Income Taxes Paid By Income

April 7th, 2009

income taxes paid by income

Singapore Income Tax vs. Malaysia Income Tax Guide

A key determinant for setting up a business in a given jurisdiction is the income tax regime in force. In today’s economic environment companies are choosing to set up operations or even transfer their businesses to locations where there are considerable tax benefits. Most businesses are specifically concerned with tax matters that have a direct bearing on their business operations such as corporate tax rates, tax incentives, tax treatment of foreign sourced income and indirect tax rates. In this article, we compare the income tax system of Singapore and Malaysia.

To support entrepreneurship and to help foster growth of SMEs, a newly incorporated company that satisfies the qualifying conditions will enjoy full tax exemption on the first S$100,000 of taxable income for each of the first three tax filing years. Malaysia resident companies on the other hand are subject to a corporate income tax rate of 25%. SMEs with a paid-up capital of RM 2.5 million or less are subject to a corporate income tax rate of 20% for the first RM 500,000 of taxable income and 25% on the remaining taxable income.

In Singapore, income taxes are levied on a territorial principle i.e. companies are taxed on Singapore sourced income. The income sourced overseas and retained outside the country is not taxable. Foreign sourced income (branch profits, dividends, service income, etc.) will be taxed only when it is remitted into Singapore, unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%. Furthermore, as part of the tax changes announced in the 2009 Budget, there is an expansion of scope in the exemption of foreign sourced income. All foreign sourced income earned or accrued outside Singapore on or before 21 January 2009 will be exempted from tax, if the company remits the foreign sourced income to Singapore during 22 Jan 2009 to 21 Jan 2010.

Malaysia also follows a territorial system of taxation whereby companies are taxed on Malaysia sourced income. Resident companies are exempted from income tax on foreign-sourced income remitted into Malaysia, except companies in the banking, insurance, air or sea transport industries which are taxed on a worldwide basis. Both Singapore and Malaysia follow a single-tier corporate income tax system, which means there is no double-taxation for stakeholders.
Singapore provides various industry-specific and investment related income tax incentives for the following business sectors: financial services industry, fund management industry, global trading sector, shipping and maritime industry, event management industry, e-commerce industry, insurance industry and the processing services sector. A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries.

Indirect tax such as VAT or GST is an area of concern for most businesses, as it increases the selling price of goods and services. Although the principles of indirect taxation are very similar all over the world, there are certain significant differences between the VAT or GST rates of various jurisdictions. Goods and Services Tax (GST) is a consumption tax that is levied on the supply of goods and services in Singapore and the import of goods into Singapore. A GST registered company must collect GST tax from its customers for the goods and services rendered by the company and then pay the tax collected to tax authorities. Singapore resident companies must register for GST when the annual turnover is above or expected to be above 1 million SGD.
The GST rate in Singapore stands at 7%. Malaysia currently imposes a service tax and sales tax on certain prescribed goods and services.

A service tax applies to certain prescribed goods and services in Malaysia including food, drinks and tobacco; health services; provision of accommodation and most professional and consultancy services. The rate of service tax is currently fixed at 5%.  Given Singapore’s emergence as the best place to business and its attractive income tax rates, more international businesses choose Singapore as their preferred destination for business set-up and expansion.

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