Taxes aren’t called a “burden” for nothing. Yet, there is some comfort in the knowledge that this undeniably apt appellation, often uttered as a plaintive cry for help by business owners, doesn’t fall on deaf ears. There is tax relief in Singapore to be had that can help lighten this burden, which a trusty accounting firm will be able to help you with as tax filing time rolls round.
1) Newly incorporated companies may enjoy full tax exemption in the first three years of their operations.
The Start-up Tax Exemption Scheme (SUTE) was done by the Inland Revenue Authority of Singapore (IRAS) to help small enterprises get off the ground and to encourage more people to put up their own business. These newborn companies won’t have to pay taxes on the first SGD100,000 of their taxable income.
2) Companies that make up to SGD300,000 will only be charged 8.5% tax (instead of the usual corporate tax rate of 17%).
This is a partial tax exemption that all Singapore resident companies can enjoy, but once they make more than SGD300,000 per annum, they will have to pay the usual rate.
3) IRAS offers a partial tax exemption and tax exemption scheme for new startup companies.
Under this scheme, 75% of the first SGD10,000 of a company’s chargeable income from Year of Assessment 2020 is exempted from tax; and 50% of the next SGD190,000 will be tax-exempt, making a grand total of SGD102,500 to be exempted from tax, out of SGD200,000 of your taxable income.
For a start-up company to enjoy this tax relief, it has to be incorporated in Singapore, and be a tax resident of Singapore for that Year of Assessment. Its total share capital must also be held by not more than 20 shareholders during the basis period of the YA. All the shareholders have to be individuals, and at least one of them has to hold a minimum of 10% of the company’s issued ordinary shares.
This tax exemption benefits all new companies except those whose main business activity is investment holding, and those involved in property development for sale and investment purposes.
To claim this tax exemption, you have to fill out the Estimated Chargeable Income (ECI) form along with your income tax return.
4) There is also a Partial Tax Exemption (PTE) that all companies can benefit from, except those that have already enjoyed the tax exemption scheme for new startups.
Under this scheme from YA 2020 onwards, companies receive a 75% tax exemption for the first SGD10,000 of their chargeable income, and a 50% exemption on the next SGD190,000. The maximum exemption for each Year of Assessment is SGD102,500.
5) The CIT Rebate for YA 2018 has been raised to 40% of the payable corporate tax to be capped at SGD15,000.
Minister for Finance Heng Swee Keat made the announcement during Budget 2018, when he also extended this rebate to YA 2019, but only at 20% with a cap of SGD10,000.
Under this scheme, a company, for example with a chargeable income of SGD500,000 that has to pay a 17% tax of SGD85,000, will only have to pay SGD70,000 in taxes for YA 2018, and SGD75,000 in taxes in the succeeding Year of Assessment.
6) There are also tax benefits for companies in specific industries.
Most of these benefits are overseen and granted by the Economic Development Board (EDB). When a company enjoys these benefits, it either won’t have to pay taxes on its qualifying income, or pay at a lower rate than the usual 17% during the stipulated period.
IRAS discusses the various incentives available to specific industries or businesses which include
- Investment Holding Companies
- Companies Servicing Only Related Parties
- Shipping Companies
- Car Rental Companies
- Car Tuition Companies
- Property Developers
Specific tax relief is also available in other industries including banking, fund management and insurance; shipping and maritime, tourism and event organisers, eCommerce, and legal firms.
7) Companies that produce advanced technological products or offer high-value services may enjoy a pioneer tax incentive.
Because Singapore puts a premium on contributions to innovation and R&D, these companies may apply for a tax exemption for each qualifying activity or project for five to 15 years. Once the pioneer period has passed, the Development and Expansion Incentive allows these companies to apply for lower tax rates of not less than 5% for up to 10 years, which may be extended up to 40 years.
8) Companies get a tax exemption on the profits from expenditure on qualifying activities.
These activities or projects such as sending specialised equipment abroad, incur expenses and generate profit, a certain amount of which may receive a tax exemption of up to 100%. If your company plans on making a significant investment into automation, you could receive an investment allowance of 100% of your capital expenditure with a cap of SGD10 million.
9) Companies focused on commercialising intellectual property (IP) could get special tax rates, too.
Under the Intellectual Property Development Incentive (IDI), which was put in place to nurture the country’s R&D activities, the income derived from the business use of IP will be taxed at a concessionary rate.
10 Companies looking to expand overseas could get a 10% tax rate on incremental income.
If you are a large company whose main operations are in Singapore and you are planning to venture abroad, the International Growth Scheme provides a concessionary tax rate for up to five years on income from qualifying activities.
You may likewise benefit from the double tax deduction scheme which allows you to claim a double deduction on certain expenses incurred during your expansion and investment activities such as sending Singaporeans overseas.
11) Companies may also enjoy tax exemptions on income derived from foreign sources.
Section 13 (8) of the Income Tax Act stipulates tax exemption on dividends and service income sourced from overseas, as well as profits from overseas branches that are remitted to Singapore. This is as long as the dividends, income and profits were taxed in the country they came from, and the corporate tax of that country is at least 15%.
If the income was not sent to Singapore at all, the company enjoys full tax exemption regardless of the corporate tax rate of the source country.
12) If your company was involved in a merger or acquisition, there could be tax benefits for you, as well.
Companies that are incorporated, operating and are tax resident in Singapore may benefit from the mergers and acquisitions allowance which gives a write-off of 25% of the value of the qualifying merger or acquisition over five years. This allowance has a cap of SGD5 million if the transaction happened before 1 April 2016, and a cap of SGD10 million if it occurred afterwards.
If the transaction took place between 1 April 2015 and 31 March 2020, you may also be able to receive a 200% tax allowance on the costs of the transaction with a cap of SGD100,000 per Year of Assessment.
13) If your company has been approved to make its regional headquarters in Singapore, you may also enjoy tax incentives.
You will be asked to pay at a concessionary tax rate of 15% on qualifying foreign income, and, depending on your level of economic commitment to Singapore, may be allowed to apply for other tax incentives available to international HQ’s.
14) There are tax incentives for international traders.
Under the Global Trader Programme or GTP, an international trader may enjoy a concessionary tax rate between 5 and 10% on trading income, and trading or brokering physical trades. This includes trading activities in Singapore itself.
15) There are tax incentives for non-profit organisations and other special cases.
On top of not-for-profit organisations, which enjoy a concessionary tax rate of 10%, these special cases include international legal service providers and approved aircraft lessors, which enjoy tax rates of 10 and 8%, respectively.
Be advised that the IRAS does not look kindly on any form of tax relief abuse, and has audited over 190 companies that might have abused the tax exemption scheme for new companies as of 31 January 2018. It is therefore prudent to engage the services of a reliable audit firm in Singapore to ensure that your company complies with the Government’s audit requirements.