Corporate Tax Rates
Since 2010, all corporate income in Singapore is taxed at a rate of 17%, which though itself is very low, can be reduced even further if companies take advantage of several of government’s corporate tax schemes and subsidies.
In a bid to encourage new investment and maintain a conducive business environment, the Start-up Tax Exemption Scheme (SUTE) was introduced in 2004, which provided newly-incorporated qualifying companies exemption on their taxable profits in their first three years of operations.
The Government further realized the importance of Small and Medium-sized Enterprises (SMEs) in Singapore’s economy and introduced the Partial Tax Exemption Scheme in 2008, which lowers the taxable profits of these companies.
For instance, if a newly incorporated Singapore company has fewer than 20 shareholders and at least one shareholder is an individual beneficially holding at least 10 percent of the company’s issued ordinary shares, the company can claim for full tax exemption on the first SGD100,000 of normal chargeable income in each of its first three consecutive financial years.
A further 50 percent exemption is given to the next SGD200,000 of normal chargeable income for these three years, which may reduce the corporate income tax rate to 5.67 percent for the first SGD300,000 of taxable income.
The SME sector contributes more than 50 percent of economic output and 70 percent of employment in the country, and need all the help they can get to grow and establish themselves, especially in the initial few years of incorporation.
Notably, while the partial exemption is available to all companies, the qualifying conditions and exemption thresholds are designed so as to trickle maximum benefits to the SME sector.
Merger & Acquisition Allowance Scheme
Another scheme introduced in 2010 with focus on the SME sector is the Merger & Acquisition (M&A) allowance scheme aimed at facilitating M&A in Singapore’s this most economically vibrant sector. The scheme has helped in the progressive restructuring of the country’s economy leading to high productivity growth.
The scheme provides an allowance of 5 percent of the value of the acquisition, subject to a maximum of S$5 million for each year of assessment. Furthermore, the scheme provides stamp duty relief and deductibility of transaction costs.
It provides the tax exemption on income from qualifying activities to enterprises incurring significant capital expenditure in introducing leading-edge technology and manufacturing skills to Singapore.
International / Regional Headquarters Award
These two awards provide a reduced corporate tax rate (zero to 15 percent) on incremental income to companies providing corporate support and headquarters-related services and business expertise on a regional or global basis.
Development and Expansion Incentive
The scheme provides a reduced corporate tax rate on incremental income from qualifying activities to enterprises bringing significant economic benefit in terms of overall business spending to Singapore.
Finance & Treasury Centre (FTC) Tax Incentive
The FTC incentive provides an exemption on interest payments on loans from banks, as well as reduced corporate tax rate on fees, interest, dividends, and gains from qualifying services and activities.
Integrated Investment Allowance (IIA)
Granted on top of normal capital allowance, the IIA is given on the basis of approved fixed capital expenditure incurred on placing a productive equipment outside Singapore.
Singapore’s Group Relief System for Loss Transfer
Another unique benefit that foreign companies enjoy in Singapore is the country’s group relief system for loss transfer.
In a world of ever-changing business landscape, companies routinely reorganize themselves into multiple subsidiaries, or holding and associate companies. This is done to limit liabilities, save taxes and sometimes even to protect the brand-name.
To assist in such a reorganization and hedge some of the risk-taking by reducing the overall tax burden for the entire company group, the Singapore Government has introduced the loss transfer system of group relief, which permits transfer of current year not utilized losses, donations, and unabsorbed capital allowances within group companies.
Productivity, Research and Technology Schemes/Grants
Productivity and Innovation Credit (PIC) Scheme
Also, when the government realized that in a knowledge economy only those businesses survive which invest in innovation and productivity by upgrading their operations and creating new value, it introduced a highly successful Productivity and Innovation Credit (PIC) scheme in Budget 2010.
The Scheme provides tax exemptions/deductions for six categories of qualifying activities and has been substantially expanded since its introduction.
Under the scheme in operation from 2011 to 2018, Singapore’s business entities can enjoy a 400 percent tax deductions/allowances and/or 60 percent cash payouts for investment in innovation and productivity improvements.
Research Incentive Scheme for Companies
Similar to the idea behind PIC, it is a grant given by the Singapore Government to develop research and development capabilities in strategic areas of technology.
Initiatives in New Technology
This is a grant for encouraging capability development in applying new technologies, industrial R&D and professional know-how.
Overall, Singapore’s plethora of tax incentive schemes, low corporate income tax regime, even lower compliance costs, and absence of any bureaucratic hassle makes it the first choice for companies looking to relocate to favorable corporate tax regimes.
For any questions, please contact:
JadeStonePartners Group, Singapore
André Reboh, Managing Director
Phone: +65 8292 4700
Mobile: + 65 9387 3573