Reduce your corporate income tax rate for your chargeable income with this easy and comprehensive guide to the tax system for companies in Singapore. Get to know some smart ways you can get tax deductions and tax exemptions.
Singapore is a county that follows a territorial basis of taxation, meaning that tax applies to all incomes that are either derived from Singapore or received from outside of the company. The standard tax rate on corporate profit is currently 17% of the taxable income in Singapore. That is the customary amount that you will have to pay as corporate tax if you want to operate a company in Singapore.
However, Singapore is considered a very business-friendly country with the lowest corporate income tax in the world which is contributing immensely to the growth and foreign investment of the county. Despite this, there are various incentives and tax exemptions offered by the government that you can claim to reduce the effective tax rate.
In this guide, we will go through what is the income tax system in Singapore, what are tax exemptions, and how you can legally reduce your corporate tax?
Single-Tier Income Tax System
Singapore has a single-tier corporate income tax system with no double taxation for stakeholders. The tax paid by the company for its chargeable income is considered the final tax and any dividends paid by the company to its stakeholders are exempted from any further taxes.
Although the corporate tax rates are already the lowest in Singapore to make the county more investment-friendly, there are still incentives and exemptions offered by the government of Singapore for tax deductions of start-up and established companies alike.
The corporate tax rate in Singapore has been steadily decreasing from 1997 where it used to be 26% of chargeable income. Since 2010, the corporate tax rate has been capped to 17% of the chargeable income.
How to Reduce Corporate Income Tax
Both start-up companies and established companies can tremendously reduce their corporate income tax through incentives and exemption policies offered by the government of Singapore. These exemption schemes include the start-up exemption scheme for newly incorporated tax resident companies and Partial Tax Exemption (PTE) for all companies.
Below are the details of these tax exemption schemes and how you can benefit from these to save your corporate income tax for your chargeable profit.
Tax Exemption Scheme For Newly Incorporated companies
If your company is recently incorporated, you can reduce the effective income tax rate of your company significantly if these tax exemptions apply to your taxable income. Following are some of the general tax incentives and exemptions that can be applied to the corporate profit of tax resident companies of Singapore.
- There is a 75% exemption on the first $100,000 of chargeable income
This incentive is for newly incorporated companies. They will be exempted from 75% of corporate tax on the first $100,000 of taxable income each of the first three tax filing years. However, the company should be incorporated in Singapore, a tax resident in Singapore, and has no more than 20 shareholders with at least one shareholder is an individual holding a minimum of 10% shares.
- 50% tax exemption on taxable income of $100,000
Other than this, newly incorporated are also given exemption of 50% for chargeable income of $100,000. This simply translates to 8.5% of the tax rate. The chargeable income above the amount of $100,000 will be taxed the same as 17% of the taxable income.
Partial Tax Exemption for Companies (PTE)
This won’t exactly count as a way to reduce corporate tax as all companies are eligible for this unless you are eligible for a tax exemption scheme for newly incorporated companies. From YA 2020, all tax residents of Singapore can enjoy the Partial Tax Exemption for companies (PTE)
From YA 2020, all companies can enjoy the Partial Tax Exemption for Companies (PTE), unless they are eligible for the Tax Exemption Scheme for New Start-Up Companies. Again, this won’t count as one of the ways to reduce corporate income tax as all companies are eligible. PTE provides all companies an exemption of almost $25,925 each year. For some of you, this might seem a higher saving than the tax exemption scheme for newly incorporated companies but you need to pay attention to the fact that the major savings come from the next $290,000 of taxable income. And many new companies may not be able to benefit from this.
How to Claim Tax Deductions?
To reduce your corporate income tax rate you also have to know the right way to claim exemption. This is important so you don’t look at the wrong places and struggle to find the right information. But you don’t need to worry at all, we have listed down the list of relevant IRAS websites you can visit and apply for your tax exemption.
E-filing of ECI (Estimated Chargeable income) has become compulsory for all companies of Singapore from YA 2020. You can click on the given link to find the form and all the relevant steps.
All the companies that have a trade or a successive business in Singapore must report their annual income and corporate profit to IRAS by filling out the corporate income e tax return form. From YA 2021, all companies are told to e-file their forms before the date of 30th November 2021.
You can find the form and all the necessary steps you will need here for a more detailed walkthrough.
Conclusion
If you want to operate a successive and flourishing company in Singapore, you need to heed the territorial basis of taxation. Singapore currently taxes 17% of the chargeable income as corporate tax. But there are few legal ways you can reduce your corporate income tax rate. There are many legal exemptions offers by the government that all tax resident companies of Singapore can benefit from. Its better to hire professionals like Mi2u Business Support to get the most out of the tax exemptions.
