According to Black’s Law Dictionary, a tax is a “pecuniary burden laid upon individuals or property owners to support the government […] a payment exacted by legislative authority.” It “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is “any contribution imposed by government […] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.” A tax is a financial payment from a taxpayer to a state. Failure to pay is punishable by law. Companies are subject to “corporate income tax.” The current corporate income tax rate for all companies is currently set at 18%.
A taxable income is any income that is received in Singapore by a company. The company may be registered in Singapore or elsewhere. However, capital gains are not subject to tax. One Tier Corporate Tax System took effect on 2003. It allowed Singapore company formation to issue one-tier exempt dividends. Shareholders will not be taxed in such income. There are three tax exemptions. Partial tax exemption is given to a company’s chargeable income worth up to S$100,000, which is subject to tax at the normal corporate income tax rate. Seventy-five percent is the rate of tax exemption for the first S$10,000 chargeable income, whereas 50% is the rate of tax exemption for the next S$90,000 chargeable income. However, the tax exemption scheme for new start-up companies will not be elongated to investment holding companies and companies engaged in property development activities that are incorporated after February 25, 2013. These companies will still enjoy the partial tax exemption. With effect from year of assessment (YA) 2005, full tax exemption for new companies can be granted on the first S$100,000 of the normal chargeable income for any of its first three consecutive YA. Foreign-sourced profit, foreign branch dividends, and foreign-sourced service income remitted into Singapore on or after June 1, 2003, by a Singapore resident company will be exempted to tax if the headline tax rate of the foreign country from which income is received from is at least 15% in the year the income is received and if the foreign income had subjected to tax in the foreign country from which they were received. To tone down the taxes you pay, make sure you use all of the available deductions and reliefs. Rent, wages paid to employees, and director’s fee are considered as “deductible expenses.” You should also pay attention to the following expenses: medical expenses, life insurance premium, motor vehicle expenses, research and development expenses, and interest expenses relating to non-income producing assets and impairment loss on trade debts.
What are double taxation agreements (DTAs)? DTAs are agreements signed between countries. They help Singapore-resident companies to evade paying taxes on the same income twice. Under DTA, you can claim for relief for taxes paid overseas. DTA also voices the taxing rights of each country for the types of income that arise from cross-border activities. You can claim for double tax relief under the DTA when you file your income tax return yearly.