Tax System in Syngapore

Bulgaru Ana

Corporate Financing

2014

General facts about Syngapore

Has a highly developed market economy

Along with Hong Kong, South Korea, and Taiwan, Singapore is one of the original Four Asian Tigers

Leading example for corporate taxes

The Income Tax Act of Singapore and IRAS are taking care about most of the taxes

Budgetary policy: non-inflationary economic growth with a balanced budget

Tax policy: Revenue Raising and promotion of economic and social goals

Introduction to the tax system

The tenet of Singapore's tax policy is to keep tax rates competitive.

Main sources of government operating revenue:

Tax revenue (75% of Op. revenue)

Fees and charges

Other receipts

Types of Tax revenue:

Individual Income Tax Fees and charges

Corporate Tax

Withholding tax

Property Tax

Goods & Services Tax (GST)

Estate Duty

Stamp Duties

Betting Taxes

Casino Tax

Motor Vehicle Taxes

Customs & Excise Duties

Others

Introduction to the tax system

Taxable income includes:

gains or profits from any trade or business

income from investment

other gains of an income nature accrued in or derived from/to Singapore

Tax or mandatory contribution

Notes on payments

Time (h) spent/ year

Statutory tax rate

Tax base Total tax rate (% of profit)

Employer paid - Social security contributions

Online filling10 16%

Gross salaries17.6

Corporate income tax Online filling32 17%

Taxable profit4.9

Property tax   0 10% Property value 4.7

Road tax   0 Fixed fee Engine size 0

Value added tax (GST) Online filling 40 7% Value added 0

Totals   82     27.1

Tax History1947

1970s 1980s1960s1948

1990s

2000

2010

Indepen-dence!The Ec. Expansion Incentives Act was introduced

Income Tax Act

was imposed

Introduced income taxGrowth of the

service sector.

Review of the taxes

Measures to revamp

the economy.

Lower corp. Taxes

Focus on indirect taxes.

Introduction of GTS

Innovation and

entrepreneur-ship. One-tier tax system

Tax drop to

17%. Many

tax

exemptions

and facilities

were

introduced

Individual Income tax. Residents Resident person:

Is a Singaporean, or

Is a Singapore Permanent Resident and have established his/her permanent home in Singapore, or

Is foreigner who has stayed or worked in Singapore for 183 days or more in the tax year.

Individual Income tax. Non-Residents Non-Resident person:

Corporate Income tax. Several government agencies have been continually providing several grant schemes to aid SMEs to use

technology and other resources to achieve efficiency and productivity

As per Income Tax Act of Singapore, corporate tax is imposed on the income that is

accruing in or derived from Singapore (income that has a source in Singapore);

received in Singapore from outside Singapore

Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system

26%26%

25%

22%

20%

18%17%

Tax rate evolution in Sin-gapore

The effective rate is normally lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation rules, etc. which resident companies can benefit from

Corporate Tax incentives

Benefits of a resident company (compared to a non-resident):

income tax exemption scheme available for new start-up companies

income tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.

Avoidance of Double Taxation Agreements (DTA) / Single-tier system

A company is resident in Singapore if the control and management of the business is exercised in Singapore referring to the policy level decision making at the level of Board of Directors and not the day-to-day decision making and operations

Main Corporate Tax incentives:

One time non-taxable cash grant

Tax exceptions for New SMEs

Productivity and Innovation Credit (PIC)

Withholding tax

Global Trader program

Corporate Tax incentives

One time non-taxable cash grant All companies will receive a one-time non taxable SME cash grant of 5% of company’s revenue, capped at 5000.

Qualification criteria: the company must have made CPF contributions for at least one employee who is not a shareholder of the company during the relevant accounting period

SME – Small and Medium Enterprises

Tax exceptions for New SMEs

 Taxable Income ($)

Tax rate

First 3 years of income Tax fillings

0 – 100 000 0%

100 001 – 300 000

8.5%

300 001 - higher 17%

After 3 years of income Tax fillings

0 – 300 000 8.5%

300 001 - higher 17%

Qualification criteria:

The headline tax rate of the foreign country from which income is received is at least 15%

The income had been subjected to tax in the foreign country from which it is received; and

The Comptroller of Income Tax is satisfied that the tax exemption would be beneficial to the person resident in Singapore

has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares

Corporate Tax incentives. PIC

6 qualified activities:

Acquisition and leasing of PIC Information Technology (IT) and Automation Equipment;

Training of employees;

Acquisition and In-licensing of Intellectual Property Rights;

Registration of patents, trademarks, designs and plant varieties;

Research and development activities; and

Design projects approved by DesignSingapore Council

PIC – Productivity and Innovation Credit

PIC Scheme and PIC + Scheme:

400% of tax deduction

Cash payout

Tax Bonus

Differed tax

PIC. 400% of tax deduction

400% tax deductions/allowances on up to $400,000/year for 2013-2015 and $600,000/year for 2015-2018 (PIC+ Scheme)

Qualifying conditions: Invest in productivity and innovation activities

Year of Assessment (YA)

Expenditure Cap per Qualifying Activity* Tax Deduction per Qualifying Activity

2011 and 2012(Combined)

$800,000(400k*2 years)

$3,200,000(400% x $800,000)

2013 to 2015(Combined)

$1,400,000(400k * 2 years + 600k * 1 year[2015])

$5,600,000(400% x $1,400,000)

2016 to 2018 (Combined, PIC+) New!

