Corporate Taxes in Singapore | Impact of Global Minimum Tax Rate

Investment | Singapore
by Priyadarshini 16 May 2023

Singapore is also known as a tax haven because of its low income and corporate tax rates. However, the country is also heavily taxed in areas such as GST or COE. The fact that the major global powers are currently pushing for a new global minimum corporate tax rate, isn’t exactly good news in Singapore. After all, attracting MNCs to set up shop in Singapore has long been a pillar of the city-economic state’s strategy. Our main selling points have always been our stability, ease of doing business, and low corporate taxes. In this blog, we discuss corporate taxes in Singapore.

Corporate Tax?

The corporate tax in Singapore is at 17%. It isn’t high as compared to the rest of the world. Corporate tax rates in countries like Australia, China, and Malaysia are all-around 25%. Moreover, some businesses in Singapore are able to reduce their corporate tax rate even further. With the help of certain government schemes, many MNCs are reaping tax benefits.

For example, the Regional Headquarters Award (RHA) allows companies to pay 15% corporate tax on qualifying incremental income for up to five years.  Whereas, the IHA reduces their tax rate on qualifying incremental income to 5% to 10%. So, while the general corporate tax rate in Singapore is 17%, savvy businesses will manage to pay much less.

New Global Corporate Minimum Tax 

The G7 countries state that they intend to impose a minimum global corporate tax rate of at least 15%. And that companies have to pay taxes on profits earned abroad. All the G7 nations comprises of some of the world’s wealthiest and most powerful countries. For instance, the United States, Canada, the United Kingdom, France, Italy, Germany, and Japan. Many developed countries want to extract more tax dollars from big tech companies. And this is why they are so eager for a minimum corporate tax rate to be imposed.

Many businesses that deal with intellectual property can easily set up shop in a tax haven to avoid paying huge taxes. Businesses in the United Kingdom and many European countries are currently imposing Digital Services Tax (DST) in order to get a piece of the pie. However, the United States is claiming that this scheme unfairly targets their large technology companies. As many of them are based in tax havens. The proposed 15% corporate tax is an attempt by the world’s superpowers to create a standardized international tax framework for the digital economy.

Corporate Taxes in Singapore:

Impact on Tax Havens

The global minimum tax rate, if implemented, will be bad news for tax havens because it will force them to raise corporate tax rates. In turn, making them less appealing to businesses. For example, the Netherlands’ corporate tax rate of 20% to 25% is not particularly low when compared to other European countries. But their government provides many incentives that lower the overall tax rate for companies. Thus allowing large MNCs to avoid paying taxes on some portions of their profits.

Impact on Singapore if Minimum Tax Rate is Implemented

Although Singapore is a tax haven in its own right, our current corporate tax rate of 17% is higher than the G7 minimum tax rate of 15%. However, the actual minimum tax rate to be implemented has yet to be determined and could end up being higher than 15%. The new minimum tax rate is likely to apply only to companies with annual revenues exceeding a certain threshold. Until now the OECD has estimated this figure to be around $1.2 billion. This essentially means that it will not affect smaller startups and SMEs.  But it will affect many of the large multinational corporations (MNCs) operating in the country.

Singapore may no longer be such a cost-effective destination for global companies. Companies that have been paying concessionary tax rates here as a result of government schemes. The country’s ability to use concessionary tax rates as an attraction to bring in MNCs will also be impacted.

Global Minimum Corporate Tax Rate may be Beneficial

Creating a global minimum corporate tax rate could be beneficial to the world as a whole. If these technology giants began paying reasonable taxes, the money paid to governments could be used to assist ordinary citizens and improve infrastructure. Something that is good for the rest of the world may not have the same effects on this country. As our economy is heavily dependent on MNCs and foreign investments, the global corporate taxes in Singapore may have a slightly negative impact on global standing.

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