Singapore is widely known for its business-friendly environment, and one of the reasons entrepreneurs from around the world choose to incorporate their businesses in Singapore is the country’s attractive corporate tax regime. The Singapore government offers various tax exemptions for new companies to encourage entrepreneurship and stimulate economic growth. These tax exemptions significantly lower the financial burden on startups, especially in their early years.
In this article, we’ll explore the key corporate tax exemptions available to new companies in Singapore, eligibility requirements, and how these exemptions can benefit your business.
Key Corporate Tax Exemptions for New Companies in Singapore
1. Partial Tax Exemption for New Companies
Under Singapore’s tax system, new companies benefit from a partial tax exemption scheme on their first S$200,000 of chargeable income. The scheme helps reduce the overall tax burden during the early years of a business.
Breakdown of the Partial Tax Exemption:
- 75% tax exemption on the first S$100,000 of chargeable income.
- 50% tax exemption on the next S$100,000 of chargeable income.
This exemption applies to companies that are incorporated in Singapore and are tax residents, which means they are managed and controlled in Singapore.
Example:
If a new company generates S$150,000 in chargeable income, the tax exemption would work as follows:
- 75% exemption on the first S$100,000 = S$75,000
- 50% exemption on the next S$50,000 = S$25,000
The total tax exemption is S$100,000, meaning the company only pays taxes on S$50,000.
2. Tax Exemption Scheme for Startups (Start-up Tax Exemption)
The Start-up Tax Exemption Scheme is designed specifically for qualifying new businesses to reduce their tax liabilities during the first three consecutive years of assessment. This scheme provides a full or partial exemption on the first S$100,000 of chargeable income for qualifying startups.
Breakdown of the Start-up Tax Exemption:
- 100% tax exemption on the first S$100,000 of chargeable income.
- 50% tax exemption on the next S$100,000 of chargeable income.
This tax exemption scheme significantly benefits startups by giving them a tax-free allowance on their initial profits, which helps with cash flow in the crucial early stages of business.
Eligibility Requirements for the Start-up Tax Exemption:
- The company must be incorporated in Singapore.
- The company must be a tax resident of Singapore.
- The company must have less than 20 shareholders (the shareholders can be individuals or companies, but at least one must be an individual).
- The company must have annual revenue of S$1 million or less.
- The company should not be part of a group of companies that have already applied for the exemption.
Example:
If a startup has S$150,000 in chargeable income in its first year, the tax exemption would be:
- 100% exemption on the first S$100,000 = S$100,000
- 50% exemption on the next S$50,000 = S$25,000
Thus, the total exemption would be S$125,000, and the company would only be taxed on S$25,000.
3. Exemption on Foreign-Sourced Income
Singapore follows a territorial tax system, which means that foreign-sourced income is generally not subject to tax unless it is remitted into Singapore. This is a significant advantage for companies doing business internationally.
Under the foreign income exemption regime, qualifying foreign-sourced income such as dividends, interest, and royalties received by a Singapore tax resident company may be exempt from tax in Singapore. This exemption applies to foreign income that is:
- Received in Singapore from a foreign source.
- Subject to tax in the foreign country where it is earned.
Eligibility Criteria for Foreign-Sourced Income Exemption:
- The income must be received in Singapore.
- The foreign income must have been taxed in the foreign jurisdiction.
- The company receiving the income must be a Singapore tax resident.
4. R&D Tax Incentives
Singapore encourages innovation and research and development (R&D) through tax incentives. The Research and Development Tax Incentive Scheme offers tax deductions or allowances for companies engaging in qualifying R&D activities.
Eligible R&D expenses can be claimed as tax deductions against the company’s chargeable income, reducing the overall tax burden. Some of the qualifying R&D expenses include:
- Salaries of employees working on R&D activities.
- Cost of materials used in R&D projects.
- Depreciation of assets used in R&D.
Companies that invest in innovation and R&D activities can significantly benefit from these deductions, allowing them to reinvest savings into further growth and development.
5. Tax Exemption on Start-up Investment
Certain investment income may also be exempt from tax. For example, in some cases, the gains from the sale of shares in a company that qualifies for the Singapore Venture Capital Fund (VCF) or other government-approved startup funds may be exempt from tax, making it easier for investors to support new companies in Singapore.
Other Corporate Tax Incentives for Businesses in Singapore
- Incentive for Holding Company Businesses: Singapore offers tax exemptions on qualifying income for businesses that function as holding companies for regional or international operations.
- Double Taxation Agreements (DTAs): Singapore has a network of more than 80 DTAs with countries around the world. These treaties are designed to avoid the double taxation of income earned in one jurisdiction but paid to a company in another jurisdiction.
- Investment Allowance Schemes: The government offers investment allowance schemes to support businesses that make significant capital expenditures in specific industries such as manufacturing or green technology.
How to Apply for Corporate Tax Exemptions in Singapore
To apply for tax exemptions and incentives, companies typically do not need to submit a separate application. The exemptions are automatically granted based on the company’s tax returns and the fulfillment of eligibility criteria.
- File Tax Returns: Submit your company’s annual tax returns (Form C or Form C-S) to the Inland Revenue Authority of Singapore (IRAS).
- Provide Supporting Documents: Ensure that the company meets the necessary requirements such as shareholder structure and revenue limits to qualify for the tax exemptions.
- Confirm Eligibility: IRAS will review the submission and confirm eligibility for any exemptions.
If the company qualifies, the tax exemptions will automatically apply when calculating the tax payable for the year.
Conclusion
Singapore offers an attractive corporate tax structure that can significantly benefit new companies, especially during their early years of operation. With the Start-up Tax Exemption Scheme and the Partial Tax Exemption, startups can enjoy substantial tax savings, allowing them to reinvest capital into business growth. Additionally, foreign income exemptions, R&D incentives, and other corporate tax benefits make Singapore one of the most favorable jurisdictions for new businesses.
Entrepreneurs considering incorporating in Singapore should consult with tax professionals or corporate service providers to ensure they meet the eligibility requirements and maximize the tax exemptions available.
FAQ: Singapore Corporate Tax Exemptions for New Companies
1. Who is eligible for the Start-up Tax Exemption Scheme?
To qualify for the Start-up Tax Exemption Scheme, your company must be incorporated in Singapore, a tax resident, have fewer than 20 shareholders, and meet the annual revenue cap of S$1 million. The company must also be a new startup in its first three consecutive years of assessment.
2. How much tax can my company save under the Partial Tax Exemption?
Your company can save up to S$100,000 in tax exemptions, with 75% exemption on the first S$100,000 of chargeable income, and 50% exemption on the next S$100,000.
3. Is foreign-sourced income taxable in Singapore?
Foreign-sourced income is generally exempt from tax in Singapore unless it is remitted into the country. If foreign income is subject to tax in the country where it is earned, it may qualify for tax exemption in Singapore.
4. Can I claim tax deductions for R&D expenses?
Yes, you can claim tax deductions for qualifying R&D expenses under the R&D Tax Incentive Scheme, which allows you to reduce your taxable income by claiming R&D-related costs such as salaries, materials, and asset depreciation.
5. Does my company need to apply for tax exemptions?
No, the tax exemptions are automatically granted when you file your annual tax returns with the Inland Revenue Authority of Singapore (IRAS), as long as your company meets the eligibility requirements.
This article provides a comprehensive overview of the corporate tax exemptions available to new companies in Singapore, along with a clear FAQ section to address common queries about the process.
