| A key determinant for setting up a business in a given | | | | air or sea transport industries which are taxed on a |
| jurisdiction is the income tax regime in force. In today's | | | | worldwide basis. Both Singapore and Malaysia follow a |
| economic environment companies are choosing to set | | | | single-tier corporate income tax system, which means |
| up operations or even transfer their businesses to | | | | there is no double-taxation for stakeholders. |
| locations where there are considerable tax benefits. | | | | Singapore provides various industry-specific and |
| Most businesses are specifically concerned with tax | | | | investment related income tax incentives for the |
| matters that have a direct bearing on their business | | | | following business sectors: financial services industry, |
| operations such as corporate tax rates, tax incentives, | | | | fund management industry, global trading sector, |
| tax treatment of foreign sourced income and indirect | | | | shipping and maritime industry, event management |
| tax rates. In this article, we compare the income tax | | | | industry, e-commerce industry, insurance industry and |
| system of Singapore and Malaysia. | | | | the processing services sector. A tax treaty between |
| To support entrepreneurship and to help foster growth | | | | two countries is generally an agreement that specifies |
| of SMEs, a newly incorporated company that satisfies | | | | how the income earned will be taxed by the authorities |
| the qualifying conditions will enjoy full tax exemption on | | | | of each country when a company is involved in doing |
| the first S$100,000 of taxable income for each of the | | | | business in both countries. |
| first three tax filing years. Malaysia resident companies | | | | Indirect tax such as VAT or GST is an area of |
| on the other hand are subject to a corporate income | | | | concern for most businesses, as it increases the selling |
| tax rate of 25%. SMEs with a paid-up capital of RM | | | | price of goods and services. Although the principles of |
| 2.5 million or less are subject to a corporate income | | | | indirect taxation are very similar all over the world, |
| tax rate of 20% for the first RM 500,000 of taxable | | | | there are certain significant differences between the |
| income and 25% on the remaining taxable income. | | | | VAT or GST rates of various jurisdictions. Goods and |
| In Singapore, income taxes are levied on a territorial | | | | Services Tax (GST) is a consumption tax that is levied |
| principle i.e. companies are taxed on Singapore | | | | on the supply of goods and services in Singapore and |
| sourced income. The income sourced overseas and | | | | the import of goods into Singapore. A GST registered |
| retained outside the country is not taxable. Foreign | | | | company must collect GST tax from its customers for |
| sourced income (branch profits, dividends, service | | | | the goods and services rendered by the company and |
| income, etc.) will be taxed only when it is remitted into | | | | then pay the tax collected to tax authorities. Singapore |
| Singapore, unless the income was already subjected | | | | resident companies must register for GST when the |
| to taxes in a jurisdiction with headline tax rates of at | | | | annual turnover is above or expected to be above 1 |
| least 15%. Furthermore, as part of the tax changes | | | | million SGD. |
| announced in the 2009 Budget, there is an expansion | | | | The GST rate in Singapore stands at 7%. Malaysia |
| of scope in the exemption of foreign sourced income. | | | | currently imposes a service tax and sales tax on |
| All foreign sourced income earned or accrued outside | | | | certain prescribed goods and services. |
| Singapore on or before 21 January 2009 will be | | | | A service tax applies to certain prescribed goods and |
| exempted from tax, if the company remits the foreign | | | | services in Malaysia including food, drinks and tobacco; |
| sourced income to Singapore during 22 Jan 2009 to 21 | | | | health services; provision of accommodation and most |
| Jan 2010. | | | | professional and consultancy services. The rate of |
| Malaysia also follows a territorial system of taxation | | | | service tax is currently fixed at 5%. Given |
| whereby companies are taxed on Malaysia sourced | | | | Singapore's emergence as the best place to business |
| income. Resident companies are exempted from | | | | and its attractive income tax rates, more international |
| income tax on foreign-sourced income remitted into | | | | businesses choose Singapore as their preferred |
| Malaysia, except companies in the banking, insurance, | | | | destination for business set-up and expansion. |