5 ways to save on corporate income tax in Singapore
Singapore’s corporate tax rate on chargeable income at 17 percent - is one of the lowest in the world, attracting business owners from various countries to set up or expand their businesses in Singapore.
Businesses in Singapore benefit from Singapore corporate tax rebates, which differs for Years of Assessment (YAs). For YA 2018, this rate is 40% of corporate tax payable (capped at S$15,000) and for YA2019 it is at 20% of corporate tax payable (capped at S$10,000). In addition to the low corporate tax rates, there are schemes and grants offered by the Singapore government that can help reduce your Singapore corporate tax rates even further. We describe five main schemes here:
1) Start-up Tax Exemption Scheme (SUTE) and Partial Tax Exemption (PTE)
The Start-up Tax Exemption Scheme (SUTE) was set up by the Singapore government to encourage entrepreneurship and the growth of local enterprises. Under the most recent iteration of SUTE announced in the Singapore’s 2018 Budget, the scheme exempts:
- 75 percent on the first S$100,000 of a start-up’s normal chargeable income
- 50 percent on the next S$100,000 of a start-up’s normal chargeable income
These exemptions apply for the first three consecutive YAs and takes effect on or after YA2020. A ‘start-up’ under this scheme is defined as a business in Singapore incorporated for no more than 3 years.
To qualify for the SUTE scheme, a business in Singapore needs to:
- Be incorporated in Singapore. (Find out more about incorporating your business in Singapore.)
- Be a tax-resident in Singapore for the applicable YAs.
- Not have more than 20 individual shareholders throughout the applicable YAs. Among these individual shareholders, at least one of them needs to hold 10 percent or more of the company’s shares.
- Be in any industry except investment holding and property development (for sale or for investment).
Businesses in Singapore that do not qualify for SUTE, namely companies that are incorporated for more than 3 years in Singapore, have more than 20 shareholders, or are in the investment and property development industries - can still qualify for the Partial Tax Exemption (PTE) scheme. Under the PTE scheme, companies are exempted:
- 75 percent on the first S$10,000 of normal chargeable income
- 50 percent on the next S$190,000 of normal chargeable income
2) Business and IPC Partnership Scheme (BIPS)
The Business and IPC Partnership Scheme (BIPS) grants a 250% Singapore corporate tax deduction on qualifying expenses incurred when their employees volunteer, provide professional services, or provide services (including secondments) to recognized Institutions of Public Character (IPCs).
IPCs are exempt or registered charities in Singapore that can issue tax-deductible receipts for donations made to them. They are held to higher standards of regulatory compliance and governance than regular charities. Find out here if a particular charity has IPC status.
For an employee of a business in Singapore to qualify for the BIPS scheme, he or she needs to be:
- Not an owner, sole proprietor, partner or a shareholder who holds directorial positions in the company
- Not employed in an investment holding company
- Incurring expenses from voluntary services provided to the IPCs during working hours and on the IPC’s premises, which are:
- not paid for by the IPC
- not a personal expense for the employee (i.e. caregiving expenses for a family member admitted in an IPC)
- not capital expenditure (i.e. a one-time donation from a business to an IPC)
The qualifying expenditure is capped at S$250,000 per business each YA, and at S$50,000 per individual IPC for each calendar year. The BIPS Scheme can be applied for voluntary services conducted from 1 July 2016 to 31 December 2021.
Click here for more information on BIPS.
3) Pioneer Certificates Incentive (PC) and Development & Expansion Incentive (DEI)
The PC and DEI schemes were set up to encourage businesses in Singapore to conduct new business activities and expand production capabilities.
The PC scheme applies to companies who have anchored economic activities in Singapore over time, bringing significant benefits to the country’s economy.
Meanwhile, the DEI scheme focuses on companies who have invested in technology, equipment and operational upgrades, which advances the capabilities of specific industries to globally competitive levels.
Approved companies under the PC scheme are eligible for a 5 percent Singapore corporate tax rate on income derived from qualifying activities for a period of 5 years.
