All business entities in Singapore, whether local or foreign, are liable to pay corporate income tax. Aside from this, there are a few types of taxes which may affect the operating costs of a company and profit margin.
They are the Withholding Tax, GST, Customs or Excise Duty, Stamp Duty for Shares and Property Tax.
Domestic corporations are required to withhold tax when they pay certain types of income to non-residents. These can be in the form of payments to non-resident individuals or non-resident corporations.
For more information about what tax residence is and how it is determined, read About Tax Residency of a Company in Singapore.
The rate of withholding tax varies according to the item being paid for. For business entities, it is also dependent on whether the payee is a treaty member of the Double Taxation Agreement.
For further details, go to What is Withholding Tax in Singapore?
Goods and Services Tax (GST)
Known in other countries as Value-Added Tax (VAT), GST was introduced in 1994 to enable Singapore to shift its reliance from direct taxes to indirect taxes. Only businesses registered for GST can charge and collect GST for goods and services sold.
A 7 percent tax is imposed on nearly all goods and services offered in the country. This includes import of goods. Exports and international services are charged at zero rate of GST, while certain goods and services are exempt from being charged GST or they are classified as ‘out-of-scope’ supplies.
Customs and Excise Duty
These are applicable to businesses involved in the manufacture of goods in Singapore or the import of goods into the country. The four categories of dutiable goods are:
- Motor vehicles
- Tobacco products
- Intoxicating liquors
- Petroleum products and biodiesel blends
Duties charged are either based on specific rates or an ad valorem. Specific rate refers to a price per measurement or per unit of the product. Ad valorem is a percentage of the good’s customs value.
You may refer to the Singapore Customs department’s website for a detailed list of duty rates imposed on goods.
Stamp Duty for Shares
According to the Inland Revenue Authority of Singapore (IRAS), stamp duty is ‘a tax on dutiable documents relating to immovable properties in Singapore and stocks and shares’. Both physical and electronic versions of documents related to share transfers are dutiable.
There are two types of shares documents:
- Agreement and Transfer Instruments for Shares
- Mortgages for Shares
The documents signed when you acquire shares are Agreement and Transfer Instruments for Shares. The agreement or contract can be broken down into the following:
- Sale of shares
- Sale of scripless shares
- Aborted sale and purchase of equity interests
Share duty is charged for all of the above but additional conveyance duties (ACD) is not charged for item 1.
Mortgages for Shares are signed when shares are pledged to obtain a loan from a financial institution. Stamp duty is charged on the loan amount.
Who pays stamp duty
Who is supposed to pay this cost should be stated in the Terms of Agreement. If it is not stated in the agreement, the party to pay Stamp Duty will be determined as specified in the Third Schedule of the Stamp Duties Act.
The payer is also decided based on the type of transaction. For the purchase of shares, the payer is the buyer or transferee. For mortgaging shares, the payer is the mortgagor.
This must be done before a document is signed. However, if it is signed before stamping, there will be no fine provided:
- It is stamped within 14 days after signing (in Singapore)
- It is stamped within 30 days after receiving the document (signed abroad)
Stamping can be done at e-Terminals at IRAS Surf Centre, Service Bureaus, online via the e-Stamping Portal as well as at the Taxpayer and Business Service Centre in Singapore.
Stamp Duty for Variable Capital Companies
A Variable Capital Company or VCC is a new corporate structure which came into effect in 2020. For more details about this topic, click the link to the article.
This tax is applicable to commercial and industrial properties at a rate of 10% of the Annual Value. It is charged regardless of whether the owner of the property is occupying it for his own use or for business activities.
The caveat is that if a residential property is being used for commercial purposes, the property will be taxed at 10% instead of the property tax rates for residential properties.
However, if the business activity is conducted from a home, and it is a residential property, the property will be deemed as a residential property and not commercial one; thus, corresponding tax rates apply.
These categories of taxes are relevant to business entities though not all types of businesses. To avoid inadvertent mistakes in tax filing, or late payment penalties, it may be advisable to outsource this work to corporate tax services.
Other relevant articles:
- 6 Reasons Companies Should Use Corporate Tax Services
- 2020 Guide on How to Reduce Corporate Tax in Singapore
- Tips for Corporate Tax Filing in YA2020
- About Tax Residency of a Company in Singapore
- Tax Residency Certificate in Singapore – Why Apply and How
- What is Withholding Tax in Singapore?
- Stamp Duty for Variable Capital Companies in Singapore
- What is a Tax Reclaim Form?
- How to Manage Tax for a Dormant Company