Tax Structure

Companies are taxable on their corporate profits accruing in or derived from Singapore or received in Singapore from overseas. The Minister of Finance granted certain exemptions for foreign-sourced income. Singapore-incorporated companies and Singapore branches of foreign corporations are taxed at the prevailing corporate tax rate (currently 20%).

In Singapore, income is assessed to tax on a preceding year basis. This means that the income earned by a company in a fiscal year will be taxed in the following tax year, referred to as the year of assessment.

"Cost Plus" Basis of Taxation (Cost Centre)

If a company provides services to the head office or related office within the corporate group and it is a cost centre rather than a profit-making entity, the Singapore Comptroller usually requires an "arm's length" principle to be adopted for transactions within the group. As it is usually difficult to determine an arm's length charge for support services rendered to head office or related entities, the Singapore Comptroller will usually accept earnings of 5% for the service entity on the cost of the services provided. The standard corporate income tax rate (22%) shall apply on the 5% mark up.

The scope of the activities of the service entity is restricted to those transactions that do not result in any foreign associate or the parent company being treated as a Singapore permanent establishment (and hence liable to Singapore income tax). Should you structure the company/ branch as a service entity rather than a trading entity, it will be precluded from having direct commercial dealings with third parties. This means that it should not have any authority to enter into sales contracts with third parties or accept sales orders, although it may procure goods and services from third parties. Typically, a service entity's operations are confined to providing marketing, sales co-ordination and administrative support and other similar activities. The costs of a service entity would normally include staff and overhead costs such as rental, utilities, telecommunications and travel.


Goods and Service Tax:

There is a compulsory tax on goods and services
purchased in Singapore. The rate in 2004 was 5%. The goods and services tax (GST) is not applicable for re-exported goods.

Personal Tax:

Non-resident individuals employed in Singapore have to pay 15% personal tax or residents' rate; whichever is the higher tax rate. However, those engaged in short-term employment income, (i.e. 60 days or less) are exempted from this. This however, does not apply if you are a director, public entertainer or exercising a profession in Singapore. Director fees, consultation fees & all other income are taxed at 20% with effect from 2003. The following is a chart on taxable income.


Note: S$1 is approximately equivalent to US$0.58

Singapore also has tax treaties with the following 46 countries so as to minimise double taxation: Australia, Austria, Bangladesh, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Korea, Kuwait, Latvia, Luxembourg, Malaysia, Mauritius, Mexico, Myanmar, Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Portugal, Romania, South Africa, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, United Kingdom and Vietnam.

Source: www.iesingapore.gov.sg