What are Tax Exemptions for Singapore Companies Like?

What are Tax Exemptions for Singapore Companies Like?
Accounting & Tax Advice

2 min Read

One of the main attractions for incorporating in Singapore is the corporate income tax rates and strong financial incentives provided by the Singapore government. The corporate tax rate is a fixed 17% for foreign and local entrepreneurs. Also, the city-state government supports startups with exemptions for the first three years after incorporation. We’ve compiled a detailed overview of the Singapore tax system, focusing on tax exemptions for companies on this page.

 

Corporate Tax Key Facts

  • Singapore charges taxes on profits and not income. Your Singapore corporate profits will be taxed at 17% (at an effective tax rate that is often lower due to the various tax incentives and tax reliefs available to Singapore resident companies).
  • Singapore has a territorial-based flat-rate corporate income tax system. When income is generated from treaty countries, double taxation is avoided through the foreign tax credit given under the treaty. For non-treaty countries, a unilateral tax credit is provided regarding foreign taxes on all income sourced from abroad. 
  • There are more than 90 tax treaties with other countries to avoid double taxation on income.
  • Singapore uses a single-tier rate tax system. The company only pays tax on profits. The distribution of profit after tax (i.e., dividends) to shareholders is tax-free.
  • There is no tax on capital gains.
  • There are many incentives and tax deductions when investing in new and promising industries, research and development (R&D), and productivity-enhancing technologies.
  • Certain types of foreign income are exempt from tax in Singapore.

 

Corporate Tax Rates

Currently, Singapore’s main tax rate is capped at 17%. However, with the Singapore government’s tax exemption and incentive programs, the effective tax rates for companies can be much lower.

 

Current corporate tax rates
Income Tax Rate
Tax rate on corporate profits for up to 300,000 SGD Effective tax rate at 8.5%
Tax rate on corporate profits above 300,000 SGD 17%
Tax rate on capital gains accrued by the company 0%
Tax rate on dividend distribution to shareholders 0%
Tax rate on foreign-sourced income not brought into Singapore 0%
Tax rate on foreign-sourced income brought into Singapore 0 – 17% subject to conditions

 

Corporate Tax Exemptions for Startups

The tax exemption scheme for new companies was introduced in the Year of Assessment (YA) 2005 to support entrepreneurship and help local companies grow. The Start-Up Tax Exemption (SUTE) provides withholding tax for the first 3 years of operation. Under this scheme, new companies that meet the criteria below receive the following tax exemptions for the first three consecutive YAs depending on where the YA falls:

 

YA 2020 onwards

New companies that qualify are granted a tax exemption of 75% on the first S$ 100,000 of taxable income and an additional 50% tax exemption on the next S$ 100,000 of taxable income.

 

YA 2010 to YA 2019

Eligible new companies are granted a full tax exemption of 100% on the first S $ 100,000 of taxable income and an additional 50% tax exemption on the next S$ 200,000 of taxable income.

 

How to qualify for the tax reliefs

The above tax reliefs are open to all new companies that meet the following criteria:

  • Incorporated in Singapore.
  • Tax residents in Singapore.
  • No more than 20 shareholders; all shareholders are “directly and profitably” individuals who hold shares on their behalf OR at least one shareholder is a “directly and profitably” individual who owns at least 10% of the ordinary shares issued in the company.

 

Note that certain companies are not allowed to use tax schemes, including:

  • Companies whose main activity is holding investments.
  • Companies whose primary activity is property development for sale, investment, or both.

 

Partial tax exemption (PTE) scheme for companies

All companies are eligible for the Partial Tax Exemption (PTE) unless they already claim under Start-up Tax Exemption (SUTE). Under PTE, companies enjoy the following exceptions.

 

YA 2020 onwards
  • 75% tax exemption on the first $ 10,000 of normal and chargeable income.
  • 50% tax exemption on the next $ 190,000 of normal and chargeable income.

 

YA 2010 to YA 2019
  • 75% tax exemption on the first $ 10,000 of normal and chargeable income.
  • 50% tax exemption on the next $ 290,000 of normal and chargeable income.

Tax exemption for foreign-sourced income

Certain types of income originating from abroad are free of tax; this includes:

  • Foreign-sourced dividends.
  • Foreign branch profits.
  • Foreign-sourced service income.

 

To qualify as tax-exempt, income sourced from abroad that is sent to Singapore must meet the following three conditions:

  • The foreign jurisdiction’s main tax rate is at least 15% when foreign income is received in Singapore.
  • The foreign income was taxed in a foreign jurisdiction (note, the rate at which foreign income was taxed may differ from the main tax rate).
  • The Singapore government believes that the tax exemption will benefit people residing in Singapore.

 

Other Tax Incentives for Companies

Here are some other tax incentive schemes available to further reduce corporate taxable income if the company meets the specified criteria.

 

Development and Expansion Incentive (DEI): 

The DEI scheme is available for companies planning to scale up their operations in Singapore or expand into globally leading industries. Under the DEI, all income derived from eligible activities is exempt from tax or taxed at a rate of 10% for a period of 5 years.

To qualify for the DEI scheme, companies are required to meet certain criteria:

  • Create new jobs that add new skills, expertise, and seniority to the Singapore workforce
  • Have total business expenses that add to the Singapore economy
  • Commit to adding new capabilities in terms of new technology, expertise, and knowledge

 

Investment allowance: 

Under the investment allowance scheme, companies can receive a tax credit of up to 100% of the capital expenditure spent on eligible projects during the tax year. Typically, Singapore provides investment allowances for a period of 5 years. However, certain cases can last up to 8 years. The types of projects that are eligible for an investment allowance include:

  • Projects involving new product manufacturing or increasing the production of existing products
  • Projects requiring special engineering or technical services
  • Projects focus on R&D
  • Projects involving construction operations
  • Projects that reduce water consumption
  • Projects promoting the tourism industry in Singapore (other than hotels)
  • Operations involving space satellites
  • Maintenance, repair, and overhaul services for any aircraft
  • Projects that improve energy efficiency

 

Tax Return Filing

There are two filings that companies must submit to IRAS; first, Estimated Allowable Income (ECI). ECI is the company’s taxable income after deducting tax allowable expenses, which the company should file within three months from the company’s first financial year-end. 

Second, Form C/C-S (Corporate Income Tax Return) is due by November 30 for paper submissions or December 15 via electronic filing. Form C filing requires companies to attach tax calculations, financial reports, detailed income statements, and other supporting documents. In contrast, the C-S form is a simplified filing that does not require additional documents.

The tax return filing may seem complicated to you, but you don’t have to deal with it yourself. Biz Atom has got you covered. As your tax agent, we will prepare tax computations for you, check all the necessary documents required for the filing, and submit them to IRAS.

 

Conclusion

Singapore has one of the most favorable tax jurisdictions in the world. There are various tax incentives and reliefs provided for companies. With tax exemptions on capital gains and dividends, shareholders can get more return on their investment. 

Keep your tax routine in sync and get the tax exemptions you are entitled to with the Biz Atom accounting services. Contact us to learn how it works!

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