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.