Singapore corporate income tax is a flat 17% of a company’s chargeable income. This is already one of the lowest and most competitive corporate income tax rates in the world. Nevertheless, there are still ways to further reduce your corporate income tax.
Tax Exemption Scheme For New Start-Up Companies
Introduced in YA 2005 to support entrepreneurship and help new local companies grow, the tax exemption scheme provides tax savings on the first $200,000 of chargeable income for new companies in your first 3 consecutive Year of assessments (YA).
From YA 2020 onwards, new start-ups are given 75% exemption on the first $100,000 of their chargeable income, and a further 50% exemption on their next $100,000 of chargeable income.
Here’s how your new start-up may save on corporate income tax:
|% Of Tax Exemption
|Amount Exempted From Taxes
|Amount Saved In Taxes
Providing a maximum tax exemption of up to $200,000 for new start-ups, such companies can potentially benefit from tax savings of up to $21,250 each year, for the first three years..
However, this doesn’t really count as one way to reduce your corporate income tax as all new start-ups are given this tax exemption.
To qualify, the company:
- must be incorporated in Singapore;
- must be a tax resident in Singapore;
- have no more than 20 shareholders in the YA where:
- all of the shareholders are individuals; or
- at least one shareholder is an individual holding at least 10% stake of the company
This is open to all companies except:
- a company whose principal activity is that of investment holding
- a company that undertakes property development for sale, for investment, or both.
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.
The PTE provides a maximum tax exemption of up to $102,500 for each YA:
|% Of Tax Exemption
|Amount Exempted From Taxes
|Amount Saved In Taxes
The PTE potentially provides tax savings of up to $17,425 each year for all companies.
4 Ways To Further Reduce Corporate Income Tax
The 2 schemes discussed above aren’t considered ways to reduce corporate income tax as no action is required to lower a company’s taxes. Instead, here are 4 things you can do to lower your company’s corporate income tax.
#1 Start A Separate Company For New Business Initiatives
As mentioned, new start-ups can tap on the Tax Exemption Scheme for New Start-Up Companies. To lower your tax liabilities, you can consider separating business functions into different companies rather than within the same corporate entity.
For those considering to start a business, especially providing distinctly separate services and with their own separate teams, you can consider opening 2 companies rather than just 1. This way, you possibly lower your overall tax liabilities, while also protecting the businesses from one another – if one company fails, its liability will not be put on the other company. You may also benefit from a more flexible shareholding structure if you have investors.
Finally, you should not be actively trying to abuse this scheme, but leveraging on it for entrepreneurship and commercial reasons. IRAS clearly states that it “takes a strong stand against companies set up to abuse this scheme”. IRAS provides some examples of how abuse of the tax exemption scheme generally occurs:
- Allocating income of an existing profitable company to a few shell companies so that chargeable income of each shell company is within the threshold for tax exemption; or
- Charging fee/ expenses to an existing profitable company by shell companies without any bona fide commercial reasons. The shell companies claim the tax exemption on the income they receive from the profitable company, while the latter claims tax deduction on fees/expenses paid to the shell companies.
IRAS further states that these shell companies typically do not carry out any significant activities and have few employees. Their accounts usually show few transactions and low capitalisation. As of January 2019, more than 300 companies have been audited to check for possible abuse of this tax exemption for new companies, resulting in total tax recovery and penalties of more than $25 million. Tax evasion/fraud is also a criminal offence punishable under the law.
#2 Loss Carry-Back Relief
Companies can offset losses in the current year to claim back taxes paid in the immediately preceding year. The maximum amount of qualifying deductions that can be carried back is $100,000.
Companies have to make a claim, and this is not given automatically.
#3 Contributing To Employees’ MediSave Via The Additional MediSave Contributions Scheme (AMCS)
You can make use of the Additional MediSave Contributions Scheme (AMCS) to lower your company’s taxes, while providing greater benefits and healthcare security for your employees.
For example, if your company already has a healthcare, wellness or personal care benefit programme, you can consider returning or transferring unused balances into your employees’ MediSave Account (MA). This can be a win-win situation as employees do not feel like any amount they do not use goes to “waste” while your business does not have to pay taxes on this benefit provided to employees.
Similarly, companies can also use the AMCS to implement Portable Medical Benefits Scheme (PMBS). The Portable Medical Benefits Scheme allows companies to qualify for 2% tax deduction limit for an employee’s remuneration, rather than the existing 1%.
You can use the Portable Medical Benefits Scheme to make additional MediSave top-ups for your employees, implement a Transferable Medical Insurance Scheme (TMIS) or pay premiums for a Shield Plan for employees. This way, employees are also not taxed on the benefit-in-kind that they receive.
#4 Giving Back Through Volunteerism – Business And IPC Partnership Scheme (BIPS)
To encourage corporate volunteerism, businesses may claim 250% tax deduction on qualifying expenditure incurred from 1 July 2016 to 31 December 2021 when they send employees to volunteer and provide services, including secondments, to Institutions of a Public Character (IPC).
You can find the list of IPCs here. Employees cannot include owners of the business, i.e. sole-proprietors, partners and shareholders who are also directors of the company.
Companies can claim tax relief on basic wages (either on actual salary or $10 per hour for general volunteering and $20 per hour for skills-based volunteering) as well as other related expenses incurred by the business that were necessary for the provision of services to IPC.
These qualifying expenditure must also meet the following requirements:
- Not reimbursed by the IPC at anytime;
- Incurred only because of the volunteer services;
- Not considered as personal, living or family expenses; and
- Not capital expenditure
There is a qualifying expenditure cap of $250,000 per business per YA. A qualifying expenditure cap of $50,000 is also imposed on each IPC per calendar year.
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