How to Reduce Corporate Income Tax Outflow in Singapore?

Singapore had a tax rate of 26% in 1997. However, it gradually went down over the years and has finally settled at a flat 17% in 2010. 

But it is imperative to understand that the headline rate is often not an accurate representation of the actual taxes corporate entities pay. 

It is because most of them avail themselves of a range of tax exemptions and incentives offered by IRAS (Inland Revenue Authority of Singapore), making their effective tax rate significantly lower.

But how do they achieve it? They do so by benefitting from several schemes aimed at improving the business landscape in the country. 

Tips to save corporate income tax

For the YA 2013-15, the companies in Singapore received a corporate income tax rebate of 30%, subject to a cap of SGD 30,000. The number stood at 40% and 20% for YA 2018 and YA 2019, respectively. But the Singapore government announced in Budget 2021 that there would no longer be any tax rebate benefits for companies.

But does this mean that there are no other ways to curtail your entity’s tax outflow? Well, here are five tips that can help you do so –

SUTE (Start-up Tax Exemption) and PTE (Partial Tax Exemption)

Set up by the Singapore Government with the prime motive to promote local enterprise growth and increase entrepreneurship, the Start-up Tax Exemption Scheme (SUTE) is a move to support start-ups. 

It allowed a deduction of up to 75% of the first SGD 100,000 and 50% of the next SGD 100,000 of a start-up’s normal chargeable income for the first three financial years.

A business in Singapore needs to qualify for the following to qualify for the SUTE scheme –

• Must have a shareholder count not exceeding 20 throughout the basis period
• Be incorporated in Singapore and be a tax resident in Singapore for the applicable YAs
• Be in any industry other than investment holding and property development
• At least one shareholder is an individual beneficiary and holds at least 10% of the issued ordinary shares of the company

Any business not qualifying for SUTE, i.e., companies incorporated for over three years in the country or not qualified based on the criteria mentioned above can be eligible for the PTE (Partial Tax Exemption) scheme. It exempts up to 75% of the first SGD 10,000 and 50% of the next SGD 190,000 of the normal chargeable income of the qualifying entity.

PC (Pioneer Certificate Incentive) and Development Expansion Incentive (DEI)

The Pioneer Certificate Incentive (PC) is a scheme applicable to companies with a proven history of having anchored economic activities in the country resulting in a significant boost. 

The Development Expansion Incentive (DEI) scheme is for companies that have invested in technology, equipment, and operational upgrades that have helped their industries match global standards and compete.

An approved company under the PC or DEI is eligible for a corporate tax exemption or a concessionary tax rate of 5% or 10%, respectively, on income derived from qualifying activities. 

The incentive period is limited to five years. Extension of the incentive may be considered, subject to the company’s commitment to undertake further expansion plans.

Here are the criteria for entities looking to benefit from either of these schemes –

• It has created employment in the company and has hired people based on seniority, expertise, and skill
• It has incurred business expenditure that benefits the Singapore economy
• It has led to capacity growth with regards to technology, facilities, assets, or skills, leading to the creation of more advanced capacities than already available in the country
• It has plans to grow or continue its existing level of business in Singapore

BIPS (Business and IPC Partnership Scheme)

The BIPS (Business and IPC Partnership Scheme) grants up to 250% of Singapore corporate tax as a deduction on qualifying expenses. 

The qualifying expenses can be claimed by the business carrying out a trade or business in Singapore sending their employees to volunteer and provide services at recognized Institutions of Public Character (IPC).

The qualifying businesses include bodies of persons such as trade associations, companies, sole proprietorships, partnerships, and registered business trusts. It excludes owners of the organization also being directors of the company.

The qualifying expenses include –

• Basic wages
• Other related expenses incurred by the business necessary for the provision of services to IPC

But will not include the following –

• Expenses reimbursed by the IPCs before
• Incurred solely for volunteering services
• Personal, living, or family expense
• Capital expense, such as a one-time donation for building an office to an IPC

IRAS has capped the limit of benefits to SGD 250,000 for every business in a YA. The limit is SGD 50,000 for every individual IPC in a financial year.  

DTDi (Double Tax Deduction Scheme for Internationalisation)

The DTDi (Double Tax Deduction Scheme for Internationalisation) is administered by Enterprise Singapore and aims to provide a Launchpad for Singapore companies to go global. 

It provides relief against double corporate taxation for qualifying expenses incurred for development and expansion activities.

The scheme provides an automatic deduction for expenses incurred during –

• Overseas business trade fairs
• Overseas investment study visits and missions
• Overseas development visits and missions
• Local trade fairs as approved by Singapore Tourism Board or Enterprise Singapore

The amount eligible for automatic deduction pertaining to these qualifying expenses has been capped at SGD 150,000 in a financial year. If the amount exceeds the same, the company will require prior approval from Enterprise Singapore to avail of a higher deduction.

Listed below are the criteria that the businesses have to fulfil to be eligible for the DTDi scheme: 

• The company must be a resident of Singapore, and for availing certain qualifying activities, it must have its global headquarters in the country
• It must have clear intentions to go international and expand its business activities across borders
• Have a primary purpose of promoting the sale of goods or services across countries

Wrap up

Singapore is on its path to becoming the business hub of Southeast Asia and has already established itself as the leader. 

They have initiated a plethora of favourable schemes for the new companies and helped save their corporate tax outflow and avail additional benefits.

It has allowed businesses to prosper in the country and ensure the establishment of infrastructure conducive to their growth and sustainable improvement.

Also, read our article on “Tips For Corporate Tax Filing in YA2021”.