Corporate Tax

Income in Singapore is taxed on a territorial and remittance basis. Capital gains are not taxed. The corporate rate currently stands at 18%.

Both resident and non-resident companies are subject to tax on Singapore sourced income and on foreign sourced income remitted to Singapore. A resident company is one which has management and control of its business carried on in Singapore.

A resident company is entitled to double tax relief for foreign taxes suffered on income remitted from countries which Singapore has concluded double tax treaties with.

A Singapore company is required to withhold tax from certain payments made to a non resident persons, such as interest, royalty and rent, etc. The current rate of withholding tax is 15%, subject to the various double tax agreements that Singapore has concluded with other contracting countries.

Under section 63 of the Singapore Income Tax Act, a company is required to file a return of its income with the Inland Revenue Authority of Singapore (IRAS) every year. The dateline for filing falls on 31st July of every calendar year.

Incorporation of Singapore Companies

The legal and procedural requirements for incorporating companies are specified in the Companies Act and the Companies Regulations, The provisions are applicable for all kinds of companies. The procedures for incorporating a private limited company are as follows:

(a) A name must be chosen and submitted via Bizfile to ACRA for approval (within two hours from the time of submission). Once the name applied for its approved, it is automatically reserved by ACRA for 60 days from the date of application.

(b) Upon approval of the company name by the ROC, incorporation papers are need to signed by client before we bizfile with ACRA for incorporation namely:

(1) Memorandum and Article of Association
(2) Form 45 ( Directors confirming in writing that they have consented to accept directorships).

(c) The ACRA will issue an acknowledgement once the company is incorporated. There is no hard copy certificate of incorporation issued by ACRA unless special request by the company at application fee of S$50.00 and this usually takes about 7 working days from the date of application. However, shelf companies may be purchased for immediate use.

(d) Fees for registration of a company are charged and the amount depends on whether the company has a share capital. The total cost including our professional fees and including all disbursements like registration & filing fees, company seal and company chop, statutory books and a certification of incorporation etc varies from S$1,200.00 to S$1,500.00.

Restriction on Name and Activities

Registration of the following names is prohibited under the Companies Act:

(a) Identical to another.
(b) Undesirable, or
(c) Of a kind the Minster has directed the Registrar not to accept.

Virtually no restrictions are placed on the type of business which may be carried on in Singapore but all businesses must be registered with ACRA, on in the case of a Representative Office, with the Trade Development Board. There are no restrictions to the business entity being 100% foreign owned.

Certain businesses will also be required to apply for special licences from the Government (e.g. Banks, finance, insurance and stock and shares brokering companies) Similarly, businesses which intend to manufacture certain goods must consult with the Economic Development Board before doing so.

Uses of Singapore Companies

(a) Countries(e.g. Indonesia) that prohibit the use of International Business Companies (IBC) to trade may indirectly do so by setting up a Singapore company to act as an agent for the IBC so as to circumvent any direct trading between Indonesia and the IBC.

(b) There is no capital gains tax in Singapore and as such, an Investment Holding Company may be set up to hold overseas investments which may later be disposed as capital gains.

(c) Singapore has entered into Investment Guarantee Agreement with the Belgo-Luxembourg Economic Union, Canada, People's Republic of China, France, Germany, Netherlands, Sri-Lanka, Switzerland, Taiwan and United States. Under these agreements, investments in each contracting country are protected for a specified period (usually 15 years) against war and non-commercial risks of appropriation. In the event of non-commercial appropriation, Singapore will compensate foreign investors either directly or through their governments based on the market value of the property destroyed or appropriated.

(d) Singapore is a member of the Association of South-East Asian Nations (ASEAN).
Companies incorporated in Singapore can benefit from the signing of an Asean Free Trade Agreement that aims at creating a free trade area for 10 years. Over 15,000 items produced by member nation have been placed on the Asean Preferential Trade Agreement and will enjoy various margins of preference.

(e) The removal of exchange controls on capital brought into Singapore and tax free Remittance of profits and repatriation of capital in June 1978 are some of the major factors in influencing foreign corporations to invest in Singapore.

(f) With the use of nominee/trustee shareholders and together with the appointment of Nominee Directors one could ensure complete confidentiality and anonymity of the beneficial shareholders.

