Singapore is cited as the leading example of countries that continue to reduce corporate income tax rates and also introduce various tax incentives in attracting and keeping global investments.
The two important factors that Singapore contributes to the economic growth and foreign investments are the lowest effective tax rates and the business friendliness across the country. That is why the country is popular for both local and foreign entrepreneurs.
In this article, you will learn about tax reporting, as well as how to report a tax in Singapore, so you can do the tax report easily, and don’t get confused with the tax reporting system.
Single-tier Income Tax System
Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders, and it was started from January 1, 2003.
Tax paid by the company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation. There is no tax on capital gains in Singapore, for example, the capitals will gain on sale of fixed assets, gain on foreign exchange on capital transaction, and so on.
Corporate Income Tax Rates and General Tax Exemptions
Singapore’s corporate tax rate is a flat 17%. Headline income tax rate in the country as in many other authorities do not provide an accurate indication of effective corporate tax rates. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions, tax incentives, and depreciation rules.
General Tax Incentives
For newly incorporated companies for the three first consecutive years is 75% exemption on the first S$100.000 of normal chargeable income.
The newly incorporated companies will be exempted from 75% corporate income tax rate on the first S$100.000 taxable income for each of the first three tax filing years, if they meet the following conditions below:
- Incorporated in Singapore
- A tax resident in Singapore
- Has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares.
Further 50% tax exemptions on taxable income of up to S$100.000. The newly incorporated companies are also eligible for a further partial tax exemption, which is about an 8.5% tax rate on taxable income of up to S$100.00 per annum.
The taxable income above S$100.000 will be charged at the normal headline corporate tax rate of 17%. The general tax incentives also depend on the small or medium size of your company.
Singapore Tax Treaties
The definition of a tax treaty is when two countries have an agreement that specifies how the income earned will be taxed by the authorities of each country, and the company is involved in doing business in both countries. This has a benefit and objective which is helping businesses to avoid double taxation of their income.
Singapore has completed tax treaties with more than 80 countries and the list continues to grow. The treaties reflect Singapore’s efforts to help businesses in relieving double taxation and facilitate trade and investment opportunities across the country.
From Year of Assessment 2009, Singapore has gone a step further to grant unilateral tax credits to Singapore companies. Based on the new policy, all Singapore companies that earned income from countries that do not have a tax agreement with Singapore, they will be allowed a tax credit on their foreign-sourced income from those countries.
How To Do Tax Reporting in Singapore?
A company will be considered tax-resident in Singapore if its control and management had been exercised in the country for the preceding Year of Assessment (YA). The company’s income will be assessed for the YA in a 12-month period.
For instance, for YA 2018, the 12-month period would generally be from 1 April 2016 to 31 March 2017.
All the relevant corporate tax documents must be filled annually by 15 December if you fill it online. From YA 2020, all companies are required to e-File their corporate tax documents as physical filing will be terminated.
Late filing of corporate tax is an offence. The company’s officers, like their directors, may be prosecuted in court. The company’s officers and the company may be fined up to S$10.000 and S$1.000 in the court. However, the company may be allowed to settle its fine by paying a composition amount of between S$200 and S$1.000.
The Steps To File and Pay Corporate Tax
Step 1 → File The Estimated Chargeable Income (ECI) form
The process of paying corporate taxes generally begins by filling an ECI form and 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. From YA 2020, all companies will be required to e-File their ECI through the one-stop myTaxPortal maintained by IRAS.
Step 2 → File The Annual Income Tax Return
The next step is filing its annual Income Tax Return with IRAS via the same myTax Portal. The Income Tax Return is a report of the company’s actual income, but differing from the ECI which is an estimate of the company’s income.
The annual Income Tax Return must be filled by all companies, even those that are making losses, applying to be struck off or under liquidation. The companies must generally file their Income Tax Return using Form C, which requires the submission of financial statements, tax computation, and supporting schedules.
Step 3 → Receive IRAS’ Notice of Assessment (NOA)
After filling the necessary forms, IRAS will review the forms and then will issue an 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 offer an opportunity for the company to object IRAS’ tax assessment if wishes to do so
Step 4 → Pay The Assessed Corporate Tax
If 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. It may be done through a variety of methods, including interbank GIRO, internet banking, cheque or telegraphic transfer.
There is information about tax reporting in Singapore, and you may keep it in your mind when it comes to fill the tax report for your company. As mentioned above, you will get a penalty if you fail to fill it on time. It’s better to prepare everything before its deadline in order to avoid any miscalculations on your tax report.