How To Reduce Corporate Tax In Singapore
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How to reduce corporate tax in Singapore?
Businesses in Singapore have a lot to consider regarding corporate taxes.
On the one hand, they aim to reduce their tax liability as much as possible. However, they also need to be aware of how corporate taxes may impact their business operations.
Many different ways that corporate taxes can affect businesses.
They might affect a company’s ability to compete on the world market, for instance, or they might cause consumer prices to increase.
Corporate taxes may also limit a company’s ability to hire more employees and reinvest in operations. Corporate tax considerations are a major deciding factor for businesses when they decide to start up.
In this article, we will discuss how to reduce corporate tax in Singapore and how tax exemption schemes are encouraging businesses around the world to do business with the country.
How To Calculate Corporate Taxes In Singapore?
Singapore has a fairly simple system for calculating corporate taxes. As a general rule:
Corporate Tax is calculated as Income Taxable x Corporate Tax Rate.
The amount of income that must pay corporate tax is known as the income taxable, and the corporate tax rate is the percentage of the tax that must be paid on this income.
Some exceptions to this rule do exist. In general, this formula will provide you with a good estimate of the amount of corporate tax you will be required to pay.
What Is The Corporate Tax Rate In Singapore?
In 1997, Singapore’s tax rate was 26%. However, it gradually decreased over time and eventually stabilized at 17% in 2010.
The corporate income tax rate in Singapore is a flat 17% of taxable income. The corporate income tax rate in this country is already among the lowest and most attractive in the world. You can still find ways to further cut your corporate income tax, though.
What Advantages Do Lower Corporate Taxes Offer?
A company can gain from a lower corporate income tax by having to pay less in taxes on their profits. As a result, the company may have extra funds to spend on expanding and growing their operations.
Additional benefits of lower corporate taxes, which result in a lower tax burden for businesses, include the following:
- increases a nation’s business appeal and may result in more foreign investment
- generates jobs and accelerates economic growth
- increases a nation’s competitiveness abroad
- results in higher productivity and innovation
How To Reduce Corporate Tax In Singapore: 5 Tax Exemption Schemes
1. Partial Tax Exemption (PTE) And The Start-up Tax Exemption Scheme (SUTE)
The Singaporean government established the Start-up Tax Exemption Scheme (SUTE) to promote entrepreneurship and the expansion of regional businesses.
The most recent version of SUTE, which was unveiled in Singapore’s 2018 Budget, exempts:
- 75% of a start-initial up’s S$100,000 in normal chargeable income
- 50% of the following S$100,000 of a startup’s normal chargeable income
These exclusions are valid for the initial three succeeding YAs and start on or after YA2020. A business in Singapore that has only been incorporated for three years or less is considered a “start-up” under this program.
In order for a Singaporean business to be eligible for the SUTE scheme, it must:
- Be a Singapore corporation
- Possess Singapore tax residency for the relevant YAs.
- Not possess more than 20 distinct shareholders over the relevant YAs. At least one of these individual shareholders must own 10% or more of the stock of the company.
- Be active in any sector, excluding investment management and real estate development (for sale or for investment).
Businesses in Singapore that don’t qualify for SUTE, such as those in the investment and real estate development industries, have been incorporated in Singapore for more than three years, or have more than 20 shareholders, may still be eligible for the Partial Tax Exemption (PTE) scheme.
Companies are exempt from the PTE scheme:
- 75% of the first $10,000 of regularly taxable income in Singapore
- 50% of the subsequent S$190,000 in ordinary chargeable income
2. Business And IPC Partnership Scheme (BIPS)
When their staff members volunteer, render professional services, or render services (including secondments) to acknowledged Institutions of Public Character (IPCs), the Business and IPC Partnership Scheme (BIPS) allows a 250% Singapore corporate tax deduction on qualifying expenses incurred.
IPCs are exempt organizations or officially recognized charities in Singapore that can provide tax-deductible receipts for donations made to them. They are subject to stricter governance and regulatory compliance requirements than regular charities. Find out if a certain charity has IPC status here.
