Category: Singapore Taxation

Find out all there is to know about Taxation in Singapore with the help of A.1 Business Pte Ltd. Here, you
will find valuable information about all things relating to Taxation in Singapore with simple and concise
structured notes.

What is Capital Gains Tax?

What is capital gains tax and how does it affect Singapore companies or individuals? In Singapore, there is no capital gains tax. This is to help attract investors to set up a company or their regional hub here.

Capital gains generally refers to profits made from the sales of any capital assets where the sale price is higher than the purchase price of the assets.

A capital asset includes investments such as bonds, stocks, mutual funds, real estate, fine arts and other collectibles. As a capital gain represents a profit or a gain in income, tax will be implemented into it in certain jurisdictions.

In other jurisdictions, there are different types of tax rates that apply to different types of capital assets. Capital gains are taxed differently depending on the holding period of the capital asset, which can be long-term and short-term. The holding period is normally determined from the day the capital asset is purchased until the date it is being sold.

Details of types of the two types of holding period:

  1. Short-term holding period: 1 year or less. Capital gains are taxed at ordinary income tax rates, ranging from 10% to 39.6% for the year 2013
  2. Long-term holding period: More than 1 year. Capital gains are taxed at long-term capital gains rates, which are usually lesser than ordinary tax rates, ranging from 15% to 20% depending on the marginal tax bracket.

Furthermore, high income taxpayers may have a 3.8% unearned income Medicare contribution tax applied to their capital gains. Thus the highest a tax rate could apply to capital gains income is 39.6+3.8= 43.4% on short term gains taxed at ordinary rates or 23.8% (20% + 3.8%) on long-term gains.

Advantages of capital gains tax:

  1. Potentially Lower Rates – As discussed earlier, we can see that long-term capital gains taxes (15%-20%) are lower than the ordinary income tax rate (10%-39.6%).
  2. Does Not Apply To Inventory – Capital gains rate does not apply to inventories even if it is being held for more than a year, as inventory is not considered a capital asset. For example, assume that your business buys and sells land. If you hold a piece of land for more than one year before selling it, the gains counts as ordinary income and not capital gains income as the land is inventory to your business.
  3. Deferred Taxation – Capital gains tax applies only when gain or loss are being realised. For example, assume that your business buys and sells land. If the value of your land increases by SGD 8,000 during the year, but you don’t sell it, there will not be any income taxes charge. Capital gain tax will only be charged when you have actually sold the land and made a profit.

 

 

What is the Tax Exemption Scheme in Singapore?

Singapore has always been very competitive with other countries in terms of tax policies such that we can attract foreign direct investments. The local government has established several policies such as the Tax Exemption Scheme, SME Cash Grant, Corporate Income Tax Rebate and Product & Innovation Credit (PIC) Scheme to do so.

Firstly, one distinct adjustment was the corporate tax rate. Previously, it was 20% before it was revised to 18% in 2008 and now, it has been adjusted to 17% since 2010. This drop in corporate tax rate entices more business including foreign businesses to operate in Singapore because of the attractive tax rate compared to other countries like Australia that has a higher tax rate of 30%.

Another tax incentive is that businesses can claim 100% exemption from tax if the business has under $100,000 of revenue. Also, of the next $200,000, the business can be exempted from 50% of taxes.

For example, if the company’s chargeable income is $300,000; they can receive a tax exemption of $100,000 for the first $100,000 ($100,000 x 100%) but only $100,000 ($200,000 x 50%) for the remaining $200,000.

In Singapore, the government has many measures and incentives such that people can easily incorporate businesses. In the Year of Assessment (YA) 2005, the government has drawn up a Tax Exemption Scheme with several incentives and bonuses to aid entrepreneurships of the tax burden.

As the business environment in Singapore is always changing, the tax exemption schemes have also adapted. For example, when there was an economic slowdown during the YA 2011 and 2012, the Singapore government had a new scheme, SME Cash Grant where business received a cash rebate on 5% of their revenue with a cap of $5,000.

