Singapore has long been a popular tourist destination due to its favourable policies for residents, but it has equally attracted business owners. The reason is not far-fetched. Singapore is now also known for its fair policies toward foreign businesses, which typically take the form of reasonable tax rates and reliefs.
Investors in small Asian countries benefit from tax breaks and can boast a low corporate tax rate. In addition, the personal tax bracket is also low, and there are no capital gains taxes. Regardless, taxes exist, and as an investor, you will only be able to do business if you fully understand them.
The following sections adequately discuss the various taxes that fall under Singapore’s jurisdiction.
What Are The Various Taxes That Businesses In Singapore Must Pay?
Singapore imposes various types of taxes on businesses operating in its jurisdiction at competitive rates. These taxes may appear excessive at first glance, but they are low compared to those of other countries. They are as follows:
Local and foreign businesses operating in Singapore are subject to a 17% corporate tax rate. In addition, businesses of all sizes must file corporate tax returns on earnings sent to or generated from Singapore. As a result, corporate tax is territorial, meaning that only income earned by Singaporeans or businesses in Singapore is taxed. This is in contrast to the United States, which places taxes on all income, notwithstanding whether the receiving entity is a resident or not.
The 17% tax paid to the Inland Revenue Authority of Singapore (IRAS) is qualified for further reduction. In addition, Singapore’s government offers incentives to encourage businesses, particularly startups. For example, in Singapore, a startup pays only 75% of the first $100,000 chargeable income and 50% of the tax on the following $200,000 chargeable income for three years. This means that for each fiscal year, new businesses are eligible for a maximum exemption of $125,000 ($75,000 + $50,000).
Qualified businesses can take advantage of special programs that even further reduce the 17% rate. Certain industries, such as banking, shipping, leasing, and fund management, are eligible for this.
Income Tax for Partnerships and Sole Proprietors
Businesses operating as sole proprietorships and partnerships are taxed differently than corporations. Sole proprietors and business partners in Singapore are taxed on a portion of their personal income. The employed tax rate is the personal income tax rate that applies to everyone in Singapore. This means that the tax rate applies when the business owner receives money from sales, whether they are made abroad or in the country. This tax on your personal income (including salary and deposit interest) can be as high as 22%.
However, the Singapore government has a tax system that ensures you only pay that much if you earn a lot. The progressive income tax system allows sole proprietors to pay as little as 2% in taxes.
Sole proprietors and partners, like corporate investors, will be able to access lower rates through some unique tax deductions, rebates, and tax relief schemes to help them manage their earnings. One example is the Allowable Business Expense, which allows sole proprietors and business partners to deduct certain business expenses from their taxes. Examples of such expenses are water and electricity, transportation, and other costs approved by IRAS.
Sole proprietors and business partners can also claim Capital Allowances. Here, expenses incurred by their businesses when purchasing machinery and other equipment are waived. In addition, to encourage charitable acts by entities, Singapore rewards business owners with tax breaks and rebates, which sole proprietors and business partners can take advantage of. They can also get tax breaks if they file for Unutilized Losses.
Goods and Services Tax (GST)
The Goods and Services Tax, or GST, is a 7% tax on goods and services made or imported into Singapore, similar to VAT or Value Added Tax in other countries. However, this does not apply to income from residential property sales, leases, or financial services.
GST can be applied voluntarily or compulsorily by sole proprietorships, partnerships, bodies, clubs, and non-profit organisations. GST registration can be very beneficial. As a result, even if an entity is not required to register for GST, doing so can be extremely beneficial to businesses. Singapore’s government lowers business owners’ personal income tax rate subject to Goods and Services Tax. This means their personal tax rates are reduced when they buy a product. The government ensures this by collecting tax revenue growth data, allowing it to understand their income fully.
Property Tax and Stamp Duty
HDB flats, storage facilities, industrial facilities, offices, vacant lots, and all other properties in Singapore are subject to a 10% property tax. This rate is subject to reduction if certain IRAS requirements are met. Rebates and refunds are also acceptable. For example, it could be applied in situations where a property is unoccupied due to repair work.
Similarly, purchasing real estate attracts an additional tax known as Stamp Duty. It is formally known as the tax on documents relating to the leasing or purchase of a property. With a few notable exceptions, residential real estate transactions, whether buying, selling, or renting, are subject to stamp duty, which can be quite expensive. As a result, it is advisable to check the rate with IRAS and factor it into your finances.
Singapore imposes a tax on businesses that derive income from Singapore for services performed by Singapore non-resident employees and overseas agents. This tax, known as the Withholding Tax, also applies to companies with non-resident business partners in Singapore.
The rates vary depending on the type of payment made in exchange for services rendered by these non-residents. The tax can range between 10% and 22%.
Singapore allows businesses to be fiscally conservative, regardless of the type of tax they must pay. The country is widely known as a tax haven, with various arrangements for businesses to pay less while remaining profitable. As discussed, the proposed taxes allow the country to create an environment where economic and communal goals can be met.
If you need help to keep track of all the taxes you need to file and also to file them on time, you should definitely consider engaging a tax consultant for your business. It would save you time and money and also ensure you stay compliant.