An employee of a company in Singapore must meet the following criteria in order to be eligible for the BIPS scheme:
- not a director of the business who is also an owner, sole proprietor, partner, shareholder, or sole proprietor.
- not working for a holding company for investments
- incurring costs as a result of voluntary services rendered to IPCs during working hours and on IPC property, namely:
- not covered by IPC funding
- not an expense for the employee’s personal use (such as caregiving expenses for a family member admitted in an IPC)
- not a capital investment (such as a one-time donation from a business to an IPC)
The maximum qualifying expenditure per business and per individual IPC for each calendar year is S$250,000 and S$50,000, respectively. Applications for the BIPS Scheme are accepted for volunteer work done between July 1, 2016, and December 31, 2021.
3. Development & Expansion Incentive (DEI) And Pioneer Certificates Incentive (PC)
The PC and DEI schemes were created to incentivize companies in Singapore to engage in new business ventures and increase their capacity for production.
Companies that have anchored their economic activities in Singapore over time and contributed significantly to the nation’s economy are eligible for the PC scheme.
The DEI program, meanwhile, focuses on businesses that have made technology, equipment, and operational improvements that raise the capabilities of particular industries to levels that are globally competitive.
For a five-year period, approved PC scheme companies are eligible for a Singapore corporate tax rate of 5% on income from qualifying activities.
On income from qualifying activities for a period of five years, approved companies under the DEI scheme are qualified for a Singapore corporate tax rate of 10%.
Criteria for businesses participating in the PC and DEI schemes include:
- Skills, knowledge, seniority, and employment created within the company
- Business investment benefits the Singaporean economy.
- Greater capacity in terms of technology, resources, and expertise compared to what is typically available in Singapore
- Planned expansion or maintenance of business operations in Singapore
4. Double Tax Deduction for Internationalisation (DTDi) Scheme
The DTDi program, run by Enterprise Singapore, aims to support international business growth in Singapore.
The program offers a double Singapore corporate tax deduction for qualifying costs associated with development activities and international market expansion incurred between 1 April 2012 and 31 March 2020 (subject to a cap on expenditures).
The DTDi automatically grants tax deductions for a number of expenses. These incorporate:
- Business development missions and trips abroad
- Missions and study trips for international investment
- Foreign trade shows
- Local trade shows authorized by the Singapore Tourism Board or Enterprise Singapore
As stated in Budget 2018, to further promote internationalization, automatic tax relief for these qualifying expenses incurred during YA 2019 to 31 March 2020 is capped at S$150,000 per YA.
All activities outside of these four areas and activities within these four categories that exceed S$150,000 will need Enterprise Singapore’s prior approval in order to be eligible for the DTDi.
In order to be eligible for the DTDi, a Singaporean company must:
- Be located in Singapore. The company’s global headquarters must be in Singapore for certain qualifying activities.
- Have as their main objective the promotion of the exchange of goods or the rendering of services.
- Have a clear plan in place to expand the company internationally.
5. Regional Headquarters Award (RHA) and International Headquarter Award (IHA)
The Regional Headquarters Award (RHA), which is overseen by the Singapore Economic Development Board (EDB), is designed to entice multinational corporations to establish regional headquarters in Singapore, enhancing Singapore’s position as a regional business hub.
In exchange for meeting and maintaining all requirements for the duration of the award, companies awarded the RHA pay a reduced 15% corporate tax rate in Singapore on additional income from qualifying activities.
Businesses in Singapore must meet the following requirements in order to be eligible for the RHA:
- By the end of Years 1 and 3, respectively, of the incentive period, the company must have paid-up capital of S$200,000 and S$500,000.
- By the end of Year 3, the headquarters services should be able to offer at least three different types of services to company-owned entities in three different nations outside of Singapore.
- By the end of Year 3, there should be at least 10 professionals (minimum diploma holders and above) and at least 75% of skilled workers (at least those with a high school diploma).