Meanwhile, approved companies under the DEI scheme are eligible for a 10 percent Singapore corporate tax rate on income derived from qualifying activities for a period of 5 years.
Criteria for companies in the PC and DEI schemes include:
- Employment created in the company, including skills, expertise and seniority
- Business expenditure profiting the Singapore economy
- Capacity growth in technology, facilities/assets, and skill-sets that are more advanced than what is typically available in Singapore
- Plans to grow or sustain business activities in Singapore
4) Double Tax Deduction Scheme for Internationalisation (DTDi)
Administered by Enterprise Singapore, the DTDi scheme aims to encourage businesses in Singapore to expand internationally. The scheme provides double Singapore corporate tax deduction for qualifying expenses incurred from 1 April 2012 to 31 March 2020 (subject to certain expenditure cap) on international market expansion and development activities.
Several tax deductions under the DTDi are automatically awarded tax deductions without the need for further approval. These include:
- Overseas business development trips and missions
- Overseas investment study trips and missions
- Overseas trade fairs
- Local trade fairs approved by Enterprise Singapore or Singapore Tourism Board
Automatic tax relief for these qualifying expenditure incurred during YA 2019 to 31 March 2020 are capped at S$150,000 per YA, as announced in Budget 2018 to further encourage internationalisation. Activities within these four categories that exceed S$150,000, as well as all activities outside these four areas, will require Enterprise Singapore’s prior approval to be eligible for the DTDi.
To qualify for the DTDi, a business in Singapore needs to:
- Reside in Singapore. For certain qualifying activities, the company must have their global headquarters in Singapore.
- Have a primary purpose of promoting the trading of goods or the provision of services.
- Have clear intentions to internationalise the company.
5) Regional Headquarters Award (RHA) and International Headquarter Award (IHA)
The RHA is administered by the Singapore Economic Development Board (EDB) to encourage global companies to base their regional operations in Singapore, thus advancing Singapore’s status as a regional business hub.
Companies awarded the RHA pay a reduced Singapore corporate tax rate of 15% on the incremental income from qualifying activities for 3-5 years, subject to satisfying and maintaining all prescribed conditions throughout the period of the award.
In order to qualify for the RHA, businesses in Singapore need to satisfy the following criteria:
- A paid-up capital of S$200,000 by the end of Year 1 and S$500,000 by the end of Year 3 of the incentive period.
- The headquarters services should provide at least 3 types of services to company-owned entities in three countries outside Singapore by the end of Year 3.
- Employment of at least 75% skilled staff (minimum high school certificate) and at least 10 professionals (minimum diploma holders and above) by the end of Year 3.
- Average salaries of at least S$100,000 annually for the top five executive positions by the end of Year 3.
- An additional S$2 million in annual total business spending in Singapore by the end of Year 3.
Besides the RHA, the EDB also administers the International Headquarters Award (IHA). Enterprises looking to establish their International Headquarters in Singapore, may therefore apply for and benefit from the award, which qualifies them for Singapore corporate tax rates of 5% to 10%.
Any company looking to apply for the IHA must be incorporated or registered locally in Singapore, and must commit to exceed the minimum requirements of the RHA.
Among others, the conditions laid out by the government for companies to be able to establish their headquarters in Singapore are as follows:
1) The company must be recognised within the industry or sector of operation, have extensive capacity with regard to human resource, assets, capital and market share;
2) The headquarters should be the organisation's hub for the senior management of principal operations with well-defined management and control procedures;
3) The company should be moving the bulk of their headquarter operations into the Singapore office. These operations may consist of
- Marketing Control, Planning and Brand Management
- Strategic Business Planning and Development
- Research, Development and Test Bedding of New Concepts
- General Management and Administration
- Shared Services
- Intellectual Property Management
- Technical Support Services,
- Corporate Training and Personnel Management
- Sourcing, Procurement and Distribution
- Economic or Investment Research and Analysis
- Corporate Finance Advisory Services
- The management, professional, technical and supporting staff employed by the company to run the operations of the headquarters should be Singapore-based.
However, this award has an even more stringent criteria as compared to the RHA.
Visit EDB’s website for more information about RHA and IHA.