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Corporate Taxes

A corporate tax haven is a territory that provides favorable tax circumstances and a liberal tax environment for corporations to set up their businesses. More often than not, corporate tax havens are offshore territories. Such include the British Virgin Islands, Singapore, Hong Kong and the Bahamas.

In corporate havens, tax regimes are designed to attract corporations to the territory to set up businesses within the territory and most corporate tax havens provide a zero-taxation regime that is available for international businesses, known as International Business Companies (IBCs) that set up their businesses in the territory from other parts of the world. For companies that derive profits and incomes from outside of the territory need not carry any taxation burdens on their incomes and profits at all. Most corporate havens will impose a zero-taxation scheme, while some others will impose a very minimum tax rate that amounts only about 1 and 2.5% on the corporations’ annual earnings. Such territories are known as low-tax territories or jurisdictions. One example of such a low tax jurisdiction is Barbados.

Corporate tax havens do not only protect corporations from taxation. They also protect the privacy of the corporations as well. In most of the corporate tax havens, it is lawful that the corporations’ financial records and statements will not and need not be exposed to government authorities or publicly filed. As such, the corporations will retain and maintain financial privacy for their companies set up in corporate tax havens. Even though some low-tax jurisdictions require some registered filing of annual returns and accounting records, many international companies are still able to take advantage of corporate tax havens in such that these territories do not have any treaties signed with government authorities, including the home government of the international corporation. As such, corporations have the advantage of not disclosing financial progress and statements to the government authorities of their home countries, which may very well impose a tax on their profits and incomes if such financial information were otherwise disclosed.

On top of all that were mentioned, corporate tax havens often offer offshore banking and allow corporations to set up international bank accounts. The privacy of corporations are also taken care of with the respect of banking as well, as various laws are in place in corporate tax havens to ensure that banks keep information about bank account holders private. As such, corporations still enjoy banking secrecy with their banking processes and need not worry about any disclosure of their bank accounts or banking information.

Overall, corporate tax havens protect companies from improper disclosure of information and threat to company privacies and maintain such characteristics in the name of the law within the jurisdiction. Corporations that set up businesses and companies in corporate tax havens almost certainly enjoy strong asset protection and confidentiality and privacy protection in such territories, which therefore allow international corporations in such territories to be able to thrive and grow without worry or unnecessary burdens.

It is not surprising to see Singapore as a burgeoning powerhouse in the Asian business industry. Because of its non-toxic business environment, what with its friendly business legislations, a lot of entrepreneurs really choose Singapore as a place for their ventures. Not to mention that the country is conveniently located at the heart of the flourishing Asian economy.

Most of the businesses, if not all, situated in Singapore, actually gain benefits from the country’s ties with other booming tiger economies. It also has the reputation as a trustworthy jurisdiction to work in and a country with great corporate tax policies. They have competitive, but fair, tax rates that other jurisdictions do not offer. Because of all of this, Singapore definitely has become one of the globally recognized business hubs.

If we look closely at the country’s tax policies, one can see why Singapore is so popular with businesses.

Corporate Tax in Singapore

Unlike other jurisdictions, in Singapore, they do not discriminate businesses according to their origin. Whether you are a local or a foreign business, you will be taxed all the same. If you look at it, it may seem like disadvantageous, but actually, Singapore favors both local and offshore business, therefore, resulting into a productive entrepreneurial culture in the country.

All businesses operating in Singapore pay taxes on all of their income coming from the country or are remitted to it. This means that if a company that is operating in Singapore gains most of its income from overseas business transactions; the business is not obliged and liable to pay tax in Singapore from a legal perspective. There are a lot of policies about business transactions; therefore, it is really recommended that entrepreneurs seek the help from professionals that are experts on the tax policies in Singapore, just so the business is sure that they are legally complying with the jurisdiction of Singapore.

General Corporate Tax Rates in Singapore (2010)

  • Tax rate went down from 18 percent to 17
  • Taxes are charged according to profit blocks. It depends on how much is the income. Tax is applied to the first 10,000 SGD at 4.5%. Next to be charged is at the 290,000 SGD profit bracket and is charged at 8.5%. Thereafter, the rest of the income falling above the 290,000 is taxed at 17%. For example, if a company only made 8,000 SGD for the year, they will only be taxed 360 SGD.

