Singapore has one of the lowest corporate tax rates in the world, yet they can still be reduced further by legal means
Tax rates are leveraged by countries to attract companies and investment, improving economic outcomes and competitiveness. Singapore’s tax rates are one of the lowest in the world and this, combined with world-class infrastructure, stable and efficient governance and a location at the centre of Southeast Asia, makes it one of the most attractive places in the world to set up a business.
While the headline corporate tax rate of 17% is low, there are ways in which companies can further reduce their tax burden.
Tax incentives and schemes
The Singapore government has introduced a number of incentives for businesses in different industries. Many of them are available via the Economic Development Board (EDB) and are designed to attract companies in certain key industries, to increase investment in Singapore and to aid Singaporean companies as they expand abroad.
While there are a number of incentives available, some key ones include:
- Pioneer Certificate Incentive (PC) & Development and Expansion Incentive (DEI) – this aims to encourage companies to grow capabilities and conduct new or expanded economic activities in Singapore. Companies that have established headquarters in Singapore, and coordinate global or regional activities from here, may also be eligible.
- Tech@SG Programme – the Tech@SG Programme is design to help fast-growing companies establish their core teams in Singapore and quickly secure business opportunities here and in the region. This program is administered by both the EDB and Enterprise Singapore, which also helps to facilitate the entry of global talent.
- Resource Efficiency Grant for Energy (REG(E)) – this grant helps data centres and manufacturing facilities to be more energy efficient and more competitive. This grant is part of the Enhanced Industry Energy Efficiency package, with the Energy Market Authority (EMA), Singapore Economic Development Board (EDB) and the National Environment Agency (NEA). Grant support for REG(E) will correspond to the amount of carbon abatement, up to the maximum cap of 50% of qualifying costs.
Avoidance of Double Taxation Agreements (DTAs)
Singapore has a number of Double Taxation Agreements (DTAs) with other countries that allow you to avoid paying tax twice on the same income. Only the tax residents of Singapore and the respective DTA partner can enjoy the benefits of a DTA.
Usually, income derived outside of Singapore is regarded as foreign-sourced income and is taxable. However, the DTA allows Singapore tax residents to claim benefits and avoid being taxed twice. They can secure tax exemption on foreign-sourced income such as dividends, service income and foreign branch profits.
Support for start-ups
Singapore is a great place for start-ups, given its excellent infrastructure and connectivity to the Asia region. The government have also created a number of tax exemptions for start-ups that reduce costs for them in their early years.
The tax exemption scheme for new start-up companies was introduced under Section 43 of the Income Tax Act 1947 in the Year of Assessment (YA) 2005, and was revised in the 2018 budget with effect from YA 2020.
From YA 2020 onwards, start-ups will enjoy:
- 75% exemption on the first $100,000 of normal chargeable income; and
- A further 50% exemption on the next $100,000 of normal chargeable income
This exemption scheme applies to qualifying companies only for their first three consecutive YAs. From the fourth YA onwards, companies can enjoy the partial tax exemption which, from YA2020, includes:
- 75% exemption on the first $10,000 of normal chargeable income; and
- A further 50% exemption on the next $190,000 of normal chargeable income
To secure these benefits, companies must be incorporated in Singapore, be a Singapore tax resident for that YA, have total share capital managed by a maximum of 20 shareholders throughout the basis period for that YA, where the shareholders must be individuals, or at least one is an individual holding a minimum of 10% of the ordinary shares issued.
These are just three examples, there are additional opportunities including contributing to Employees’ MediSave which may make you eligible for a tax deduction, dividing your business functions into different firms to benefit from start-up tax exemption schemes, among others. Understanding the different incentive and schemes available can significantly reduce your costs, for more information on Singapore’s tax rates, contact Alpadis Group.