Monthly Archives: January 2020

Overview of corporate income tax

Did you know that Singapore doesn’t have Value-Added Tax, but the Goods and Services Tax (GST) instead? How does zero percent GST for businesses providing international services sound to your company? What is the tax exemption scheme for new start-up companies?

In this article, we will provide an overview of corporate tax in Singapore, GST rates for local and international services, tax exemption schemes and corporate income tax rebates.

Overview of Corporate Tax in Singapore

Singapore generally imposes income tax on a territorial basis, so only oncome accruing in or derived from Singapore or foreign-sourced income received or deemed received in Singapore is subject to Singapore income tax. A company is taxed on the income earned in the preceding financial year. This means that income earned in the financial year 2015 will be taxed in 2016. With effect from YA 2010, a company is taxed at a flat rate of 17% on its chargeable income regardless of whether it is a local or foreign company.

Goods and Services Tax (GST)

Implemented on 1st April 1994 in Singapore, Goods and Services Tax (GST) Act is a broad-based consumption tax levied on the import of goods (collected by Singapore Customs), as well as nearly all supplies of goods and services in Singapore. In other countries, it is commonly known as the Value-Added Tax (VAT).

Presently, the Inland Revenue Authority of Singapore (IRAS) acts as the agent of the Singapore government and administers, assesses, collects and enforces payment of GST. The current rate of GST is 7%. If your annual taxable supplies exceed $1million, it is compulsory for you to register for GST. Otherwise, you may choose to register for GST voluntarily after careful consideration.

Zero GST on Businesses Providing International Services

Your services are considered international services, which are zero-rated (i.e. GST is charged at 0%), if they fall within the provisions under Section 21(3) of the GST Act.  Depending on the nature of your services, you may be required to determine your customer’s belonging status (i.e. whether the customer is a local or an overseas entity) before your supply of services can be zero-rated.

Tax Exemption Scheme for New Start-up Companies

For newly incorporated Singapore companies which are Singapore tax resident, Singapore has introduced the tax exemption scheme to encourage entrepreneurship and to aid growth of local business. To qualify, the company must not have more than 20 shareholders throughout the basis period if:

• All the shareholders are individuals directly and beneficially holding the shares; or
• At least one shareholder is an individual beneficially and directly holding at least 10% of the ordinary shares of the company.

Change of Tax Exemption Scheme for New Start-Up Companies in Y2020 onward

The maximum exemption for each YA is $125,000 ($75,000 + $50,000).

The tax payable rate is based on 17% included chargeable income after $200,000

Tax Exemption on First $300,000 of Chargeable Income (where any YA of the first 3 YAs falls in YA 2010 to YA 2019)

The maximum exemption for each YA is $200,000 ($100,000 + $100,000).

The tax payable rate is based on 17% included chargeable income after $300,000

Rebate on Corporate Income Tax

In the Budget 2020, businesses will get a rebate on corporate income tax and some enhanced tax treatments in moves aimed at improving their cash flow. Companies will be granted a rebate of 25 per cent of tax payable, capped at $15,000, for the year of assessment 2020 – a move that will cost the Government about $400 million. The tax treatment enhancements include automatic extension of interest-free instalments by two months for payment of corporate income tax on estimated chargeable income. Companies should note that:

1. It has to be filed within three months of a company’s financial year end.
2. Thy will be allowed to carry back the unabsorbed capital allowances and trade losses of up to the three immediate preceding years of assessment.
3. They can opt to accelerate the write-off of the costs of acquiring plant and machinery and renovation incurred for the year of assessment 2021.

Read: Singapore Budget 2020: Companies get 25% corporate tax rebate, other measures to improve cash flow

Need support with your corporate taxes or rebates that your company can claim?

Let Acrabiz help you with you as your bookkeeper, tax controller or business consultant for your accounting and finance department today!

Business Organisations in Singapore

In Singapore, companies are principally governed by the Companies Act (Cap 50, 2006 Rev Ed) (hereinafter “the Act”). It should be noted though that specific types of companies may, in addition to the Companies Act, be regulated by other statutes.

