Tax planning, by nature, involves effective use of available and legitimate strategies to minimize tax liabilities. This could be done by either deferring your tax or to avoid tax using certain tax-break provisions. Following with several tax crimes in Singapore, including tax evasion on rental income and joss paper company, PIC Fraud from management consultancy business, tax planning is believed to be one mechanism that is of paramount importance for the tax payer in contemporary business context.
In Singapore, Inland Revenue Authority of Singapore (IRAS) has developed business-friendly tax policies and streamlining tax filing procedures with objective of helping businesses to effectively manage their tax affairs. In fact, IRAS has provided a comprehensive set of tax benefits for person who wish to set up business in Singapore, including the following:
Before 2020, 100% exemption on first $100,000 chargeable income and 50% exemption on next $200,000 of chargeable income.
From 2020, 75% exemption on first $100,000 chargeable income and 50% exemption on next $100,000 of chargeable income would be applied for newly incorporated companies that meet the qualifying criteria, up to its first three consecutive years of assessment (“YAs”).
To enjoy it, company must:
- Be the Singapore tax resident
- Have no more than 20 shareholders (if consisting of more than one corporate shareholders, a minimum 10% of shareholdings must be held by individual shareholders).
§ Partial Tax Exemption
Before 2020, 75% exemption on first $10,000 of chargeable income and 50% exemption on next $290,000 chargeable income would be applied for companies meeting criteria for the startup exemption.
From 2020, 75% exemption on first $10,000 of chargeable income and 50% exemption on next $190,000 chargeable income would be applied for qualifying companies . Despite its lower percentage than startup exemption, company now still can get up to $152,500 of chargeable income exempted and is deemed beneficial to corporate tax payer.
For YA 2013, 2014 and 2015, companies will be granted 30% corporate income tax rebate capped at $30,000. To further promote this benefit, IRAS has extended the rebate period until YA 2017 and increase the rate to 30 % up to a maximum cap of $20,000 for YA 2016 and YA 2017.
For YA 2018 & 2019, there is a 40% rebate (capped at $15000) & 20% rebate (capped at $10000) respectively
§ Productivity and Innovation Credit (“PIC” Scheme)
Companies can enjoy 400% tax deductions or allowances up to a maximum of $400,000 per each YA, on qualifying expenditure incurred on improving their equipment, R&D, registration of intellectual property rights or even training. Business expenditures that qualify under PIC have to be incurred on the last day basis of YA 2018. You may take reference from the table below from IRAS:
§ International (or Regional) Headquarters Award
Headquarters of local or international companies are able to win the corporate tax rebate (the rate of 15% for regional and 10% for international headquarters) if they provide a competitive plan for conducting their activities in Singapore accentuating the increase of their business spending and contribution to the local employment. This incentive is valid during 3 years after which it can be extended for 2 more years.
§ Allowance for Land Intensification
Initial tax allowance of 25% and annual tax allowance of 5% on qualifying capital expenditure incurred for the construction or renovation or extension of a qualifying building or structure.
Qualifying Table (provided by IRAS)(below):
§ Mergers & Acquisitions Allowance (For acquisitions completed from 1 Apr 2016 - 31 Mar 2020)
Allowance of 25% of the value of the acquisition will be provided for any merger and acquisition, subject to a maximum of $10 million for each YA. Limit on acquisition value was increased from $20m to $40m. To enjoy it, company must be:
- Incorporated in SG
- A Singapore tax resident
- Continue trade/business from the date of acquisition
- Hired minimum of 3 local employees for at least 12 month period before acquisition
- Not connected to targeted company at least 2 years before acquisition date
- Get prior approval from Economic Development Board
§ Integrated Investment Allowance
Companies that invest in equipment overseas for using it in business or trade can get the capital and additional allowances if certain criteria are met:
- The project must get approval
- the company must use the equipment for such activities as manufacturing, technical/engineering services, construction, development, research and others
Corporate tax exemption on income from qualifying activities. To prove the pioneer status, you need to provide the EDB with a plan describing benefits for the local economy: increased business spending, involvement of the cutting-edge technologies, boosting research activities and development, creation of a number of skilled jobs, and so on.
The tax exemption for separate trades are determined on case by case basis based on the following factors:
- size of turnover of separate trade
- past records of profit margins earned
- whether profit margins of separate trade follow market trends for particular industry
- importance of separate trade to the company
- nature of separate trade - is it a new or established activity?
§ Development and Expansion IncentiveCompany can enjoy concessionary rate of 5 or 10% (instead of normal corporate tax rate of 17%) for its expansion profit during period of 5 years provided the company:
- Applies for status of development and expansion
- Gets approval from government
- Employment created (skills, expertise, experience)
- Total business expenditure contribution to economy
- Commitment level to growing capabilities in Singapore (E.g. Fixed assets for manufacturing firms, technology etc.)
8% corporate tax rate deduction would be applied on fees, interest, dividends and gains from business involving financial or treasury management. Withholding tax exemption on interest payments on loans from banks and approved network companies for FTC activities.
Some assessing criteria include:
- Establishing substantive activities in Singapore (E.g. Foreign Exchange, Management of interest rate etc.)
- Scale of operation for FTC companies
- Creation of jobs
Singapore’s government makes efforts in boosting the country’s trade sector. For this goal, they launch the Program that allows companies engaged in global trading to pay a lower corporate (ie 5 or 10%) during 3 or 5 years if they manage to prove their commitment to creating PME (ie. Professional/managerial/executive) jobs. If you
- Have a worldwide trade network;
- Are aimed at expanding your business pending;
- Opt to rely on Singapore’s logistics, banking, and trade services;
- Are interested in employing and training the local manpower
As a summary, Singapore obviously is an ideal country for you to set up your business at a tax-saving or tax-efficient state. Now, you should get you tax planning started to take advantage of above tax benefits as early as you can. Find out more how AM Corp can help you with your tax planning.