As of the current YA of 2013, Singapore companies are granted a 30% Corporate Income Tax (CIT) Rebate that has a cap of $30,000 per YA. This means that companies gets to have a rebate of 30% of their tax at the end of the year. For example, if the company has a profit before tax of $1,000. The tax payable would be $170 (17% x $1,000). With this CIT Rebate, the company only need to pay $119 [(100% – 30 %) x $170]. This CIT Rebate would be granted for YAs 2013, 2014 & 2015.

In addition, companies can claim capital allowances which can be deducted to reduce tax. Only assets are allowed to claim for capital allowances with a 100% claim. For example, if the asset cost $1,000, the company can use this $1,000 as capital allowance to decrease the taxes paid.

To top it off, the Singapore government has implemented a new scheme in the recent years, the Product & Innovation Credit which allows you to claim enhanced capital allowances of 300% instead of the 100%. This has helped companies tremendously in reducing their cost.

The Singapore government has been continuously putting effort into implementing various tax reduction and exemption schemes such that businesses can operate with lower costs in Singapore. All these have shown prominent figures in the rise of SMEs and businesses operating in Singapore which brings about economic benefits for Singapore like employment and boosting our economy further.

What is the Tax Exemption Scheme in Singapore?

Singapore has always been very competitive with other countries in terms of tax policies such that we can attract foreign direct investments. The local government has established several policies such as the Tax Exemption Scheme, SME Cash Grant, Corporate Income Tax Rebate and Product & Innovation Credit (PIC) Scheme to do so.

Firstly, one distinct adjustment was the corporate tax rate. Previously, it was 20% before it was revised to 18% in 2008 and now, it has been adjusted to 17% since 2010. This drop in corporate tax rate entices more business including foreign businesses to operate in Singapore because of the attractive tax rate compared to other countries like Australia that has a higher tax rate of 30%.

Another tax incentive is that businesses can claim 100% exemption from tax if the business has under $100,000 of revenue. Also, of the next $200,000, the business can be exempted from 50% of taxes.

For example, if the company’s chargeable income is $300,000; they can receive a tax exemption of $100,000 for the first $100,000 ($100,000 x 100%) but only $100,000 ($200,000 x 50%) for the remaining $200,000.

In Singapore, the government has many measures and incentives such that people can easily incorporate businesses. In the Year of Assessment (YA) 2005, the government has drawn up a Tax Exemption Scheme with several incentives and bonuses to aid entrepreneurships of the tax burden.

As the business environment in Singapore is always changing, the tax exemption schemes have also adapted. For example, when there was an economic slowdown during the YA 2011 and 2012, the Singapore government had a new scheme, SME Cash Grant where business received a cash rebate on 5% of their revenue with a cap of $5,000.

As of the current YA of 2013, Singapore companies are granted a 30% Corporate Income Tax (CIT) Rebate that has a cap of $30,000 per YA. This means that companies gets to have a rebate of 30% of their tax at the end of the year. For example, if the company has a profit before tax of $1,000. The tax payable would be $170 (17% x $1,000). With this CIT Rebate, the company only need to pay $119 [(100% – 30 %) x $170]. This CIT Rebate would be granted for YAs 2013, 2014 & 2015.

In addition, companies can claim capital allowances which can be deducted to reduce tax. Only assets are allowed to claim for capital allowances with a 100% claim. For example, if the asset cost $1,000, the company can use this $1,000 as capital allowance to decrease the taxes paid.

To top it off, the Singapore government has implemented a new scheme in the recent years, the Product & Innovation Credit which allows you to claim enhanced capital allowances of 300% instead of the 100%. This has helped companies tremendously in reducing their cost.

The Singapore government has been continuously putting effort into implementing various tax reduction and exemption schemes such that businesses can operate with lower costs in Singapore. All these have shown prominent figures in the rise of SMEs and businesses operating in Singapore which brings about economic benefits for Singapore like employment and boosting our economy further.

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