Business organisations can either be incorporated or unincorporated. Incorporation involved creating a separate legal entity. The separate legal entity created can incur its liabilities and have its own rights that are distinct from those of the owners or creators of the entity. The most common forms of incorporated organisations are the company and the limited liability partnership, though there are others such as statutory boards and management corporations. The most common forms of unincorporated organisations are the sole partnership, the partnership and the limited partnership, though there are others such as business trusts.

Read: Comparison of Business Entities in Singapore

Setting up a wrong type of organisation to run a business may affect the business and may affect the owner of the business, although it may be possible to dissolve one form of structure and set up another. Generally speaking, the cost of setting up the wrong type of organisation may be higher than running the business.

Know the Types of Business Organisations First

Importantly before you start your business in Singapore, get to know about the types of business entity you could choose from.

There are 4 main types of business structures to choose from. They are:

1. Sole-Proprietorship (one owner) or Partnership (two or more owners)
2. Limited Partnership (LP)
3. Limited Liability Partnership (LLP)
4. Company

1.Sole-Proprietorship (one owner) or Partnership (two or more owners)

Definition: A business owned by 1 or more person

Registration requirements: Singapore Citizen/Singapore Permanent Resident/EntrePass

Legal status:

• Not a separate legal entity
• Owner/Partners has unlimited liability
• Cannot own property in the firm’s name
• The owner is personally liable for debts and losses of the business, Partners personally liable for partnership’s debts and losses incurred by other partners

Tax: Profits taxed at owner’/partners’ personal income tax rates

2. Limited Partnership (LP)

Definition: A partnership consisting of two or more persons, with at least one general partner and one limited partner

Registration requirements: If all general partners are ordinarily resident outside Singapore, they must appoint a local manager who is ordinarily resident in Singapore.

Legal status:

• Not a separate legal entity
• The general partner has unlimited liability
• The limited partner has limited liability
• Cannot own property in the firm’s name
• General partner personally liable for debts and losses of the LP

Tax: Profits taxed at partners’ personal income tax rates (if individual)/ corporate tax rate (if corporation)

3. Limited Liability Partnership (LLP)

Definition: A partnership where the individual partner’s liability is generally limited

Registration requirements: At least one manager ordinarily resident in Singapore

Legal status:

• A separate legal entity from its partners
• Partners have limited liability
• Can own property in LLP’s name
• Partners personally liable for debts and losses resulting from their wrongful actions
• Partners not personally liable for debts and losses of LLP incurred by other partners

Tax: Profits taxed at partners’ personal income tax rates (if individual)/ corporate tax rate (if corporation)

4.Company

Definition: A business form which is a legal entity separate and distinct from its shareholders and directors.

Registration requirements: At least one shareholder (could be a foreigner). At least one director is ordinarily resident in Singapore.

Legal status:

• A separate legal entity from its members and directors
• Members have limited liability
• Can own property in the company’s name
• Members not personally liable for debts and losses of the company

Tax: Profits taxed at corporate tax rates

Foreign Companies Considering Expanding Your Business to Singapore

If you are a foreign company planning to expand your business in Singapore. Here are options for Singapore company incorporation you may wish to know before proceeding further.

Before you decide on your business type, please note:

• A Singapore Representative Office would not be applicable if you do any income-generating activities.
• A Singapore Branch Office must have the same business activities and name as the parent company.

Read: Choosing a Business Structure

While some businesses choose to act on their own, others turn to Acrabiz or service providers for assistance. Designating us as your appointed agent has many advantages. Our clients have benefited from our physical availability to act for them all the time. Our works are organised and as the gatekeeper between your business and the authority, you can be assured the authorities will receive high-priority, quality paperwork every time. Nothing is accidentally lost or forgotten.

Need support to incorporate the right type of business? Let Acrabiz help you as your business advisor and corporate secretary!