Corporate Tax Singapore, yup, it’s here again. As the end of 2020 looms, don’t forget to pay your tax dues! On 15 December 2020, the e filing of your corporate income tax return is due! For those who have not yet appointed a PDPA officer or do not have a Corporate secretary, you need to appoint one quickly. It is an offence not have a Corporate Secretary or a PDPA officer. For Property Tax in Singapore, you do not have to worry as it is more automated.
Image 1: Corporate Tax Singapore, Lucia Grzeskiewicz, Pixabay
WHAT IS CORPORATE TAX?
Just as individuals like you and I have to pay tax, so do companies.
A company is taxed on the income earned in the preceding financial year. What this means in a nutshell, is that income earned in the financial year of 2019 will only be taxed in 2020. In other words, what you need to file by 15 December this year will be an account of what your company has earned in the last financial year.
For the purposes of the upcoming tax return, 2020 will be termed the Year of Assessment (YA), i.e. the year in which your company’s income the previous financial year (the 12-month period preceding the YA, also known as the “basis period“) is assessed for tax. As a general rule of thumb, the Inland Revenue Authority of Singapore (IRAS) will be assessing what you need to pay in terms of taxes based on what your company made for the bulk of 2019 in 2020.
Singapore levies taxes on profits and not on revenue. Profits of your Singapore incorporated company will be taxed at 17% (with an effective tax rate often lower due to various tax incentives and tax exemptions available to Singapore-resident companies). Singapore uses a territorial tax system. Where income is earned from treaty countries, double taxation is avoided by means of a foreign tax credit granted under those treaties. For non-treaty countries, a unilateral tax credit is given in respect of foreign tax on all foreign-sourced income. Singapore has over 80 tax treaties with other countries to avoid double-taxation of income.
This makes Singapore a very business-friendly and uncomplicated jurisdiction in which to incorporate.
FINANCIAL YEAR DOES NOT MEAN CALENDAR YEAR
While it can be confusing, it is imperative to remember that a Company’s financial year-end is not necessarily the last day of December. Common financial year ends are in March, June or December of each year. This means that the tax return filed this 15th of December for the last basis period could be any of the following:
Financial Year End
31 Mar of each year
1 Apr 2018 – 31 Mar 2019
30 Jun of each year
1 Jul 2018 to 30 Jun 2019
31 Dec of each year
1 Jan 2019 – 31 Dec 2019
The same rule applies to new companies.
CORPORATE TAX SINGAPORE – TAX RATE
To assess the amount of tax you need to pay, IRAS looks at the income, expenses, etc. during the basis period. As mentioned above, the IRAS will only tax your profits, not your revenue.
Corporate Tax Singapore – Types
Tax rate %
Tax on corporate profits
Tax rate on capital gains by the company
Tax rate on dividends distributed to shareholders
Tax rate on foreign-sourced income that was already subjected to taxation overseas
In addition, there are many ways to lower your corporate tax bill.
TAX SCHEMES TO REDUCE YOUR TAX BILL
(1) Tax Exemption Scheme for New Start-Up Companies
Under the scheme, qualifying new companies are given the following tax exemption for the first three consecutive YAs where the YA falls in:
YA 2020 onwards
75% exemption on the first $100,000 of normal chargeable income; and
A further 50% exemption on the next $100,000 of normal chargeable income.
YA 2010 to 2019
Full exemption on the first $100,000 of normal chargeable income; and
A further 50% exemption on the next $200,000 of normal chargeable income.
For more details on the tax exemption scheme for new start-up companies and the qualifying conditions, please refer to Common Tax Reliefs That Help Reduce The Tax Bills.
(2) Partial Tax Exemption for all companies
All companies including companies limited by guarantee can enjoy the following tax exemption:
YA 2020 onwards
75% exemption on the first $10,000 of normal chargeable income; and
A further 50% exemption on the next $190,000 of normal chargeable income.
YA 2010 to 2019
75% tax exemption on the first $10,000 of normal chargeable income; and
A further 50% exemption on the next $290,000 of normal chargeable income.
For more details on the partial tax exemption scheme, please refer to Common Tax Reliefs That Help Reduce The Tax Bills.
(3) Corporate Income Tax Rebate
Corporate income tax rebate is given to all companies to ease business costs and support restructuring by companies and is applicable for YA 2013 to YA 2020.
All companies will receive a corporate income tax rebate of the following:
New! 25% corporate income tax rebate, capped at $15,000 for YA 2020;
20% corporate income tax rebate, capped at $10,000 for YA 2019;
40% corporate income tax rebate, capped at $15,000 for YA 2018;
50% corporate income tax rebate, capped at $25,000 for YA 2017;
50% corporate income tax rebate, capped at $20,000 for YA 2016; and
30% corporate income tax rebate, capped at $30,000 per YA for YA 2013 to YA 2015.
Corporate income tax rebate is computed on the tax payable after deducting tax set-offs (e.g. foreign tax credit).
For more details on corporate income tax rebate and how the corporate income tax rebate is computed, please refer to Corporate Tax Rates, Corporate Income Tax Rebates and Tax Exemption Schemes.
TAX FORMS THAT COMPANIES MUST SUBMIT EVERY YEAR
All companies need to submit two corporate income tax returns to IRAS every year:
Estimated Chargeable Income (ECI) within three months from the company’s financial year end except for (a) companies that fulfil the conditions under the Administrative Concession; and (b) certain entities that are not required to file ECI; and
Corporate Income Tax Returns commonly known as Form C-S or Form C by 15 Dec 2020 for YA 2020, and 30 Nov from YA 2021 onwards except dormant companies for which IRAS has waived the requirement to file.
IRAS provides a wealth of useful resources, some of which we have reproduced or hyperlinked here for your ease of reference and convenience.
To watch the full video on Corporate Tax Filing Obligations and Basis of Assessment (12m 42s), please click here.
HOW CAN SETTING UP A CORPORATE ENTITY HELP?
You may wish to manage your property portfolio through the use of a corporate vehicle in order to reduce your overall tax obligations.
*This does not constitute legal advice. Please consult your own independent legal advice.
Alternatively, read more about your personal tax matters here.