Ever wondered what counts as taxable and non-taxable income in Singapore? It's not always as clear as black and white. Whether you're a seasoned business owner or just dipping your toes in Singapore's business waters, understanding this can be a game-changer.
If you run a business here, it's crucial to know what counts as taxable income in Singapore. This knowledge helps you stay compliant with the law. Understanding what you need to pay taxes on is key.
In this guide, we'll go through what is and isn't taxable for businesses in Singapore. We'll provide you with all the information you need to manage your taxes smoothly.
Understanding Taxable Income for Singapore Businesses
Taxable income in Singapore comes from different sources for businesses. Imagine your business earns revenue from sales and investments. The profits from these activities are your taxable income. Similarly, if your company earns rent from property or dividends from shares, these, too, are part of your taxable income.
Profits or Gains from Business or Trade
A key part of taxable income for your Singaporean business is the profits or gains from your business or trade. This covers money made from selling goods or services, and any other income directly linked to running the business.
Income from Investments
In addition to profits or gains from business activities, income from investments is also considered taxable in Singapore. This includes rental income from your properties and interest earned from loans or investments. It also includes dividends received from shares or investments in other companies.
Property-Related Profits or Gains
Profits or gains derived from property-related activities are also considered taxable income for Singapore businesses. For example, if you own an office building and rents out space to various businesses, the rental income received from these tenants is taxable. This includes income from the sale of properties and rental income from properties. It also includes any other income directly related to property transactions.
Other Types of Gains
Besides the income sources we just mentioned, your business in Singapore also need to report other gains that count as income. This includes money made from foreign exchange transactions and from selling assets like plant and equipment. Any other income that doesn't fit neatly into a category but still counts as taxable income needs to be reported too.
Deductions to Lower Tax Liabilities
To lower your tax liabilities, your business in Singapore is eligible for various deductions such as tax reliefs, capital allowances, and business expenses. These deductions help businesses offset your taxable income by reducing the amount of income subject to taxation.
Circumstances Under Which Income is Taxable
To determine if your business's income is taxable in Singapore, you need to refer to the Income Tax Act. In fact, the next steps in this article detail the specific scenarios that define taxable income.
Income Derived from or Accrued in Singapore
According to the Income Tax Act, Singapore companies, including foreign branches, must pay income tax on income derived from or accrued in Singapore. This means that any income generated from your business activities conducted within Singapore's borders is subject to taxation.
Income Received in Singapore from a Foreign Country
Besides income made or accrued in Singapore, you must also pay income tax on foreign income received in Singapore. However, this rule applies when the income is earned outside Singapore but received within the country.
Want to dive deeper into how corporate and foreign income tax works in Singapore? Check out our blog for all the details you need!
Taxation of Income Received Outside Singapore
The taxation of income received outside of Singapore is an important consideration for your business operating internationally. Thus, the Income Tax Act provides guidelines on how such income should be treated for tax purposes.
Deemed Receipt of Overseas Income in Singapore
According to Section 10(25) of the Income Tax Act, income from overseas is deemed to be received in Singapore under certain circumstances. These circumstances include situations where the income is brought into or remitted into Singapore. Others include clearing a debt directly related to your business carried out in Singapore or used to invest in movable property transferred into Singapore.
It is important to note that Section 10(25) applies only to foreign-sourced income received in Singapore by companies located in Singapore or tax residents of Singapore. Moreover, foreign businesses that are not operating in or from Singapore can remit their income into the country without being taxed. This tax benefit encourages foreign businesses to utilise Singapore's fund management and banking facilities.
Tax Benefits for Foreign Businesses Operating in Singapore
Singapore has tax perks for foreign businesses operating here. There's a rule that if foreign income is used for investments outside Singapore and not brought back into the country, it won't be taxed here. Furthermore, this fits with the government's goal to encourage businesses to expand regionally.
For instance, a foreign-based tech company that earns profits from its operations in another Asian country and reinvests those profits into expanding its market in Europe or America without remitting the income back to Singapore would not face taxation on those earnings in Singapore. It helps foreign companies such as yours invest without having to worry about taxable income in Singapore.
Administrative Concession for Foreign Income Used for Foreign Investments
There's also an administrative rule for foreign income used for investments outside Singapore that aren't brought back into the country. It lets foreign businesses invest their income overseas without facing Singapore's taxes. But, if they bring the profits from these investments into Singapore, then they have to pay taxes on them.
For example, imagine you own a Singapore-based company that earns revenue from its subsidiary in Indonesia. If your company reinvests this income in expanding its operations in Europe, without repatriating the funds to Singapore, it will not be taxed on this income by Singapore. But, if your company decides to bring the profits back to Singapore, then those funds would be taxable.
Understanding Non-Taxable Income in Singapore
Not all income is subject to taxation in Singapore. Certain types of income are considered non-taxable, providing relief for businesses in specific circumstances.
Capital Gains
In Singapore, capital gains usually aren't taxable. These gains are the profits you make when you sell assets. This includes things like stocks, bonds, or real estate. This means that your business does not have to pay taxes on the gains you make from capital transactions or foreign exchange.
Exempt Incomes Listed under the Income Tax Act
The Income Tax Act of Singapore lists several types of income that are specifically exempted from taxation, subject to meeting specific conditions. These include the company's profits after disposing of equity investments, foreign-sourced service income, branch profits, and foreign dividends received by a Singapore tax resident company, as well as income from shipping-related activities by a shipping company.
It is important for you to familiarise yourself with the specific conditions outlined in the Income Tax Act to determine if your income falls under the category of exempted income.
A Comprehensive Overview of Taxable and Non-Taxable Income in Singapore
Conclusion
Getting the hang of what's taxable and what's not is key for businesses in Singapore to stay on the right side of tax laws. Knowing where your taxable income in Singapore comes from, when it's taxable, and what counts as tax-free income helps you manage your money smartly and keep your taxes in check. It's a good idea to chat with a professional accountant or an accounting firm to make sense of all the tax rules and make sure you're reporting your income right.
Unlock Tax Savings and Simplify Compliance with Grof's Accounting Expertise
Handling Singapore's tax system can be tricky, especially for entrepreneurs and small businesses. Partnering with an accountant from Grof can make a big difference. They offer expert help in dealing with non-taxable and taxable income in Singapore and finding ways to save on them.
A good accountant can point out tax breaks and exemptions you might not know about, come up with smart tax strategies, and make sure you're following all the tax rules. We can take the stress off you and give you insights into the tax world of Singapore. This way, you can concentrate on running your business while they handle the tax stuff.
