Singapore’s favorable tax regime is internationally recognized for allowing entrepreneurs and companies to enjoy low tax rates and numerous types of tax relief – through incentives, comprehensive tax treaty networks, and exemptions from certain incomes.

Singapore has a territorial tax system, which means that it levies a tax on all income earned in or derived from Singapore. Foreign-sourced income, such as branch profits, dividends, and service income, are taxed when remitted or deemed remitted into Singapore but will be exempted provided that the income has been taxed in the source country with a rate of at least 15 percent. There is also no capital gains tax in Singapore.

Start-up Tax Exemption Scheme

Income derived by companies in Singapore is taxed at a flat rate of 17%. The start-up tax exemption scheme encourages entrepreneurship by providing newly incorporated companies some exemption on their taxable profits in their first three years of operation. Please refer to IRAS’ website for more details on the start-up tax exemption scheme and the qualifying conditions.

Partial Tax Exemption Scheme

The Government recognises that small- and medium-sized enterprises (SMEs) are an important component of a vibrant economy. To help such companies grow and establish themselves, the Government has put in place a partial tax exemption scheme designed to support SMEs. For more details on the partial tax exemption scheme, please refer to IRAS’ website.

Group Relief

As companies grow and expand their operations, they may organise themselves as multiple holding companies, subsidiaries and associate companies to manage liabilities. Under Singapore’s group relief system, current year unutilised losses, donations and unabsorbed capital allowances may be transferred to related companies within the group. This reduces the overall tax burden for the whole group. For more details on the group relief system, please refer to IRAS’ website.

Accounting and Audit Requirements

1. Tax Year

Calendar year (1 Jan to 31 Dec) and referred to as the Year of Assessment (YA). Income assessment for the YA is based upon the income derived from the previous calendar year (or basis year), although IRAS allows for businesses with a non-calendar accounting year end to use the accounting year as a basis year instead.

1. Accounting Standards

Singapore’s prescribed accounting standards (“Singapore Financial Reporting Standards” or SFRS) are aligned with those of the International Accounting Standards Board. The Accounting Standards Council of Singapore (ASC) develop, review, amend and approve accounting standards for use by companies, charities, co-operative societies and general societies. With permission of the securities regulator, public companies may also use IFRS Standards. Foreign companies, whose equity securities have a primary listing in Singapore are required to apply SFRS, IFRS Standards, or US GAAP, while those with a secondary listing are required only to reconcile their financial statements to SFRS, IFRS Standards or US GAAP.

1. Accounting Regulation Bodies

ACRA

1. Accounting Reports

Income Tax Returns, Profit and Loss Statements, and Balance sheet.

Publication Requirements

Each company has to produce a profit and loss account as well as a financial balance sheet. Accounting records must be kept for five years following the end of the business year of each transaction. Audited accounts must be filed with ACRA on an annual basis but companies are free to choose their tax year.

A company is required to keep certain records in addition to accounting records, e.g. registers of substantial shareholders, debenture holders, directors’ and chief executive officer’s shareholdings, registrable controllers and nominee directors (if any).

A foreign company is required to file its financial statements, together with the audited financial statements of the branch, within two months of the date of the annual general meeting of the head office, or within seven months from the financial year-end date if the head office is not required to hold an annual general meeting by law in the place of its incorporation.

4. Certification and Auditing

Companies have to seek a statutory auditor to conduct an annual audit of the financial health of their organisation. Dormant companies (companies with no significant accounting transactions during the fiscal year) and small companies are exempt from the statutory audit requirements that apply to other companies.

Exemption from Audit Requirements

Companies that are regarded as a “small company” for a particular financial year, or are dormant, are exempt from audit requirements. These companies therefore do not need to appoint auditors (or have their financial statements audited) for that financial year.

If you are unsure of the end date of your company’s financial year, you may find our article on determining the financial year end of a company useful.

Small company & small group exemption

A company qualifies as a small company if:

(a) it is a private company in the financial year in question; and

(b) it meets at least 2 of 3 following criteria for immediate past two consecutive financial years:

1. total annual revenue ≤ $10m;
2. total assets ≤ $10m;
3. no. of employees ≤ 50

For a company which is part of a group:

(a) the company must qualify as a small company; and

(b) entire group must be a “small group”

to qualify to the audit exemption.

For a group to be a small group, it must meet at least 2 of the 3 quantitative criteria (set out above) on a consolidated basis for the immediate past two consecutive financial years.

Dormant company

A company will also be exempt from audit requirements if:

• It has been dormant from the time of its formation; or
• It has been dormant since the end of the previous financial year.

A company is dormant during a period in which no accounting transaction occurs. Dormant companies will cease to be considered dormant once such an accounting transaction occurs.

Contact us for complete assistance in opening an offshore company in Singapore.