Singapore's low taxes and other incentives for foreign investors qualify it as a tax haven. It levies 20% on personal incomes in the highest tax bracket, defined as incomes above about $240,000 U.S. dollars, and it does not tax capital gains.
That kind of tax policy, and a location that makes it a gateway for companies hoping to expand into the emerging Asian economies, have made this island city-state a global hub for international investment and commerce.
Singapore's Corporate Rates
The corporate income tax rate in Singapore is 17% for companies with incomes over about $2.7 million in U.S. currency. However, the effective corporate tax rate could be lowered by other incentives introduced by the Inland Revenue Authority of Singapore.
The Productivity and Innovation Credit (PIC) Scheme, for example, allows companies a total corporate tax exemption if they earn more than about $20.7 million U.S. per year.
Start-up companies in Singapore can take advantage of a zero tax exemption on about $74,000 of income for their first three consecutive years of business. To qualify for the startup tax exemption, companies must be incorporated in Singapore and have a maximum of 20 shareholders. One shareholder must be an individual who holds a minimum of 10% of shares.
Even after the end of the startup period, companies with incomes up to about $222,000 are eligible for a partial tax exemption that translates to an effective tax rate of 8.5%.
Other Tax Breaks
Singapore also offers tax exemptions for businesses in certain industries. These include breaks for qualifying foreign banks, offshore funds, and global trading companies.
Banks are eligible for a withholding tax exemption on payments to non-residents made between April 1, 2011, and March 31, 2021, that are based on agreements that take effect between those dates.
Qualifying offshore funds are also exempt from tax on some income, including income from dividends, gains, profits, and interest from traditional investments including deposits, bonds, shares, stocks, and securities.
Global trading companies are eligible for concessionary tax rates of 5% to 10% for five to 10 years if they qualify for Singapore's Global Trader Scheme. Singapore typically grants Global Trader status to companies with established track records in international trade.
Oversight in Singapore
Banks and financial institutions in the city-state are required to exercise due diligence to help prevent money laundering and other international criminal activity.
Under Singapore law, records are private and financial institutions are not required to provide access to personal data about individuals. However, Singapore provides exceptions to banking confidentiality agreements upon request by foreign authorities in cases where accounts were used to shield criminal activity.
The Monetary Authority of Singapore regulates financial institutions.