Incorporating a company in Singapore comes with many benefits, one of the biggest being the city-state’s low corporate tax rate. Even with these low tax rates, Singapore’s legal framework includes several tax exemptions schemes for all sorts of companies incorporated in Singapore.
Overview of Singapore’s corporate tax
All resident companies in Singapore are taxed on profits earned both locally and on foreign soil, which is then remitted into Singapore. The corporate tax rate of 17% is then calculated based on the company’s chargeable income, which is taxable revenues less allowable expenses and other allowances. This tax rate applies to both foreign and local entrepreneurs.
Though this tax rate is already fairly low, the actual tax payable can come out to even lower if you know how to utilise government incentives, subsidies and schemes to your benefit. For example, the Singapore government provides tax exemptions to start-ups for their first three years after incorporation.
Start-up Tax Exemption (SUTE)
Start-ups are eligible for the Start-Up Tax Exemption (SUTE) scheme for the first three years after incorporation. From the Year of Assessment (YA) 2020 onwards, companies that qualify will be given the following exemption for the first three consecutive YAs:
YA 2020 onwards
- 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.
Tax exemption on first $200,000 of chargeable income (where any YA of the first 3 YAs falls in or after YA 2020)
|
Chargeable Income |
% Exempted from Tax |
Amount Exempted from Tax |
|
First $100,000 |
75% |
$75,000 |
|
Next $100,000 |
50% |
$50,000 |
For companies that were incorporated in YA 2019 and before, the following exemptions apply:
YA 2019 and before
- Full exemption on the first $100,000 of normal chargeable income; and
- A further 50% exemption on the next $200,000 of normal chargeable income.
Tax exemption on first $200,000 of chargeable income (where any YA of the first 3 YAs falls in or after YA 2020)
|
Chargeable Income |
% Exempted from Tax |
Amount Exempted from Tax |
|
First $100,000 |
100% |
$100,000 |
|
Next $100,000 |
50% |
$50,000 |
To qualify for SUTE, your company must also,
- Be incorporated in Singapore
- Be a tax resident in Singapore for that YA
- The company’s total share is held by a maximum of 20 shareholders throughout the basis for that YA where:
- All of the shareholders are individuals; or
- At least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company
Partial Tax Exemption
After the first three years, your company will be eligible for Partial Tax Exemption (PTE). Other companies that do not qualify for SUTE will also be able to qualify for PTE. If your company qualifies, you will enjoy the following exemptions:
YA 2020 onwards
- 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.
YA 2019 and before
- 75% exemption on the first $10,000 of normal chargeable income; and
- A further 50% exemption on the next $290,000 of normal chargeable income.
Corporate Income Tax (CIT) rebate
As of 2020, all incorporated companies in Singapore will be granted a 25% Corporate Income Tax (CIT) rebate, subject to an annual cap of $15,000.
The CIT applies to all incorporated businesses in Singapore, including registered business trusts, non-tax residents companies in Singapore, and companies already receiving income taxed at a concessionary tax rate.
Foreign Sourced Income Exemption Scheme (FSIE)
Most resident companies that do business overseas have their foreign-sourced income remitted into Singapore. Based on Singapore’s progressive tax framework that also takes into account territorial policies, this income is also taxed. However, the Foreign Sourced Income Exemption Scheme (FSIE) helps to reduce taxes for these companies.
Tax exemption under FSIE only applies when the headline corporate tax rate in the foreign country is at least 15%, and the income has already been subjected to tax in that particular country. These exemptions will also only qualify if it is deemed to be beneficial to the specified resident taxpayers.
FSIE is applicable to the following:
- Foreign-sourced dividend – A dividend paid by a non-Singapore tax resident company, which may have been temporarily deposited into a foreign custodian account before its remittance into Singapore. However, the remittance must be made within one year from the
- Foreign branch profits – profits earned from business operations of a Singapore company registered as a branch in a foreign company. It does not include non-trade or non-business income of the foreign branch.
- Foreign-sourced service income – income generated by a resident taxpayer for services provided through a fixed place of operation in a foreign country.
Exemptions from Corporate Tax in Singapore
Other types of exemptions include the Pioneer Certificate Incentive (PC) for companies approved as ‘pioneers’ in their field. The Development and Expansion Incentive (DEI) offers concessionary tax to companies conducting new activities that contribute to the overall economic benefit for Singapore.
No matter if you are a small start-up or a multinational business, you’ll stand to benefit from the variety of tax exemptions for companies found in this city-state. But if you’re just starting out, we understand that it can be hard to wrap your mind around corporate tax. Be sure to engage a professional, or reach out to us at Margin Wheeler where our taxation services will be able to help.
