With a Better Understanding of Tax, Business Owners can Enhance and Streamline their Businesses
Tax is often a necessary evil that business owners view with disdain and unhappiness, because it eats into revenue and ultimately diminishes profits. However, with careful tax planning, business owners can minimise their tax liabilities, which in the long-run, could potentially result in substantial savings for the business.
Singapore – An attractive tax destination
Globally, Singapore is undeniably one of the most attractive tax destinations, for corporate and individual taxpayers alike.
Looking specifically at the tax benefits for companies, here is a comprehensive list of tax benefits that companies in Singapore can potentially enjoy:
|No.||Tax Benefit||Qualifying Criteria|
|1||Start-up Tax Exemption|
Newly incorporated companies that meet the qualifying criteria can claim full tax exemption on the first $100,000 of normal chargeable income for each of its first three consecutive years of assessment (“YAs”).
|2||Partial Tax Exemption|
For companies that do not qualify under (1).For YA 2013, 2014 and 2015, companies will be granted 30% Corporate Income Tax Rebate capped at $30,000 for each YAFor YA 2016 and 2017, companies be granted 30% Corporate Income Tax Rebate capped at $20,000 for each YA
|3||Productivity and Innovation Credit (“PIC”) Scheme|
Companies can enjoy 400% tax deductions or allowances on qualifying expenditure, up to a maximum of $400,000 of expenditure per year
From YA 2015 to 2018, companies can enjoy 400% tax deductions or allowances on qualifying expenditure, up to a maximum of $600,000 per year
|4||International / Regional Headquarters Award|
Reduced corporate tax rate on incremental income from qualifying activities
|5||Land Intensification Allowance|
Initial tax allowance of 25% and annual tax allowance of 5% on qualifying capital expenditure incurred for the construction or renovation or extension of a qualifying building or structure.
|6||Integrated Investment Allowance|
An allowance provided based on a percentage of approved fixed capital expenditure incurred on productive equipment that is place outside Singapore for an approved project
|7||Mergers & Acquisitions (“M&A”) Scheme|
Allowance of 25% of the value of the acquisition, subject to a maximum of S$5 million for each YAProvision of deductibility of transaction costs and stamp duty relief.
Corporate tax exemption on income from qualifying activities
|9||Development and Expansion Incentive|
Provision of a reduced corporate tax rate on incremental income from qualifying activities
|10||Finance & Treasury Centre (“FTC”) Tax Incentive|
Reduced corporate tax rate of 10% on fees, interest, dividends and gains from qualifying services and activitiesWithholding tax exemption on interest payments on loans from banks and approved network companies for FTC activities
|11||Aircraft Leasing Scheme|
Reduced corporate tax rate of 5% to 10% for a period of five years on income accruing in or derived from Singapore from the leasing of aircraft, aircraft engine or other prescribed activities
|12||Research Incentive Scheme|
Awarding of government grants to develop research and development capabilities in strategic areas of technology
|13||Initiatives in New Technology|
Government Training grants to encourage capability development in applying new technologies, industrial R&D and professional know-how
|14||Land Productivity Grant|
Provides support for companies that intend to optimise land use through domestic or overseas applications
Easing cross-border economic activities for Taxpayers
In addition to all of these tax incentives, it should be noted that Singapore is a member of the Organisation for Economic Co-operation and Development (“OECD”)’s White List, which has led to the signing of 76 Double Taxation Agreements (“DTAs”) with 76 other countries.
A DTA is a form of bilateral tax agreement, which is an arrangement between two jurisdictions to mitigate the problem of double taxation that can occur when tax laws consider an individual or company to be a resident of more than one jurisdiction. With a DTA, investors and companies from both jurisdictions will not be subject to double taxations, which will encourage and facilitate relations between the two countries, encourage foreign investment and trade; and disincentivise tax evasion.
Ideally, an investor or company who wishes to leverage off the benefits of a DTA will read the DTA in detail or consult a tax specialist, as a DTA can be specific in dealing with certain issues, such as different categories of income, methods for eliminating double taxation, etc.
Despite the fact that the Singapore government already has many pro-business policies and DTAs in place, it also goes one step further to provide unilateral tax relief, which grants tax credits for foreign tax paid by Singapore tax residents on certain types of income derived from a foreign country, if the income is repatriated to Singapore.
The types of income that would qualify for unilateral tax credit (“UTC”), would be:
- Income derived from any professional, consultancy and other services rendered in any territory outside Singapore
- Any royalty derived from outside Singapore where the royalty is not borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore); or not deductible against any income accruing in or derived from Singapore.
- Dividend income
- Employment income
- Branch profits
It should be noted that the definition of a “Singapore tax resident” is not restricted solely to Singapore citizens. Any individual who fulfils any one of the criteria listed below would be considered to be a Singapore tax resident:
- A Singapore citizen who normally resides in Singapore except for temporary absences;
- Permanent Resident who has established a permanent home in Singapore; or
- Foreigner who has stayed or worked in Singapore for 183 days or more in the prior year
While the UTC applies to individuals, companies can claim similarly under the foreign tax credit (“FTC”) scheme, if it fulfils all of the following conditions:
- Company is a tax resident in Singapore for the relevant basis year;
- Tax has been paid or is payable on the same income in the foreign country; and
- Income is subject to taxation in Singapore
For companies where they have associated subsidiaries, the FTC pooling system grants businesses more flexibility and reduces their Singapore taxes payable on remitted foreign income. The FTC pooling system is also considerably simpler. To qualify, a company would be required to fulfil all of the following conditions:
- Foreign income tax is paid on the income in the foreign country from which the income is derived;
- The highest corporate tax rate (headline tax rate) of the foreign country from which the income is derived is at least 15% at the time the foreign income is received in Singapore; and
- The company is entitled to claim for FTC under the Income Tax Act and there is Singapore tax payable on the income.
Legitimate Tax Relief
With all of these tax incentives, pro-business friendly tax policies and one of the lowest effective corporate tax rates at 0% to 17%, it is clear that Singapore is an extremely attractive tax destination for businesses. Moreover, unlike global tax havens such as Seychelles and the Cayman Islands, Singapore’s government has done much to establish itself as a reputable financial hub and ensure that foreign entities and investors are not at risk of being questioned over their financial assets and investments in our nation-state.
You take care of business. We’ll take care of your taxation needs.
File your corporate tax returns with Singapore Company Incorporation, one of the leading tax agents in Singapore. Our professional taxation specialists will work closely with you to reduce your tax liabilies and maximise tax savings.