- By the end of Year 3, the top five executive positions should pay at least $100,000 on average annually.
- By the end of Year 3, total business expenditures in Singapore would have increased by S$2 million.
The International Headquarters Award (IHA) is another program that the EDB oversees in addition to the RHA.
As a result, businesses seeking to establish their international headquarters in Singapore are eligible to apply for and benefit from the award, which entitles them to Singapore corporate tax rates between 5% and 10%.
Any business wishing to apply for the IHA must be locally incorporated or registered in Singapore and make a commitment to go above and beyond the RHA’s minimal requirements.
The following, among other things, are the prerequisites established by the government for businesses to be able to set up shop in Singapore:
- The business must be well-known in its field or industry, and it must possess significant market share, human resource, asset, and capital capacity;
- With clear management and control procedures, the organization’s headquarters should serve as the central location for senior management of its key operations;
- The majority of the business’s headquarters operations ought to be transferred to the Singapore office. These procedures could include:
- Strategic Business Planning and Development
- Marketing Control, Planning and Brand Management
- Research, Development and Test Bedding of New Concepts
- General Management and Administration
- Technical Support Services,
- Corporate Training and Personnel Management
- Shared Services
- Intellectual Property Management
- Sourcing, Procurement and Distribution
- Corporate Finance Advisory Services
- Economic or Investment Research and Analysis
- Singapore should serve as the base of operations for the management, professional, technical, and support staff that the company hires to run the headquarters.
In contrast to the RHA, this award has even stricter requirements.
What Are Other Useful Tips On How To Reduce Corporate Tax In Singapore?
1. Take A Course To Improve Your Abilities
Many Singaporeans do not understand this point. However, if the course is pertinent to your employment and you can demonstrate that you paid for it yourself, you may be eligible for tax relief on courses you took in 2022. If so, you are eligible for tax relief of up to S$5,500.
You may still claim a course you took that will allow you to change careers. You can use a course you took for tax relief, for instance, if you are switching from an administrative position to one in finance and it will help you.
2. Making Contributions Through The Additional MediSave Contributions Scheme (AMCS) To Employees’ MediSave
You can use the Additional MediSave Contributions Scheme (AMCS) to reduce your company’s taxes while giving your employees more benefits and healthcare security.
For instance, if your business already offers health, wellness, or personal care benefits, you might think about returning or transferring any unused balances to your employees’ MediSave Accounts (MA).
Employees won’t feel like any money they don’t use is a “waste,” and your company won’t have to pay taxes on this benefit it offers to workers, which can be a win-win situation for everyone involved.
In a similar vein, businesses may implement Portable Medical Benefits Scheme using the AMCS (PMBS). Companies can now qualify for a 2% tax deduction limit for an employee’s compensation, as opposed to the current 1%, thanks to the Portable Medical Benefits Scheme.
The Transferable Medical Insurance Scheme (TMIS), the Shield Plan, or additional MediSave top-ups for your employees can all be implemented using the Portable Medical Benefits Scheme. Employees aren’t taxed on the benefit-in-kind they receive in this way.
3. Make A Donation To Charity
What a great way to accomplish two goals at once. You can donate to any charity that is recognized in Singapore as an IPC (Institute of a Public Character) in order to receive tax relief.
Based on the amount of the donation, you can deduct 250% of your taxes. good news Up until December 31, 2023, qualified donations will continue to be eligible for a 250% tax deduction.
4. Create A Separate Business To Handle New Ventures
The Tax Exemption Scheme for New Start-Up Companies is available to new startups, as was previously mentioned. Instead of keeping all of your business operations under one corporate entity, you may want to consider doing so to reduce your tax obligations.
Consider opening two businesses rather than just one if you’re thinking about starting a business, especially one that offers clearly distinct services and has its own distinct teams.
By doing so, you could potentially reduce your overall tax obligations while also insulating the businesses from one another, meaning that if one company fails, its liabilities won’t be transferred to the other company.
