Singapore is a popular location for companies looking for a central base for their international operations. With a corporate tax rate of 17%, reduced even further by tax exemptions, and no capital gains tax, Singapore has one of the lowest and simplest tax systems in the world.
In addition to the tax advantages, Singapore has a strong local economy, stable government, respected financial industry and desirable geographical location. This all creates a strong incentive for multinational businesses to choose Singapore as a jurisdiction to set up a regional hub, or for the relocation of their global headquarters.
If you’ve weighed your options and chosen Singapore as the location for your business, you need to understand corporate tax residency for Singapore Companies.
Corporate Tax Residency in Singapore
To benefit from the tax advantages of being a Singapore tax resident, your company needs to actually be a resident in Singapore. This means that the actual control and management of your company must be physically located in Singapore.
It is not enough to have the day-to-day management of the business only located in Singapore. When it comes to tax residency, it is the strategic board level of operations that determines the location of the control and management of the company. While properly assessing the location of control and management can be complex, the primary method of assessment is the physical location of company board meetings.
This means that as long as the company’s Board meets in Singapore, the company is likely a Singapore tax resident.
Inland Revenue Authority of Singapore (IRAS) Certificate of Residence
Companies that are controlled and managed within Singapore, can apply for a Certificate of Residency (COR) from IRAS. This gives certainty about your Corporate Residency and ensures you can claim any benefits to which your company would be eligible under an avoidance of double taxation agreements.
Nominee Companies and Branches of Foreign Companies Cannot be Singapore Residents
Note that nominee companies and branches of foreign companies cannot request a COR. This is because nominee companies and branches of foreign companies are merely acting on behalf of their foreign resident owners and therefore not genuinely being controlled and managed within Singapore.
Corporate Tax Rate is 17%
The corporate tax rate for resident Singapore companies is 17%. This makes it amongst the lowest tax rates in the world.
Singapore charges income taxes on the net profits of your company, meaning you need to calculate your income less eligible deductions to determine the total tax payable. In Singapore, “chargeable income” is the term used for this net taxable profit.
In addition to this low tax rate, companies may be eligible for various tax offsets. These offsets can bring your effective company tax rate down to around 15%.
The first SG$10,000 of your company’s chargeable income is 75% exempt from tax.
The next SG$190,000 is 50% exempt from tax.
While this is not quite the same as having an initial tax-free amount, it ultimately has a similar effect by ensuring that part of your company income is not taxed.
In addition to this general reduction in taxes, eligible start-up companies (not including property development and investment holding companies) can access even higher tax exemptions during their initial three years of operations. These companies are 75% exempt from tax on the first SG$100,000 and 50% exempt from tax on the next SG$100,000.
GST is 8% from 1 January 2023 and 9% from 1 January 2024
Any company that has a turnover in excess of S$1million, is required to register for GST. Your company may also be liable for GST registration under the Reverse Charge and Overseas Vendor Registration.
GST is currently charged at a flat rate of 8%, and will increase to 9% from 1 January 2024. However, there are some exemptions on certain goods and services.
For more information on GST, read our “What you need to know about GST in Singapore: Registering, Charging GST and Filing GST Returns” article.
If your company makes a tax loss you can usually carry this forward to reduce the chargeable income of future tax years.
Alternatively, subject to certain conditions, you may be able to carry back up to SG$100,000 in qualifying deductions to apply against previous year profits.
To carry forward tax losses, at least 50% of your company’s issued shares must remain owned by the same shareholder/s (so that primary ownership and control of the company is the same). Note that shareholders refers to the shareholders of the ultimate holding company.
To carry losses back, both the same trade and continuity of shareholding tests must be passed. This means that as well as passing the shareholder test, the company’s principal business activities must continue to be the same.
Capital Gains are not Typically Taxed
One of the biggest tax advantages of a Singapore company is that there is no capital gains tax.
This means that any capital assets held and used in Singapore can be sold without any tax consequences. Note that this typically only applies to assets held for at least two years. Assets that are held for under two years are typically regarded as trading assets (unless sold due to closing the business). An asset may also be considered a trading asset if extensive work was done on the asset to enhance it for sale as this indicates it was purchased with a profit motive, rather than with an intention to utilise it as a long term asset in your business.
For more information on capital vs trading assets, read our “Capital Asset vs Trading Asset: The Differences of Each” article.
It is important to note that when your Singapore company operates, or sells products or services in foreign locations, the company may also be subject to the foreign tax requirements under those tax jurisdictions. Most countries will have double tax agreements in place to limit the amount of tax to the higher rate of tax applied by either Singapore or the foreign location.
Singapore Tax Residency
In summary, Singapore corporate tax residency is primarily determined by the physical location of the strategic control and management of the company.
In essence, this means that your board must hold the board meetings in Singapore. As a Singapore tax resident your company will benefit from low corporate tax rates and no capital gains tax.
However, if the company also trades overseas, there will be foreign taxes to be dealt with. The impact of foreign tax requirements may be mitigated by double tax agreements. Find out more about the double tax agreements in our “An Overview of the Singapore Double Tax Agreement” article.