Singapore definitely has earned the respect from entrepreneurs all over the world because of its very flexible corporate tax policies. Their policies are very friendly, even to rookie companies who just incorporated. In their jurisdiction, new companies have tax exemptions, just so they can jumpstart their business easily, given the fact that they are starting from scratch. Singapore acknowledges the fact that it is very costly for new businesses to set up shop, so they created policies to make these newbies breathe a little bit easier. Their policy is that, for newly incorporated companies, whether local or foreign, they are exempt to pay taxes on their first 100,000 SGD of annual income. This is applicable for the company’s first three fiscal years and is only for companies that qualify in the following:

  • Must be registered tax payers in Singapore
  • Must have only 20 stockholders or less
  • Must have 10% of its stockholders be comprised of individuals

If the new company does not pass such criteria, there are still partial exemptions that apply. Instead of having the tax exemption on the 100,000-income bracket, they can have tax exempted on the 200,000 SGD bracket. The tax rate can be calculated at roughly around 8.5% on the company’s first 300,000 SGD of income, which is considered as a very low rate.

As one can observe, Singapore really does have a favorable tax environment for companies, without sacrificing its own welfare. Singapore has a very reputable status as a country as well, given its productivity and very good quality of living, even with its low and competitive tax rates. It makes one think why other countries have very high taxes when you can still have a good economy with charging smaller rates. Overall, Singapore, along with its good business policies and tax benefits, has truly transformed into a haven for entrepreneurs, making it a very important business environment globally.

More updated details about Tax Rates in Singapore can be found at IRAS.

A good factor to look at when you’re deciding to set up your operations in any jurisdiction is their tax policies being implemented. If you compare different jurisdictions all over the world, Singapore, as well as Hong Kong, are considered as one of the jurisdictions that have business-friendly tax policies in force.

Tax Jurisdiction

Singapore Hong Kong
Taxes charged depend on territorial principle, meaning the companies or individuals are only taxed on the income sourced in Singapore Taxes charged depend on territorial principle, meaning taxes only apply to income that comes from Hong Kong
All income coming from offshore operations are only taxed when they are remitted in Singapore Offshore income are not taxed even with remittance to Hong Kong

 

Corporate Tax Rate
Singapore Hong Kong
Corporate Income Tax – 18%

As of 2010 – 17%

Note: For profits in the SGD 300,000 below bracket, tax rate is 9% and below. For profits above the said bracket, it is capped only at 18%.

Corporate Income Tax – 16.5%

 

Value-Added Tax/Sales Tax
Singapore Hong Kong
Rated at 7% No tax

 

Taxes on Capital Gains
Singapore Hong Kong
None None

 

Group Relief (in case of losses)
Singapore Hong Kong
Allowed Allowed

 

Withholding Tax
Singapore Hong Kong
Withholding tax is only applied to royalties, interests, management fees, technical fees, rentals on movable assets/properties, directors fees (applicable to non-residents, may it be a company or an individual). No withholding tax is charged on dividends. Withholding tax is applied to fees given to non-residents (entertainers or athletes), rentals on movable assets/properties. No withholding tax is charged on interest and the dividends.
Double Tax Agreements
Singapore Hong Kong
Singapore has more than fifty treaties on bilateral comprehensive taxes. Hong Kong has a DTA network composing of thirty-seven treaties.

 

Tax Year
Singapore Hong Kong
Fiscal year from the start of January (1) up to the last day of December (31) Fiscal year from the 1st of April to the 31st of March

 

Filing Tax Returns
Singapore Hong Kong
On or before the 31st of October, all tax returns and audit reports must already be filed with Singapore’s IRA (Inland Revenue Authority), with the exception of dormant companies (companies with no financial transactions for the current fiscal year), and exempted private companies (<20 shareholders, with all shares controlled by the company, yearly turnover should be less than 5 million) On or before the 31st of April, all tax returns and audit reports must already be filed with Hong Kong’s IRD (Inland Revenue Department). The auditor who accomplished the reports should be part and accredited by the Hong Kong Institute of CPAs. The filing is with the exception of dormant companies (companies with no financial transactions for the current fiscal year), and small companies (total gross profit is less than HKD 500,000)

For more on corporate tax in Singapore click here.