Companies in Singapore often sought for ways to reduce their corporate tax. In Singapore, the government has initiated some programmes to help companies to reduce their tax bill. The current corporate tax rate in Singapore stands at a flat 17%.
1. Tax Exemptions for New Startups
The tax authority in Singapore provides a special tax exemption to startups for the first three assessment years. The main objective of this scheme is to promote entrepreneurship and help startups grow and establish a base in the country.
This scheme is available to all startup companies in Singapore with the exceptions of any company whose:
- Principal activity is that of investment holding; or
- Principal activity is that of developing properties for sale, investment or both.
Eligible startups must fulfil the following three conditions to qualify for the tax exemption:
- The company must be a Singapore registered company.
- The company must be a tax resident for that assessment year in Singapore.
- The number of shareholders of the company must not exceed 20 in that assessment year.
The eligible startups in Singapore will be exempted from any tax on the first S$100,000 of the normal chargeable income. Additionally, the company will be exempted up to 50% of tax on the next $200,000 normal chargeable income.
This exemption is applicable to the startup for its first 3 consecutive assessment years. As a result of these benefits, the effective tax rate of most startups is drastically reduced in the first three years of their operation.
2. Charitable Work
The Business and IPC Partnership Scheme provides deduction to companies that promote charitable work. To encourage corporate volunteerism, businesses may claim 250% tax deduction on qualifying expenditure incurred from 1 July 2016 to 31 Dec 2023 when they send their employees to volunteer and provide services, including secondments, to Institutions of a Public Character (IPCs).
The following are eligible for this scheme:
- Companies, partnerships, sole proprietorships, and registered business trusts that carry out business in Singapore; and
- Anybody of persons such as clubs and trade associations deemed to carry on a business in Singapore.
The following expenses qualify for this scheme:
- Basic wages paid while providing services to IPCs and
- Expenses incurred with respect to the services provided to IPCs.
The total deduction applicable for a business is 250% of the qualifying expenditure that the business incurs.
The expenditures under the scheme are capped at $ 250,000 per financial year for a business and the expenditure levied on any individual IPC is capped at $ 50,000.
3. International Expansion
This scheme helps Singapore businesses expand overseas. The scheme offers 200% tax deduction on expenditures made by a company for supported market expansion and investment development activities abroad.
All Singapore incorporated companies whose primary purpose is to promote trading of goods and providing services are eligible for this deduction.
The qualifying expenses for which a business can claim this deduction include:
- Market surveys and feasibility studies
- Overseas trade offices
- Overseas trade fairs
- Advertising in approved local trade publication
- Manpower expenses for Singaporeans posted overseas
- Overseas advertising and promotional campaigns
A business can automatically claim 200% deduction on the first S$100,000 expenses made by the business for the qualifying expenses. In such cases, approval of IE Singapore is not required. However, if the expenditure exceeds S$100,000 the business will have to seek approval from IE Singapore.
One of the international expansion grants introduced by Enterprise Singapore is the Market Readiness Assistance (MRA) grant.
4. Wage Credit Scheme
Introduced in the 2013 budget, this scheme extends support to Singapore businesses who may be facing a tight labour market. According to the scheme, the government co-funds any wage increase provided to employees of a company between 2013-2020. This helps businesses adjust to a wage increase in Singapore’s tight labour market.
An employer is eligible for the scheme if:
- The employer pays the employee a gross monthly wage of less than S$4,000.
- The employer has increased the employee’s gross monthly wage by at least S$50 in the qualifying year (which includes the years from 2013-2017).
An employee is eligible for the scheme if:
- The employee is a Singapore citizen
- The employee receives Central Provident Fund (CPF) from an employer for a period of at least of 3 months in the previous year
- The employee is on a company’s payroll for at least 3 months in that qualifying year.
An employer receives:
- 40% co-funding for any wage increase between the period 2013-2015 or
- 20% co-funding for any wage increase between the period 2015-2018
- 15% co-funding for any wage increase in 2019
- 10% co-funding for any wage increase in 2020
If you are a foreigner thinking of setting up a business or as an individual in Singapore, it is crucial to have tax advice on Singapore tax residency, income source and incentives for your company or personal tax planning.
It depends, if you are conducting international business and have paid taxes in a foreign country that has signed Avoidance of Double Taxation Agreement (DTA) with Singapore, Singapore will not double tax your income.
Countries like the USA, Malaysia, India, Australia, China, Indonesia, and Japan have signed DTAs with Singapore. View the full list of the countries here.
The Tax Forms that companies must submit every year are:
- Estimate Chargeable Income (ECI)
- Corporate Income Tax Returns
An Avoidance of Double Taxation Agreement (DTA) is an agreement signed between Singapore and another country (a treaty country) which serves to relieve double taxation of income that is earned in one country by a resident of the other country.
It makes clear the taxing rights between Singapore and its treaty partner on the different types of income arising from cross-border economic activities between the two countries. The DTA also provides for reduction or exemption of tax on certain types of income. Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a DTA.
Yes, all income earned in or derived from Singapore is chargeable to income tax, including winnings.
Foreign income earned by a Singapore company may be subjected to taxation twice. Once in the foreign country, and a second time when the foreign income is remitted into Singapore.
A double tax relief (DTR) is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax resident company to claim a credit for tax paid in the foreign country against the Singapore tax that is payable on the same income.
A company is a tax resident of Singapore if the control and management of its business are exercised in Singapore.
Some countries that have signed DTAs with Singapore are the USA, Malaysia, India, Australia, China, Indonesia, and Japan.
Income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending in the year preceding the YA.