Singapore Corporate Tax Exemptions 101: A Beginner’s Guide for New Companies to Reduce Tax Liability

Singapore Corporate Tax Exemptions 101: A Beginner’s Guide for New Companies to Reduce Tax Liability

Singapore, a small but vibrant economy, has attracted numerous companies from around the world, thanks to its business-friendly environment, corruption-free infrastructure, and robust financial services sector. Setting up a company in Singapore can be a daunting task, but understanding the country’s tax laws and exemptions can be a crucial factor in determining the success of your venture. In this article, we will guide you through the basics of Singapore corporate tax exemptions and how to reduce your company’s tax liability.

Corporate Tax Rates in Singapore

Singapore adopts a territorial basis of taxation, which means that tax is levied only on income derived or deemed to be derived from Singapore, and not on income received from outside Singapore. The corporate tax rate in Singapore is 17%, applicable to all types of corporations, including partnerships, trust, and individual entrepreneurs.

However, Singapore’s tax laws also provide exemptions and incentives for certain income, which can significantly reduce a company’s tax liability. In the following sections, we will explore these exemptions and their benefits in detail.

Section 13(4) Exemption: Dividend Income

Dividend income is exempted from tax if it is received from a qualifying corporate shareholder. The qualifying conditions are as follows:

• The shareholders must be wholly-owned and controlled by a Singapore individual or a Singapore company
• The shares in the shareholder company must not be directly or indirectly beneficially held by a non-citizen, except for in the case of a private company where the shares are held by a Singapore trustee

This exemption is beneficial for companies receiving dividend income from their holding companies or group companies in Singapore.

Double Taxation Avoidance Agreement (DTAA) Relief

Singapore has entered into DTAs with over 70 countries, which helps to alleviate double taxation on cross-border transactions. Under a DTA, a foreign-sourced income may be exempt from Singapore tax, or may be taxed in Singapore and then credited against the taxes paid in the foreign jurisdiction.

DTAs usually provide relief in the form of:

• Elimination of double taxation: Tax credit or exemption may be allowed for foreign tax paid
• Reducing withholding taxes: Lower rates or reduced withholding taxes may be applicable on dividends, interest, and royalties

This relief helps companies operating globally to optimize their tax strategies and avoid double taxation on foreign-sourced income.

New Start-Up Scheme (Section 43J)

The New Start-Up Scheme is a tax exemption introduced in 2004, aimed at promoting entrepreneurship and innovation in Singapore. It provides a full tax exemption for the first S$100,000 of accounting profits for qualifying start-up companies.

Qualifying conditions include:

• Company incorporated in Singapore with a financial year ending after 30 June 2004
• Company derives income solely from a primary business (i.e., not engaged in property rental or management)
• Company has gross receipts not exceeding S$5 million for the current and preceding accounting periods

This scheme is designed to incentivize start-up companies, providing them with a low-tax environment for the early years of operations.

Conclusion

Understanding Singapore corporate tax exemptions is crucial for companies to optimize their tax strategies and reduce their tax liability. By leveraging the Section 13(4) Exemption, Double Taxation Avoidance Agreement Relief, and the New Start-Up Scheme, companies can minimize their tax burden and focus on growth and innovation. We hope this beginner’s guide has provided you with valuable insights into Singapore corporate tax exemptions and encouraged you to explore the numerous benefits the country has to offer for businesses.

FAQs

• Q: What is the corporate tax rate in Singapore?

A: 17%

• Q: What is the eligibility criteria for the Section 13(4) Exemption?

A: The shareholders must be wholly-owned and controlled by a Singapore individual or a Singapore company, and the shares in the shareholder company must not be directly or indirectly beneficially held by a non-citizen, except for in the case of a private company where the shares are held by a Singapore trustee

• Q: Can I claim Double Taxation Avoidance Agreement Relief in Singapore?

A: Yes, if you receive foreign-sourced income or have paid taxes in another country, you may be eligible for DTAA relief in Singapore.

• Q: Can I claim the New Start-Up Scheme in Singapore?

A: Yes, if your company meets the qualifying conditions, including having gross receipts not exceeding S$5 million for the current and preceding accounting periods, you may be eligible for the full tax exemption on the first S$100,000 of accounting profits.