A Singapore-Dubai Tax Comparison

Singapore or Dubai

 

Corporate Tax Dubai / Singapore

Dubai is one of the seven emirates of the UAE and the federal government has exclusivity when it comes to the taxation system. Currently, the United Arab Emirates does not have a federal corporate income tax (CIT) regime; however, most of the Emirates introduced income tax decrees in the late 1960s, and taxation is therefore determined on an Emirate-by-Emirate basis. However, the national government has not issued any tax laws leaving each emirate to decide on how to impose the taxes on individuals residing here and companies registered in the country..

Under the Emirate-based tax decrees, CIT may be imposed on all companies (including branches and permanent establishments [PEs]) at rates of up to 55%. However, in practice, CIT is currently only enforced in respect of corporate entities engaged in the production of oil and gas or extraction of other natural resources in the United Arab Emirates. In addition, some of the Emirates have their own specific banking tax decrees, which impose CIT on branches of foreign banks at the rate of 20%. Free trade zones (FTZs) have their own rules and regulations and generally offer tax holidays to businesses (and their employees) set up in the FTZ for a period between 15 and 50 years (which are mostly renewable).

On the basis of the above, most entities registered in the United Arab Emirates are currently not required to file corporate tax returns in the United Arab Emirates, regardless of where the business is registered.

In order to be taxed, companies in Dubai must comply with a few requirements imposed by the local government. First of all, the business must be registered and operate in Dubai through a local company or branch office, and secondly, it must be engaged in trading activity.

Singapore has one of the most attractive corporate tax regimes in Asia, with low and transparent tax rates and an efficient tax filing/reporting system. Regardless of tax-residency status, all companies are required to pay corporate tax under the Income Tax Act on any chargeable income derived from Singapore or foreign income remitted into Singapore. However, Singapore tax-resident companies enjoy several benefits over non-tax resident companies.

Singapore corporate tax is levied at a flat rate of 17% on chargeable income. Partial Tax Exemption for companies has also been provided:-

Chargeable Income

% Exempted from Tax

Amount Exempted from Tax

First $10,000

@75%

$7500

Next $1,90,000

@50%

$95,000

Total $2,00,000

 

$1,02,500

Tax Exemption Scheme for new start-up companies where any of the first 3 Years of Assessment falls in or after 2020 year of assessment.

Chargeable Income

% Exempted from Tax

Amount Exempted from Tax

First $1,00,000

@75%

$75000

Next $1,00,000

@50%

$50,000

Total $2,00,000

 

$1,25,000

A company can calculate its chargeable income by taking its taxable revenues (any ongoing or recurring source of income derived from Singapore or remitted into Singapore) and subtracting deductible expenses. Deductible expenses refer generally to any expenses “wholly and exclusively incurred in the production of income”. This means that the company must be able to show why the expenditure was necessary to earn the income.

 

VAT in Dubai / GST in Singapore

Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent. VAT will provide the UAE with a new source of income which will be continued to be utilized to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum. Startups whose VAT attracted expenses are more than AED 187,500.VAT-registered businesses collect the amount on behalf of the government; consumers bear the VAT in the form of a 5 per cent increase in the cost of taxable goods and services they purchase in the UAE.UAE imposes VAT on tax-registered businesses at a rate of 5 per cent on a taxable supply of goods or services at each step of the supply chain.

Taxable businesses must file VAT returns with FTA on a regular basis and usually within 28 days of the end of the ‘tax period’ as defined for each type of business. A ‘tax period’ is a specific period of time for which the payable tax shall be calculated and paid. The standard tax period is:

  • quarterly for businesses with an annual turnover below AED150 million
  • monthly for businesses with an annual turnover of AED150 million or more.

The FTA may, at its choice, assign a different tax period for certain type of businesses. Failure to file a tax return within the specified time frame will make the violator liable for fines as per the provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.

Goods and Services Tax or GST meaning is a broad-based consumption tax levied on the import of goods (collected by Singapore Customs), as well as nearly all supplies of goods and services in Singapore. In other countries, GST is known as the Value-Added Tax or VAT. The current GST rate is 7 percent in Singapore.

All Singapore companies must register for GST if their annual taxable revenue is more than S$1 million, or if their current taxable income and annual taxable revenue is expected to be more than S$1 million. The business must register for GST within thirty days from the time it is deemed liable. However, you may qualify for exemption from registration if you meet both of these conditions:

  • The proportion of your zero-rated supplies over total taxable supplies exceeds 90%
  • Total taxable supplies refer to the summation of standard-rated supplies and zero-rated supplies, but exclude the following that have been reported as your standard-rated supplies:
  • The value of relevant supplies received from your supplier that were subject to customer accounting; and
  • The value of imported services subject to reverse charge.

You would have been in a net refundable position had you been registered for GST

Net refundable position refers to a situation where the output tax chargeable is less than the input tax claimable on imports and/or purchases from GST-registered suppliers

You may also choose to voluntarily register for GST. Approval for voluntary registration is at the discretion of the IRAS Comptroller.

You must submit your GST return to IRAS one month after the end of each prescribed accounting period. This is usually done on a quarterly basis.You should report both your output tax and input tax in your GST return. The difference between output tax and input tax is the net GST payable to IRAS or refunded by IRAS.

 

Other Points to be considered:-

Economic base

Dubai is primarily oil, tourism and retail based economy. It’s main focus is on the oil business in the around region. In recent years Dubai government has made efforts to diversify the economy into other segments like trade, tourism and retail. Because of its heavy reliance on oil, its susceptible to volatile situations happening in the international oil market. In the downturn of 2009, the property market in Dubai crashed and many businesses were significantly impacted.

Singapore economy in comparison has much broader base. Trade, manufacturing, shipping, banking and finance are at the core of Singapore economy. Because of its broad base, Singapore was minimally impacted in the downturn of 2009.

Tax rates

Singapore has corporate tax rate of 17%, whereas there is no tax charges on corporate income in Dubai. Obviously it appears that Dubai is a clear winner here. However The government of Dubai has other fiscal revenues through various fees it levies, including road tolls, airport tax, hotel tax, house rent tax, visa fees and various license fees. So the cost of all this needs to be taken into consideration. In fact experienced economist suggest that a modern and transparent tax regime is what Dubai need to move to.

Foreign ownership in companies

Singapore allows 100% foreign ownership in the companies registered here. There is no need to get a local partner to act as a shareholder. This way you are 100% owner of your venture in Singapore.

In Dubai, a foreigner can hold maximum 49% shares in the companies established outside the Free Trade Zone. Rest 51% shareholding must be with a UAE national. In case of a flourishing business this can be a problem as the controlling stake is with somebody you don’t really know.

Companies registered in Dubai free trade zone are allowed to have 100% foreign shareholding, but this option has many restrictions.

Residency & Citizenship

Singapore government is very pragmatic and welcomes talented individuals to settle in Singapore. After working in Singapore for 3-4 years you can apply for permanent residency, which gives you almost all the rights a citizen can do (with some exceptions). After around 3-4 years on permanent residency you can apply for citizenship. In 2011, 25000 people got permanent residency and 16000 people became citizen.

There is no such residency or citizenship in Dubai. Citizenship can be obtained only by birth. The popularly called residency visa in Dubai is actually not a permanent residency, but it’s just a visa issued for 3 years either for housing, investment or employment purpose.

 

 

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