Brief Write Up on Taxation in Singapore

Personal tax

Gains or profits from any employment which accrue in or are derived from Singapore or received in Singapore from outside Singapore are taxable in Singapore [Section 10(1)(b)].
Generally, overseas income received in Singapore on or after 1 January 2004 is not taxable. These include overseas income paid into a Singapore bank accounts. As such, there is no necessity to declare the overseas income in the personal income tax return.
After Year 2007, all dividend income (listed and private limited company) and interest income from approved banks and financial institutions are tax exempt.

Rates of Tax for Year of Assessment 2008

One Tier Tax Exempt Dividend

All dividend receive by shareholders are tax exempt after 1 January 2008. As such, there is no requirement to include this income in your personal tax return.

Corporate Tax

Corporate tax rate: 18%

Tax Exemption Scheme for New Start Up Companies

From Year of Assessment (Y/A) 2005, normal chargeable income (excluding Singapore franked dividends) of up to S$100,000 for each of a qualifying company's first three consecutive Years of Assessment is granted tax exemption. With effect from Y/A 2008, the cap has been increased to S$300,000 and the exempt amount is computed as follows:

• 100% tax exemption on the first S$100,000;
• 50% tax exemption on the next S$200,000.

The first Y/A of a qualifying company refers to the YA relating to the basis period during which the company is incorporated. For example, if the company is incorporated on 7 May 2008 and has accounting period ending on 31 December, the company's first Y/A will be Y/A 2009 (basis period is 7 May 2008 to 31 December 2008).

Partial Tax Exemption

Companies that do not qualify for the tax exemption scheme for new start up companies will enjoy a partial tax exemption on their normal chargeable income (excluding Singapore franked dividends). From Y/A 2008, the exempt amount computed based on a company's first S$300,000 normal chargeable income is as follows:

• 75% tax exemption on the first S$10,000;
• 50% tax exemption on the next S$290,000.

Claim of Unutilised Capital Allowances/Losses/Donations in current Year of Assessment

• Companies are allowed to deduct unutilized capital allowances, trade losses and or donations (approved) incurred in one year against income in a subsequent year if there is no substantial change (>50%) in the ultimate shareholders and their respective shareholdings [ Section 23(4)/ 37(12) of the Singapore Income Tax Act];
• For unutilized capital allowances, there is an additional requirement that the company must be carrying on the same trade in the year the capital allowances were claimed and in the year it was utilized to setoff;
• With effect from Y/A 2003, any unutilized approved donations can be carried forward to be setoff against the income of the company for subsequent years, up to a maximum of 5 years.

Carry-back of Current Year Capital Allowances / Losses

• With effect from Y/A 2006, companies may deduct current year unutilized capital allowances / trade losses of up to S$100,000 against the assessable income for the immediate preceding Y/A if there is no substantial change (>50%) in the ultimate shareholders and their shareholdings [Section 37E(12) of the Singapore Income Tax

Group Relief

Group Relief (GR) is a system which considers group companies as one single company. Under this system, the unutilized capital allowances / trade losses / donations (approved) of the current year of one company will be deducted from the assessable income of the other company of the same group. This scheme was effective from Y/A 2003.
Criteria for qualifying as GR
The transferor (company which transfers any of its unutilised trade losses, capital allowances, donations) and the claimant (company which receives) have to:

• Be Singapore incorporated companies;
• Belong to the same group of companies and maintain 75% shareholding threshold;
• Have the same accounting year end.

WITHHOLDING TAX
(FOR PAYMENT TO NON-RESIDENTS OR NON-RESIDENT COMPANIES)

When a person makes payments of the following nature to a non-resident company, he has to withhold tax. The amount of tax withhold (i.e. withholding tax rate) is dependent on the nature of payment.

Nature of payment which attracts withholding tax include:

• 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
• Payment for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information
• Management fees
• Rent or other payments for the use of any movable property
• Payment for the purchase of real property from a non-resident property trader
• Director fees paid to a non-resident director

Rate of withholding tax

Varies from 10% to 15% depending on the nature of payment and also whether the there is a Double Taxation Agreement concluded between Singapore and country in which the recipient of such payment is currently residing.
For director fees, the withholding tax rate is 18% (Y/A 2008).

Penalty for non-compliance

Maximum is 20% of the withholding tax outstanding for each Year of Assessment.