If you have foreign subsidiaries in Singapore, it’s important to know that there is a drastic amendment of its section 44 ( imputation method of franked dividend) to a complete changeover to a one-tier corporate tax system with effect from 1 st January 2008
Some of the salient points to note are:

· The cut-off date is on 1 st January 2008
· It affects only all Singapore resident companies
· All companies in Singapore remaining on the imputation system would move to the one-tier system. Imputation system will cease to exist;
· All dividends payable by companies in Singapore would be exempt from tax in the hands of shareholders;
· All corporate shareholders receiving dividends paid by companies in Singapore can onward pay the dividends to their shareholders with no restriction on the shareholding and number of tiers for which such dividends can be flowed through;
· All companies in Singapore are not required to maintain Section 44 accounts;
· All section 44 charge not utilised by 31st December 2007 would not be available for set-off against any tax assessed on or after 1st January 2008; and
· All tax discharged after 31st December 2007 (net of any tax due to the Comptroller of Income Tax) may be refunded to companies at the point of tax discharge without the need to refer to companies’ section 44 balances as at 31 December 2002.
· Companies have three(3) choices (refer below) for this one-tier system.
Let further looks into the following details of the One-Tier Corporate Tax System:

1. What is the One-Tier Corporate Tax System about?

The one-tier corporate tax system has been introduced to replace the old imputation system . This system takes effect from 1st Jan 2003. The change will affect Singapore resident companies only.

Under the one-tier corporate tax system, income tax payable on the normal chargeable income of a company is a final tax in Singapore. This means that shareholders will not be taxed on such dividend income. Only companies on the one-tier corporate tax system can issue one-tier exempt dividends.

2. When will the company be on the One-Tier Corporate Tax System?

(a) Either from 1 st January 2003 by automatically moving to it:

The company will be automatically moved to the one-tier system from 1 st Jan 2003 when:
· the new company is incorporated on or after 1st January 2003
· the resident company does not have any Section 44 balances as at 31st Dec 2002

(b) By choosing to immediately move to the one-tier corporate system:

By choosing to move to one-tier corporate tax system even though the company has unutilised Section 44 balances as at 31st December 2002 during a 5-year transitional period (1st January 2003 to 31st December 2007).

This is by exercising an irrevocable option by submiting a completed option form to the Comptroller of Income Tax. By doing so, the company will not be allowed to pay franked dividends by utilizing the company’s section 44 balances as at 31 Dec 2002 from the date it exercises the option.

© Remains unchanged until 1 st January 2008:

Otherwise, resident companies with unutilised Section 44 balances (as at 31st December 2002) may remain on the imputation system for the purpose of paying franked dividends during a 5-year transitional period (1st January 2003 to 31st December 2007).

3. What all companies need to take note of?

All resident companies, regardless of whether under one-tier or imputation system, are still required to maintain Section 44 account during a 5-year transitional period (1st January 2003 to 31st December 2007).

4. What must a company under the one-tier corporate tax system do?

The company can pay dividends out of after-tax profits (known as exempt one-tier dividends) that will be exempt from tax in the hands of shareholders. Expenses incurred by the shareholders to earn the dividends are deductible only against such dividends.

The company can continue to pay normal exempt dividends, dividends that are exempt from tax in the hands of the shareholders, out of certain specified accounts.

However, the company has to distinguish the one-tier dividends and normal exempt dividends in the tax vouchers issued to the shareholders during the 5-year transitional period (1st January 2003 to 31st December 2007).

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