Setting up a business involves a lot of factors taken into consideration. One major factor which is given great importance is the corporate income tax. This is the tax levied on profitable corporations. Singapore imposes a corporate income tax rate between 0% to 17% and is placed among the lowest-taxable countries in the world. IRAS is the authority that governs the income tax legislation in Singapore.
There are a few ways formulated to reduce this corporate income tax, and it is an added advantage for entrepreneurs in setting up their businesses. This article explains how a corporation can reduce Corporate Income Tax in Singapore.
DOES SINGAPORE HAVE LOW CORPORATE TAXES?
Singapore is one of the lowest-taxing countries, with a flat 17% Corporate Income Tax imposed on profitable companies. This attracts a lot of individuals from around the world to come and incorporate their business in Singapore.
How Is Corporate Taxes Calculated in Singapore?
Corporate Tax is easily obtained by multiplying your Taxable Income with the Corporate Tax Rate.
Taxable Income x Corporate Tax Rate = Corporate Tax
Here, taxable income is the company’s income, which is subjected to corporate tax, and the corporate tax rate is the percentage of tax to which the income is subjected. By using this method, you can get a mere idea of the tax that you may have to pay. For an accurate calculation, you can get the help of any qualified tax advisor.
Benefits of Lower Corporate Taxes in Singapore
By lowering Corporate Taxes, you are saving more of your company’s money. This aids in your further investments and new operations you might take up later.
Companies benefit from reduced corporate taxes in the following ways.
- It may increase foreign investments in a country and make it a welcoming atmosphere for businesses.
- It paves the way for new jobs and increases economic growth.
- Enhances the global competitiveness of the country.
HOW DO I REDUCE CORPORATE TAXES IN SINGAPORE LEGALLY?
Listed below are a few ways to reduce corporate taxes in Singapore legally.
Tax reliefs for startups
To appraise entrepreneurship and local enterprise growth, the Singapore government introduced a tax exemption scheme for new startup companies.
The scheme provides a 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 for a qualifying newly startup company.
Partial Tax Exemption Scheme (PTE)
Companies that are based in Singapore for more than 3 years can be qualified for Partial Tax Exemption, which exempts a 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.
When the company donates or your workers volunteer and render services to any charitable institution that is registered with the IPC (Institute of a Public Character). These donations can be exempted from up to 250% of the donated amount.
Eligibility to qualify for this scheme.
- The party should not be in the role of director, owner, partner, sole proprietor, or shareholder of the business.
- Should not be working for any investment companies.
- Expenses related to services rendered by volunteers to IPCs during working hours should not be covered by IPC funding.
- It should not be spent on employees’ personal use.
- It should not be a capital investment.
Singapore provides multiple tax incentives for businesses through schemes such as the Pioneer Certificate, Development and Expansion Incentive (DEI), and Merger and Acquisition, intending to promote activities beneficial to the economy.
One example is the Pioneer Certificate, which offers tax exemptions of up to 5% on the income acquired for 5 years. Similarly, the DEI scheme grants tax exemptions of up to 10% over the income for 10 years.
Singapore offers several tax credits, such as the Corporate Income Tax (CIT) rebate and the Foreign Tax Credit (FTC) scheme. Tax credits provide a dollar-for-dollar reduction in tax liability so they can be very beneficial in reducing corporate income tax.
Singapore has a robust network of free trade agreements and double-tax agreements with many countries. So certain business activities such as service, licensing, or holding company activities can be legally structured to be taxed at lower or zero rates.
It is important to consult with professionals before doing so, as it involves complex regulations and compliance. You can refer to the Singapore Offshore company setup for additional information.
Double tax treaty
Singapore has signed double tax agreements with several countries. This helps you to reduce or eliminate double taxation for businesses operating in both Singapore and the treaty partner country. Under a double tax treaty, business income may be taxed at a lower rate or not at all in one of the countries if it is also being taxed in the other country.
Finally, there are several ways for businesses to reduce their corporate taxes in Singapore legally. However, it’s important to note that the specific tax benefits and qualifications of these options can change over time and it is highly advisable to consult with a tax professional or financial advisor to determine the best approach for your business to minimize your tax liability.