Corporate Tax Rates in Singapore is considered one of the lowest in the world. The current prevailing tax rate is 17%. Every year, the government has been introducing attractive tax rebates and scheme to further reduce the corporate tax rates. For YA2019, companies can enjoy 20% tax rebate that is capped at $10,000. The following are the 5 main schemes that companies may be eligible for:
The Start-up tax exemption
The Start-up tax exemption was introduced to help relieve some of the tax burden for new start-up companies. The exemptions are applicable for the first 3 years of assessment (YA). After the budget 2018, the start-up tax exemption for YA2020 and after was revised to the following:
- 75% on the first S$100,000 of a start-up’s chargeable income
- 50% on the next S$100,000 of a start-up’s chargeable income
To qualify for the tax exemption, the company must meet the following requirements:
- Must be a registered company with ACRA;
- 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).
A Company that does not qualify for the tax exemption can still qualify for the Partial Tax Exemption (PTE) scheme. Under the PTE scheme from YA 2020, companies are exempted:
- 75% on the first S$10,000 of the chargeable income
- 50% on the next S$190,000 of the chargeable income
Business and IPC Partnership Scheme (BIPS)
Under the BIPS, companies are granted 250% tax deduction on qualifying expenditure when they send their qualifying employees to volunteer and provide the services to an Institution of Public Character (IPC).
IPC that is registered in Singapore are regulated by the Charities Act. They are required to issue tax deductible receipts for donations made to them
The qualifying employees are as follows:
- Not an owner, sole proprietor, partner or a shareholder who holds directorial positions in the company
- Not an employee in an investment holding company
The qualifying expenses for the voluntary services provided to the IPCs during working hours and on the IPC’s premises, which are
- Employee’s salary
- Expense not reimbursed by the IPC
- Not a personal expense for the employee
- Not capital expenditure
Each year (YA) the expenditure are capped at $250,000 per business and $50,000 for each IPC in 1 calendar year. The BIPS is applicable for voluntary work provided from 1st July 2016 to 31 December 2021.
Companies have to fill up the BIPS form A and get the endorsement from the IPC before providing the voluntarily service. Once completion of service, the company needs to update the expenditure amount with a Form B and get the acknowledgement from the IPC. The IPC will then submit both Form A and B to IRAS digitally.
Pioneer Certificates Incentive (PC) and Development & Expansion Incentive (DEI)
The PC and DEI schemes are set to
encourage company to increase their capabilities and conduct new or expand
their business activities in Singapore.
Company that are looking to establish the regional or global headquarter that carry out activities of managing, coordinating and controlling business activities for the group of companies can also apply for the scheme.
Approved company under the PC and DEI scheme is eligible for a concessionary corporate tax rate of 5% or 10% respectively on the qualifying activities. This incentive is limited to 5 years only and any extension will be consider base on the company’s plan to commit in further expansion.
Any non-qualifying activities have to be recorded in a separate account which are not eligible for the incentive.
To qualify for both PC and DEI, the company must make significant contribution to the economy or create advance capabilities in global leading industries. In addition, the company must introduce new technology, skill-sets or the know-how into the industry that are more advanced than in the average of Singapore.
All participating companies will have to be registered or carrying a business in Singapore. Transactions with related parties must transact at arm’s length and are subject to transfer pricing guidelines with supporting documentation which is require to be submitted to IRAS.
Double Tax Deduction Scheme for Internationalisation (DTDi)
Companies planning to venture to overseas markets will gain 200% tax deduction for qualify expenditure under the DTDi scheme. Administrated by Enterprise Singapore, it encourages business owners to take their business on to international platforms and investment development activities that will scale the business.
For the first S$150,000 of qualifying expenses, no pre-approval from Enterprise Singapore is required for four activities per year of assessment as follow:
- Overseas business development trips and missions
- Overseas investment study trips and missions
- Overseas trade show
- Local trade fairs approved by Enterprise Singapore or Singapore Tourism Board (STB)
An example as such:
Company A incurred eligible expenses for an overseas trade fair in Japan within the financial period in 2018. The total expenditure for the trade show is $25,000. While computing its corporate tax, Company A can claim $50,000 ($25,000 x 200%) of tax deduction automatically in YA2019.
Any eligible expenses on qualifying activities outside the four areas, and expenses exceeding S$150,000 will require Enterprise Singapore’s prior approval before commencement of project.
Research & Development (R&D) Expenditure
To encourage companies to build up R&D capabilities in Singapore, tax incentives are rewarded to company who undertakes qualifying R&D activities. There is no need for prior approval to apply for the tax incentive. However, the company has to ensure that the R&D activities are qualified for the claim in the tax return.
3 requirements for the qualifying activities as follows:
- Acquire new knowledge, create new or improve existing products/process.
- It involve technical uncertainty or it is first of its kind in Singapore
- It is systematic, investigative and experimental (“SIE”) study in a field of science or technology
Activities that do not qualify:
- Routine data collection
- Efficiency test or surveys
- Market research or sales promotion
- Modification of the aesthetics of the products
- Quality control or testing of materials
The R&D activities must be perform on its own account that the company bear the full cost of it and having the proprietary rights of the final products/process. Company can undertake the R&D activities in these 3 structure:
- Outsourced to a R&D provider
- Participate in a R&D cost sharing agreement
From Year of Assessment 2019 onwards, company can claim the following tax incentive on qualifying activities.
In house: 100% tax deduction and additional 150% deduction on staff costs (excluding director’s fees) and consumables (Excluding Utilities, rental and other overheads).
Outsourced R&D in Singapore: 100% tax deduction and additional 150% deduction on the 60% of the fee paid or staff costs (excluding directors’ fees) and consumables incurred if the amount is more than 60% of fee paid
R&D conducted in overseas: 100% tax deduction for R&D related to trade.
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