If you have investors, a more adaptable shareholding structure might also be advantageous.
Finally, you should leverage this scheme for business and commercial purposes rather than actively trying to take advantage of it.
“Takes a strong stand against companies set up to abuse this scheme,” the IRAS clearly states.
IRAS offers the following illustrations of typical tax exemption scheme abuse:
- distributing the profits of an already successful business to a few shell entities so that each entity’s chargeable income is below the limit for tax exemption; or
- charging fees or expenses to an already successful business by shell companies without justifiable business justifications While the profitable company claims a tax deduction for the fees and expenses it paid to the shell companies, the former claims a tax exemption on the income it receives from the latter.
According to IRAS, these shell companies typically have a small workforce and conduct no noteworthy business. Rare transactions and low capitalization are typical features of their accounts.
A total of $25 million in taxes have been recovered and penalties have been assessed as a result of auditing more than 300 businesses as of January 2019 to look for any potential abuse of this tax exemption for new businesses. In accordance with the law, tax fraud and evasion are both crimes.
5. Upgrading Your CPF
Giving yourself money will result in lower taxes, which is another fantastic self-help strategy. Sound great? Reload your CPF Special Account by doing nothing.
Your tax will be taken out automatically once you’re finished. Remember that you can only top off your account with a maximum of S$7,000. Additional tax relief is available when you contribute to your parents’ CPF accounts, up to a maximum of S$7,000.
Thus, the total tax relief allowed in a given assessment year is S$14,000.
6. Relief From Loss Carry-Back
Businesses can claim back taxes paid in the previous year by offsetting losses in the current year.
The Loss Carry-Back relief was improved in Budget 2020 to enable businesses to claim unused capital allowances and trade losses from up to three YAs previously, namely YA 2019, YA 2018, and YA 2017.
7. Giving Back Through National Service: NSman Relief
The nation values your service as an NSMan in the Singapore Armed Forces, and as a thank you, it will grant you this tax break.
Your key appointment holder (KAH) tax relief can be between S$3,500 and S$5,000 depending on whether you performed NS duties in 2021. Tax reductions of up to S$3,000 are available to NSMan (Non-KAHs) in general.
Your spouse and parents will automatically be eligible for S$750 in tax relief for that assessment year as long as you are.
8. Life Insurance Relief
If you were self-employed or unemployed last year, your CPF contributions were probably very meagre.
You can then be eligible for this life insurance tax break on the premiums you’ve paid for your own or your spouse’s policy if the following are under S$5,000:
- All mandatory employee CPF contributions, self-employed Medisave contributions, and voluntary contributions
- Voluntary contributions to your Medisave account
You should be aware that the premiums you paid for your accident and medical insurance are not applicable.
9. Business Expenses Deductibles
Every business owner, whether they run a small shop or a tech startup, is aware that there are always supplemental and operational costs. Thankfully, you can write off these costs as business expenses.
Accounting fees, CPF contributions, advertising, skills development levies, foreign worker levies, and many other business expenses are examples of those that are tax deductible.
10. Tax Relief On Foreign-Sourced Income
Income that was earned outside of Singapore is regarded as having a foreign source and is typically taxable.
Double taxation is the practice of taxing foreign income twice, once in the foreign jurisdiction and once in Singapore.
Companies with tax residency in Singapore may benefit from the Avoidance of Double Tax Agreement (DTA) program.
Companies based in Singapore may also be eligible for tax exemptions on foreign-sourced income transferred to the designated nation if it fits into one of these three categories:
- dividend from abroad
- service earnings derived from abroad
- Profits from branches abroad
For tax relief, you can establish a business subsidiary or branch in Singapore in addition to the DTA or choose transfer pricing agreements.
If you’re still unsure of the best ways to lower your corporate income taxes in Singapore, you can hire a tax expert to assist you.
Your expert advisor will provide you with insightful counsel and actionable suggestions. Additionally, they can assist you with managing other aspects of taxation, such as filing your corporate income tax returns and estimating your chargeable income (ECI).
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