Singapore is well-known as a tax haven due to its low corporation tax rates. Singapore’s corporate tax rate on chargeable revenue is one of the lowest in the world, enticing business owners from all over the world to set up or grow their operations in Singapore.
Having low tax rates and an experienced accounting services provider, however, are not the only reasons Singapore is a global magnet for entrepreneurs. Other valid options for Singapore companies to save on corporate income tax include programmes and grants implemented by the country’s government.
Overview of Singapore's corporate income tax
In Singapore, calculating corporation taxes is relatively simple. The basic formula is as follows:
Income Taxable x Corporate Tax Rate = Corporate Tax
The income taxable is the amount of money subject to corporation tax, and the corporate tax rate is the percentage of tax levied on this income.
This rule does have a few exceptions. However, this method will give you a reasonable indication of how much corporate tax you will have to pay.
How to Reduce Your Corporate Taxes in Singapore Legally
Despite Singapore’s low corporate tax rate, some businesses may seek to further reduce their tax commitments.
For example, under the Singapore Income Tax Act, they can take advantage of industry-specific and unique tax benefits, as well as concessionary tax rates.
It is also feasible to lawfully reduce your corporation tax return by implementing the following measures:
1. Tax Exemption Schemes and Incentives
You can take advantage of an applicable corporate income tax exemption scheme or incentive available in Singapore to reduce your company taxes even further.
The most common method of reducing corporation taxes is to claim deductions and exemptions. Deductions reduce your taxable income, whereas exemptions entirely exempt certain income from taxation.
Singapore has implemented various tax exemptions and deductions over the years, including the Corporate Income Tax Rebate in YA 2020.
In Singapore, the government and the Economic Development Board have announced a number of incentives and exemptions (EDB). Some of the most common are as follows:
- Investment Allowances
- Foreign Branch Profits Remission Scheme
- Development and Expansion Incentive
- International Headquarters Incentive
- Research and Development Incentive
- Double Tax Deduction for Internationalisation Scheme (DTDi)
- Pioneer Certificate Incentive
2. Tax exemption scheme for startups in Singapore
In the Year of Assessment (YA) 2005, the Tax Exemption Scheme for New Start-Up Companies was implemented. Its goal is to help entrepreneurs and grow local businesses. Your company would be eligible for this start-up tax exemption scheme for the first three years if:
- It is registered in Singapore.
- It is regarded as a Singapore tax resident.
- It has no more than 20 shareholders, each of whom is either individuals beneficially and directly holding the shares in their own names, or at least one of them owns at least 10% of the ordinary shares.
When your newly-established company can meet the above-mentioned criteria, it will earn a 75% tax exemption on the first S$100,000 of taxable income and a 50% tax exemption on the next S$100,000 of taxable revenue.
3. Charitable Donations in Singapore
Donations to any charity registered as an IPC (Institute of a Public Character) in Singapore are tax deductible. Tax deductions of up to $250 percent are available for eligible candidates based on the amount donated. The tax break for charitable contributions will be extended for another two years, until December 31, 2023.
4. Contributing to MediSave for Your Employees
Employees can reduce their corporate taxes through the Additional MediSave Contributions Scheme (AMCS). Companies can make MediSave contributions of up to S$2,730 per employee per year under this scheme. These contributions are tax-free for employees, and businesses may also benefit from them.
For example, the Portable Medical Benefits Scheme (PMBS) may apply, which allows companies to withdraw 2% of an employee’s wages instead of just 1%.
5. Charitable Donations in Singapore
Donations to any charity registered as an IPC (Institute of a Public Character) in Singapore are tax deductible. Tax deductions of up to $250 percent are available for eligible candidates based on the amount donated. The tax break for charitable contributions will be extended for another two years, until December 31, 2023.
The Best Solutions to Reduce on Your Corporate Taxes
Be a part of Asia’s most vibrant business hub and see your company realise its full potential and beyond. Take advantage of our Tax Services and let our professionals guide you to some of the best business decisions you’ll ever make. If you have any questions about Singapore corporation tax, please contact one of our tax consultants today.