutive months. The GST charged and collected by GST-registered businesses is called output tax, while the GST the businesses incur on business purchases and expenses is called input tax. Businesses can claim input tax if certain conditions are met.
Singapore withholding tax is applicable to certain types of payments to non-resident individuals and companies which derive income from a Singapore source for services provided or work done in Singapore.
Withholding tax applies to the following kinds of payment:
- Interest, commission, fee in connection with any loan or indebtedness
- Royalty or other payments for the use of or the right to use any movable property
- Management fees
- Services rendered
Withholding tax rates range from 10 percent to 20 percent. For tax based on prevailing corporate rates, non-resident companies can claim a refund for any expenses incurred.
Individual Income Tax
Singapore imposes a progressive tax ranging from 0 to 20 percent on the individual income of a tax resident.
A tax resident is a:
- Singaporean; or
- Singapore Permanent Resident (SPR) who established his/her permanent home in Singapore; or
- Foreigner who stayed/worked in Singapore for 183 days or more in previous year (excluding the director of a company).
Singapore-sourced employment income of a non-resident of Singapore is taxed at 15 percent or at the resident rate, whichever gives rise to a higher tax amount.
Dezan Shira & Associates is a specialized foreign direct investment practice, providing business and legal advisory, tax, accounting, payroll and due diligence service to multinationals investing in the emerging markets of Asia. Established in 1992, the firm is a leading regional practice in Asia with twenty offices in five jurisdictions, employing over 170 business advisory and tax professionals. For information or advice on establishing business operations in Singapore, please contact Dezan Shira & Associates at firstname.lastname@example.org or visit www.dezshira.com.