Top 5 things Small Businesses need to know about Singapore Tax Laws
If you think Singapore is a Tax Haven, it is not. The current 17% Singapore corporate tax rate might even seem high compared to some countries. But these are the headlines. If you take time to do some research, you will discover the many incentives and tax exemptions. The incentives change over time to focus on creating a pro-business environment where start-ups and small businesses can thrive and boost the economy and employment.
However, like any well-meaning government policy, one size does not fit all. Also, local business tax laws can be confusing at times, so here is a summary of the 5 main things small businesses need to know about the tax system.
1.Filing Corporate Tax
There are two main forms that companies in Singapore have to file: the Estimated Chargeable Income (ECI) form and the Singapore Corporate Income Tax form. These two submissions need to be made to the Inland Revenue Authority of Singapore (IRAS) each year.
The ECI form needs to contain an approximation of the company’s income that is taxable for the year. It has to be filed in within three months of the company’s financial year-end. However, if the company meets certain criteria, it will not need to file the ECI form.
The second form is called Singapore Corporate Income Tax form. It must include all the financial transactions in that financial year including bank statements, accounting records, or other financial documents and is electronically in December each year.
2.Corporate Tax Exemptions
There are 2 main categories of tax exemptions available: exemptions for companies registered under the Start-up Tax Exemption (SUTE) scheme, and those for companies not under it.
Newly set-up companies under the SUTE scheme enjoy the greatest benefits. If you qualify, your companies’ first SGD $100,000 of chargeable income would be tax-free, with the next $200,000 being 50% exempted. More information is in the table below.
Effective Corporate Tax Rate for New Companies under SUTE scheme
Companies that are not under the SUTE scheme need not be too concerned, as they will still get to enjoy partial tax exemption, as seen from the table below.
Partial Tax Exemptions for companies not under SUTE
3.Taxable income sources
It is key for small companies to know what forms of income are taxable and which are not. Considering that, these are the taxable income you should be aware of:
gains or profits from any trade or business
employment income incl. basic salary, bonus, commissions
income from investment such as dividends, interest and rental
royalties, premiums and any other profits from property; and
other gains that is revenue in nature.
4.Other Tax Deductions
Yes, there are more tax deductions small companies can enjoy. Deductions that reduce the corporate tax bills include: Research and development, Deductions for the self-employed, Employee deductions, and Deduction on donations.
Research and Development
Yes, there are monetary incentives for small companies in Singapore to innovate and invest in research & development. In fact, up to 100% of a company’s R&D cost can potentially be tax deductible.
There are however, certain requirements for the tax deductions, which you can learn more about here. Also, your company will need to bear the costs and be able to create a satisfactory result.
In general, employees may be able to claim tax deductions on employment expenses ‘wholly and exclusively’ incurred in the production of earning your employment income in Singapore, as ‘allowable expenses’. This may be useful in certain cases where you have a narrow expense reimbursement policy.
According to IRAS, expense may be allowed when the following conditions are satisfied:
1.The expense was incurred while carrying out your official duties;
2.The expense was not reimbursed by your employer; and
3.The expense was not capital or private in nature.
Deductions on donations
You can claim tax deductions on donations made from the year 2009 to 2021. The tax deduction claim can go up to 2.5-3 times the amount of donation. These include cash, artefact, shares, computer, or land and building donations. These donations have to be to registered charities but, if well planned, can also be great marketing for your business.
5. Tax benefits and grants (based on residency)
There are particular advantages that resident companies can enjoy from the Singapore government. According to IRAS, a company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. “Control and management” is the making of decisions on strategic matters, such as those on company policy and strategy.
If your company is a resident firm, it can:
Be eligible for income tax exemptions available for new start-up companies (i.e. tax rates for new start-up companies mentioned above)
Be entitled to benefits conferred under the various double taxation agreements concluded between treaty countries and Singapore
Enjoy income tax exemption on foreign-sourced dividends, profits from a foreign branch, and service income from a foreign source.
Grants and Incentive Schemes
Various divisions of the government provide support for business in co-funding (often 50-70%) of external costs or a tax rebate on certain types of investments for the business normally in development of the Company’s technology, brand and international presence.
These schemes are normally only available to employers of Singapore-based staff and they are specifically focused on growing the business from Singapore. With that in mind they are very generous.
The business grants and awards have recently been centralized in this site.
Understanding the tax rules is important and being aware of the benefits you are entitled to can help your business save in the long run.