Singapore has a territorial tax system which taxes foreign income on a remittance basis.
Singapore is a country that thrives largely due to international trade and foreign investments.
It does not, however, possess natural resources. Nonetheless, due to its open economy, it has progressed economically: Ranked first worldwide for the ease of doing business by the World Bank for 2014, consecutively for 9 years.
Singapore has a territorial tax system which taxes foreign income on a remittance basis. Double taxation is eliminated through the provision of a foreign tax credit for taxes suffered by the taxpayer abroad on the remitted income and through avoidance of double taxation agreement. The foreign-sourced income tax exemption scheme was also implemented to mirror and simplify the foreign tax credit administration for businesses.
The tax imposed on the income derived by the companies are kept low, at a 17%, to encourage new investments and maintain a conducive business environment. The Start-up exemption scheme was also implemented to provide some exemption on the taxable profit of the newly-incorporated companies for the first three years.
A partial tax exemption scheme has also been implemented by the government to assist SMEs, by lowering their taxable profits.
To facilitate risk-taking and entrepreneurial activities by growing companies which expand their operations through multiple holding companies, subsidiaries and associate companies, the government has introduced the loss transfer system of group relief. In this Group Relief System (GRS), current year unutilized losses, donations, and unabsorbed capital allowances of related companies may be transferred to related companies within the group, reducing the overall tax burden for the company.
It is crucial for businesses to invest in innovation, upgrade their operations and create new value to stay current and viable in a knowledge based economy. The government provides assistance in the form of providing tax deduction on expenditure incurred to undertake R&D and tax allowance on expenditure incurred to acquire IP Rights to encourage businesses to carry out high value-added activities.
The aforementioned assistance, has been greatly enhanced subsequently after the implementation of the Productivity and Innovation Credit Productivity and Innovation Credit (PIC) Grant Scheme.
This scheme enables additional tax deduction/allowance for six categories of qualifying activities apart from innovation. A Merger & Acquisition allowance scheme was also introduced to facilitate mergers and acquisition.
A Double Tax Deduction Scheme for Internationalization (DTDi) was also introduced by the government to provide support to businesses to encourage growth and venture into international markets.
Tax incentives are only provided to companies with substantial activities in Singapore.
Activities that are taken for tax avoidance purposes, without economic justification, are not aided. Thus these incentives are only awarded after review by the economic agencies, which will understand the business’ aims in Singapore and the value-add:
Investments and Job creations that they bring to Singapore. This ensures the appropriate awarding of tax incentives to legitimate businesses.