$1,800,000(600k * 3 years)

$7,200,000(400% x $1,800,000)

Example:

Gross Taxable Profit = 1MM

Investments in IT = 150k

Tax rebate = $600k [$150k * 400%]

Tax saving = $102k [$1MM*17% - $400k*17%]

Actual cost of IT equipment = 48k for 150k equipment[$150k - $102k]

PIC. Cash payout

Government returns you 60% of investment back, up to $100,000

Qualifying conditions:

Entitled for PIC in Current year

Active business in Singapore

At least 3 local employees (excluding sole-proprietors, partners under contract for service and shareholders)

Year of Assessment YA)

Expenditure Cap for All Qualifying Activities

Cash Payout Rate Maximum Cash Payout

2011 and 2012(Combined)

$200,000 (2YAs combined)

30%$60,000 combined(30% x $200,000)

2013 to 2018(Cap cannot be combined)

$100,000 per YA 60%

$60,000 per YA(60% x $100,000)

PIC. Tax Bonus and Differed Tax

Tax Bonus Government gives returns back 100% of the investment up to $15000 for 3YA combines

Qualifying conditions:

Same conditions as for Cash payout, plus

Incurred at least $5000

Differed tax Option to delay paying taxes to the following year, up to $100,000

PIC overview

PIC Scheme computation

Government pays you back more than a company invested ( $21 000 invested vs $27 600 received back )

YA 2013 YA 2014 YA 2015

Qualifying PIC expenditure

$6 000 $3 000$12 000

PIC cash payout $3 600($6000 * 60%)

$1 800($300 *60%)

$7 200($12000 * 60%)

PIC Bonus$6000

0(PIC expend.<5k)

$9000(15k – 6k [2013])

Total PIC Benefits $9 600 $1 800 $16 200

Example:

Corporate Tax incentives. GTP

Focus on Big and medium size

There are 3 types of programs in GTP:

3 years GTP (10%)

5 years GTP (10%)

5 years GTP (5%)

Main qualifying conditions:

Minimum annual turnover – 100 MM

Minimum local Business spending – $2,4MM

Minimum Employment of Trading Professionals – 3

Use Singapore as a regional base for the principal offshore trading activities, business and support functions

Have a global network and good track record

GTP – Global Trader program

Corporate Tax Regulations

Corporate tax is assessed on a preceding year basis

Dormant companies and private companies with annual revenue < 5MM can file unaudited accounts.

Forms to be submitted (Notification sent by IRAS):

Estimated Chargeable Income (ECI)

Income Tax return (Form C / Form C-S)

Online filling is encouraged with additional benefits, compared to filing papers.

GTP – Global Trader program

Form C-S Form C This is a shortened 3-page form.

This is a 7-page form.

Companies that meet qualifying conditions may report their income by filing Form C-S. 

Companies are required to report their income using Form C if they do not meet the qualifying conditions for filing Form C-S

The financial accounts, tax computation and supporting schedules are not required to be submitted together with Form C-S. They are to be prepared and retained for submission upon IRAS’ request.

The financial accounts, tax computation and supporting schedules have to be submitted with Form C.

Predictions: Singapore vs Switzerland

Switzerland: banking crown with $2.8 trillion in assets under management (34% of the global private banking industry)

Singapore: the world's fastest growing market with $550 billion under management at the end of 2011, up from just $50 billion in 2000

Assets under management in Singapore could quadruple by 2016 as a result, while offshore assets in Swiss bank accounts are predicted fall by nearly a third to below $2 trillion in the next three years

“Switzerland is unlikely to remain a tax haven for much longer and Singapore is the new place to do business," said Ronen Palan, professor at City University London.

Further rapid growth is clearly anticipated by the many international banks who are moving into or aggressively expanding their wealth management and advisory business to Singapore (and Hong Kong).

Conclusions

Territorial basis taxation

Very competitive income rates

0% - 20% for personal taxes

0% - 17% corporate taxes

Focus on entrepreneurship, innovation and attract big companies

In 50 years, Singapore can overtake Switzerland on offshore banking

World’s fastest growing market

Singapore is the new place to do business!

Bibliography “Singapore Corporate Tax Guide” by JANUS Corporate Solutions,

http://www.guidemesingapore.com/taxation/corporate-tax/singapore-corporate-tax-guide

“Singapore Tax System & Tax Rates” by JANUS Corporate Solution, http://www.guidemesingapore.com/taxation/topics/singapore-tax-rates

“Inland Revenue Authority of Singapore” official website, http://www.iras.gov.sg/irashome/page03a.aspx?id=5676

“Singapore”, http://en.wikipedia.org/wiki/Singapore#Economy

“Guide to Singapore Global Trader Scheme”, http://www.bycpa.com/html/news/20128/1769.html

“Income Tax in Singapore”, http://www.internations.org/singapore-expats/guide/16064-social-security-taxation/income-tax-in-singapore-16054

“Corporate tax in Singapore”, http://www.paulhypepage.com/corporate-tax-in-singapore/

“Tax in Singapore” by KPMG, http://www.icaew.com/en/library/subject-gateways/tax/tax-by-country/singapore

“Paying taxes in Singapore”, Doing Business 2014, http://www.doingbusiness.org/data/exploreeconomies/singapore/paying-taxes/

“Corporate Income Tax”, http://app.mof.gov.sg/corporate_income_tax.aspx

“Singapore tax facts 2013” by BDO, http://www.bdo.com.sg/pub/singapore_taxfacts_13.pdf

 

“Tax justice network”, http://taxjustice.blogspot.sk/2014/01/singapore-rise-and-rise-of-asias.html

“New rules, tough talk as Singapore seeks to end tax haven image” by John O’Callaghan and Rachel Armstrong, Oct 2014, http://www.reuters.com/article/2012/10/14/us-singapore-tax-idUSBRE89D0GM20121014