Stay Tax-Savvy : Navigate Singapore’s Territorial Tax System

This post is a brief guide for foreigner investors to grasp on the Singapore taxation regime when they start their business via their Singapore private company limited by shares.

• The Singapore tax authority is the Inland Revenue Authority of Singapore, commonly written as IRAS.
• The filing of tax returns via e-File, IRAS’s web portal for taxpayers to handle their tax returns, is highly recommended and very popular in Singapore.
• Singapore adopts both income taxes, i.e., Corporate Income Tax, Individual Income Tax, and Property Tax; and indirect taxes, i.e., Customs & Excise Duties, Goods & Services Tax, Stamp Duties, etc..
• Corporate Income Tax, Income Tax, and Property Tax are chargeable on the profit of companies, the income of individuals, and the rental income of Singapore properties, respectively.
• Singapore imposes income taxes on a territorial basis. Generally, tax is imposed on all income accruing in or derived from Singapore, and all foreign income remitted to or deemed remitted to Singapore (the gov made some tax exemptions for foreign profits).
• Under the territorial basis, whether a Singapore company is a tax resident of Singapore or not depends on where the business is managed and controlled in Singapore. This tax resident status can change from one year to the next. The company’s place of incorporation is not the sole reason to decide their tax residence.
• Singapore adopts a single-tier tax system that means business profits are taxed once only, i.e., tax is charged on the company earned those profits. Dividends paid by a Singapore company to its shareholders are taxed already on the company, so it is tax exempt on the shareholders of the company.
• Singapore IRAS justifies whether an income is “Singapore-sourced” and “Singapore-remitted” are a matter of question depending on the fact that how a taxpayer source this income inside the actual business operations of the industries.
• Under the laws, foreign sourced income is considered taxable in Singapore when it is:
  • remitted to, transmitted or brought into Singapore;
  • used to pay off any debt incurred in respect of a trade or business carried on in Singapore; or
  • used to purchase any moveable property brought into Singapore.
• Corporate Income Tax is flat 17 percent on the chargeable income of the Singapore company.
• Singapore adopts preceding year basis in taxation, meaning that only the earned income is subject to income tax. The government assesses the taxpayer’s tax obligation of a particular year in the following year. e.g. the taxpayer received the in 2017, the government would assess and tax the income in 2018.
• The concept and use of Year of Assessment (“YA”), Basis period, and Financial Year End in the official terminology:
  • The IRAS marks 31 December as the official financial cut-off date of every YA, which spans 12 months.
  • YA refers to the year when the government calculates and charges income tax. E.g., YA 2019 means the government will tax the taxpayers on their income earned in the preceding basis period (around 12 months).
  • “Basis period” exists in the field of all income taxes, and it always specifies to a YA and the type of income. E.g., the employment income of the basis period for YA 2019 refers to a period of employment income to be assessed and charged in YA 2019; the time starts from 1 January 2018 to 31 December 2018.
  • “Financial year-end” refers to a calendar date when a company ends its financial year because of accounting purposes. Singapore businesses can choose any calendar date as its date of financial year-end, the most common date is 31 December (default option), following by 31 March, and 30 June.
  • “Financial year (“FY”)” may span across 2 calendar years, says a company’s financial year-end is 31 March 2018, FY 2017/18 represents the period from 1 April 2017 to 31 March 2018.
  • As the government can assess your income after you have received it, the basis period of a business entity in a YA covers the latest financial year. E.g. in YA 2019, the basis period of a business which has its fiscal year-end on 31 March 2018, in turn the basis period of this business is from 1 April 2017 to 31 March 2018.
  • Unless exempted, all companies are required to submit two corporate income tax forms to IRAS every year, which are Estimated Chargeable Income (“ECI”) and Form C or Form C-S (simplified Form C eligible to “small business”).
  • ECI requires an estimate of a business’s chargeable income within 3 months after the end the financial year-end.
  • Form C-S/C is the official tax return for corporate body. Its submission deadline is 30 November (by submission via e-File, the deadline is extended to 15 December).
  • For new companies, they also have to file the ECI within three months from the company’s first financial year-end.
  • For new companies, they will receive their first notice of filing the tax return Form C-S/ C from the IRAS after two years of the year of incorporation. I.e., If your company’s year of incorporation is 2018, the first notice will be sent out at YA 2020.However, if a new company has closed its accounts or received any income, the company must complete Form C-S / C and ECI in the relevant YA on e-File regardless of the presence of the respective notices.

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Singapore government is actively supporting business activities, generous tax benefits are effective now to relief tax burden of new and small business, we will cover it in the future. Stay tuned. If you have any questions or comment, please contact us.