For entrepreneurs with a view to Singapore company incorporation, taxation should be taken into consideration. Contradictory to popular belief, not all types of income is taxable, i.e. not all income is subject to tax. This article will give you information on taxability of corporate income.
What is Taxable Income?
For Singapore tax purposes, taxable income refers to:
- gains or profits from any trade or business;
- income from investment such as dividends, interest and rental;
- royalties, premiums and any other profits from property; and
- other gains that is revenue in nature.
Deductions such as business expenses, capital allowances and reliefs can be claimed to reduce taxable income, which leads to lower taxes.
For more details on deductions, please refer to Business Expenses.
When Income is Taxable
A company is liable to pay tax in Singapore on income that is:
- accrued in or derived from Singapore; or
- received in Singapore from outside of Singapore.
Income Received from Abroad
Income from outside Singapore is considered received in Singapore when it is:
- remitted to, transmitted or brought into Singapore;
- used to pay off any debt incurred in respect of a trade or business carried on in Singapore; or
- used to purchase any moveable property brought into Singapore (e.g. equipment or raw materials connected to your business).
This will be applied to tax foreign income received in Singapore only if the income belongs to an individual who is resident in Singapore or an entity which is located in Singapore. Hence, non-resident individuals and foreign businesses which are not operating in or from Singapore can remit their foreign income to Singapore without being taxed on the income.
As an administrative concession, foreign income which is applied towards overseas investments without being repatriated to Singapore will not be treated as having been received in Singapore. This means that the taxing point of the foreign income is deferred till when the investment is realized and the proceeds are brought into Singapore. This is in line with the Government’s effort in promoting regionalization of Singapore’s businesses.
If you are subject to tax on foreign-sourced income, you will continue to be entitled to claim tax reliefs or credits available.
What is Non-Taxable Income?
Capital gains are not taxable. Examples of these are:
- gains on sale of fixed assets; and
- gains on foreign exchange on capital transactions.
Income Exempted from Tax
Certain types of income are specifically exempted from tax under the Income Tax Act, subject to conditions. Examples of these are:
- certain shipping income derived by a shipping company under Section 13A and Section 13F;
- foreign-sourced dividends, branch profits & service income received by a resident company under Section 13(8); and
- company’s gains on disposal of equity investments under Section 13Z.
Source: Inland Revenue Authority of Singapore
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