Singapore is well-known for its attractive corporate tax rate regime, which offers various tax exemptions and incentives for businesses. In this article, we will explain the two main different types of corporate tax rate exemptions available in Singapore, and the eligibility criteria for each of them.
Overview of the Singapore Corporate Tax Rate System
Singapore operates a one-tier corporate tax rate system, under which corporate tax paid on a company’s profits is final.
Dividends paid by Singapore resident companies are tax exempt in the hands of the recipient. Foreign-source dividends are taxable as income for the company or individual if received or deemed to be received in Singapore, unless certain conditions are satisfied.
Singapore’s corporate income tax rate is a flat 17%, which applies to both local and foreign companies. For a company, this means that their taxable income (often, their profits), will be taxed at 17%. However, there are various tax exemptions and rebates that can reduce the effective tax rate for companies.
The Tax Exemption Scheme for newly incorporated Startups
The Start-Up Tax Exemption (SUTE) scheme is designed to encourage entrepreneurship and support new businesses in Singapore. Under this scheme, qualifying new companies are given the following tax exemption for the first three (3) consecutive Years of Assessment (YAs):
From 2020 onwards: 75% exemption on the first SGD100,000 of normal chargeable income; and a further 50% tax exemption on the next SGD100,000 of normal chargeable income .
This means that eligible companies with taxable income of SGD 100,000 will only have to pay taxes (of 17%) on SGD 25,000.
| First SGD 100,000 (taxable income) | Following SGD 100,000 (taxable income) | |
|---|---|---|
| Taxable income/ profit | SGD 100,000 | SGD 100,000 |
| Exemption (SUTE) | 75% | 50% |
| Taxable income after Exemption (SUTE) | SGD 25,000 | SGD 50,000 |
| Standard Singapore Tax Rate | 17% | 17% |
| Total Taxes | SGD 4,250 | SGD 8,500 |
| Effective Tax Rate | 4.25% | 8.50% |
In this case, the effective tax rate for the first SGD 200,000 of revenues is ~6.38%. The normal tax rate of 17% then applies.
Qualifying criteria for SUTE Scheme
Although the Startup Tax Exemption Scheme is extremely beneficial to companies for their first 3 years of assessment, companies must meet the following criteria to be eligible:
- The company must be incorporated in Singapore;
- The company must be a tax resident in Singapore for that YA; (the criteria for a company to be considered tax resident are detailed below).
- The company must have no more than 20 shareholders throughout the basis period for that YA where:
- All of the shareholders are individuals beneficially and directly holding the shares in their own names; or
- At least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.
The SUTE scheme does not apply to the following types of companies:
- A company whose principal activity is that of investment holding; or
- A company whose principal activity is that of developing properties for sale, investment, or both.
Alternatively, another scheme is available.
The Partial Tax Exemption (PTE) Scheme
The Partial Tax Exemption (PTE) scheme is applicable to all companies that do not qualify for the SUTE scheme. Also, the PTE scheme is valid for every year of assessment until repealed or amended.
Under this scheme, qualifying companies are given the following tax exemption:
From 2020 onwards: 75% exemption on the first SGD10,000 of normal chargeable income; and a further 50% exemption on the next SGD190,000 of normal chargeable income.
A company with a profit of SGD 50,000 will be taxed at 17% on SGD 22,500 of income only (SGD 2,500 + SGD 20,000).
| First SGD 10,000 (taxable income) | Following SGD 190,000 (taxable income) | |
|---|---|---|
| Taxable income/ profit | SGD 10,000 | SGD 190,000 |
| Exemption (SUTE) | 75% | 50% |
| Taxable income after Exemption (SUTE) | SGD 2,500 | SGD 95,000 |
| Standard Singapore Tax Rate | 17% | 17% |
| Total Taxes | SGD 425 | SGD 16,150 |
| Effective Tax Rate | 4.25% | 8.50% |
Under the SUTE Scheme, the effective tax rate for the first SGD 200,000 of revenues is ~8.29%. The normal 17% tax rates then applies.
How to be a Corporate Tax Resident in Singapore
The companies operating in Singapore, may be considered tax resident or a non-resident for income tax purposes. This is important because tax residents enjoy certain benefits and privileges that non-residents do not, such as lower tax rates, tax exemptions, and tax reliefs.
According to the Inland Revenue Authority of Singapore (IRAS), a company is a tax resident in Singapore if the control and management of its business is exercised in Singapore. This means that the strategic decisions of the company, such as those relating to policy matters, finance, and business operations, are made by the directors or senior management in Singapore.
The location of the company’s incorporation, registration, or head office is not relevant for determining its tax residency status. Similarly, the place where the company’s income is derived or received is also not relevant.
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