Taxable Income Rates

Besides the business idea and its development, running a successful business means careful structuring and detailed planning. Especially in a time of global crisis, the location and the economic and financial environment of the chosen location are critical issues to be considered. Hard times are often a motive power that makes you see the weak points of an enterprise and makes you restructure it in a way to become more effective.

Australia is known with its complex tax system. There are three levels of assessment rules – federal, state and local. Its integration is a subject of discussions at present. At the federal level are imposed the income tax on individuals, the corporation tax on profits, the goods and services tax, the excise taxes, etc. At the state level are imposed payroll taxes, stamp duties on land transfers and other transactions, some taxes on land and properties, fire service taxes, etc. At the local level are imposed some taxes on land and properties.

Just the contrary Singapore is known as a location with business friendly tax regulations.

Some of the advantages of the Singaporean taxation could be outlined as follows:

CORPORATE TAX RATE

Australian corporation tax rate is a flat 30%.

In Singapore, the highest corporate tax rate stands at17%. Annual profits of first 300,000 SGD are taxed roughly at 8.5%.

Additionally, the Singapore tax legislation provides for another scheme of full exemption but only for new companies and only if they meet the following conditions: to be incorporated in Singapore; to be tax residents in Singapore and to have no more than 20 shareholders. In that case the qualifying company is given a full exemption up to 100,000 SGD of its chargeable income for its first three consecutive years of assessment.

Taxable Income SOURCES

Singaporean resident companies are chargeable to corporation tax on their profits arising from Singapore and on their profits arising from foreign countries when remitted to Singapore. The income earned and retained outside the country is not taxable. Additionally the dividends, the branch profits and the service income are exempt from assessment even when remitted to Singapore when they have been charged in a foreign state in which the certain tax rate is at least 15%. Furthermore, this rule is temporary changed for the year 2009 – for that year it is not necessary to fulfill any conditions in order to be able to apply the exemption.

Australian resident companies pay corporation tax on their worldwide profits, sourced within and outside of Australia. The remittance of the incomes is not a precondition for assessment.

DIVIDENDS

In Singapore the “one – tier” system is applicable. The corporate income is assessed on corporate level and this is final assessment. The dividends are tax exempt and there is no withholding tax with this respect.

In Australia the resident shareholders only receive tax credit when declaring the dividends in their personal tax returns. The credit is for the taxes paid by the company in respect of that part of the profits distributed to the said owners. The non-resident shareholders may not be liable to such credits.

DOUBLE TAX TREATIES

One of the ways of avoiding double taxation is the conclusion of treaties and agreements, regulating the assessment of certain incomes. Singapore has concluded nearly 70 treaties and Australia over 40. There is Double taxation agreement in force between the two countries as well.

GOODS AND SERVCIES TAX (GST)

The Singaporean standard GST rate is 7%, the Australian one – 10 %.

In Singapore a company is obligated to register for the purposes of GST act when the annual turnover is above or expected to be above 1 million SGD. GST registration threshold in Australia is 75,000 AUD.

Both tax systems provide for zero rates with regard to exports, where tax credit is still available.

Imports are taxable supplies in both locations, generally charged with the standard rates.

PROPERTY TAXES

The property taxation system in Singapore is centralized. The basic rate is 10% for industrial, commercial and let-out residential properties and 4% for owner-occupied residential properties. The rate is to be applied to the annual value of the item. The valuation is based on the market appraisal of the land and the estimated rent of other properties.

Australian system for property taxation includes land value taxes, other property taxes on real estates, stamp duties, water rates, etc. The rates and the payment terms differ in each state.

SOCIAL INSURANCE CONTRIBUTIONS

In Singapore the employers’ social insurance contributions are made to the Central Provident Fund and depend on the amount of the salaries and wages paid. The rates are between 0% and 14.5%.

The Australian retirement system is called Superannuation Guarantee fund, where employers are required to make compulsory contributions, calculated on the basis of the salaries and wages. At present the rate is 9%.

A payroll tax is also due by Australian employers over the amount of the wages above a certain threshold. Both the rates and the thresholds are appointed by the state governments, e.g. for New South Wales they are as follows: 5.75% where the wages exceed 638,000 AUD. When determining the assessable amount, groups of companies might be treated as one single enterprise if there are related operations.

According to a research published by the Info-communication Development Authority of Singapore, many companies located their business in Singapore over the past years, attracted by the competitive tax environment in addition to geographic advantages, economic and political stability and advanced infrastructure.

Taxpayers to get a break

A series of new tax measures will take effect on income earned this year and be applied for the first time when individual taxpayers and companies file their income taxes next year.

The Laffer Curve, Part II: Reviewing the Evidence