Singapore To Introduce New Corporation Tax System

by Mary Swire, Tax-News.com, Hong Kong

18 October 2002

Singapore's Inland Revenue recently issued details of the change to a 'one-tier' corporate taxation system which was announced in this year's budget speech, and which will come into effect from 1st January 2003.

Under the new system, tax assessed on a company on its normal chargeable income will be a final tax, and dividends paid out of taxed income will be exempt from tax in the hands of the shareholders. It will continue to be possible to pay dividends out of tax-exempt income arising under the government's various tax-privileged economic development schemes.

Currently, Singapore operates a partial imputation scheme under which resident companies run what are known as 'Section 44' accounts in which tax credits on franked dividends are netted off against mainstream corporation tax credits. The switch to the new system may leave companies with unutilised Section 44 balances, and there will be a 5-year transition period for such companies.

Companies that remain on the imputation system during the transition period will continue to pay franked dividends to their shareholders with the relevant tax credits attached. Shareholders receiving franked dividends will be taxed on the gross amount, but will continue to be able to utilise the tax credits against their own tax liability.

The transition rules are complex, and resident Singaporean companies need to consider the timing of their move to the new system in the light of their overall tax position.

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