Ways to Legally Reduce Corporate Tax in Singapore
Singapore maintains a flat corporate tax rate of 17%. This rate stands as one of the most competitive globally, prompting numerous businesses to opt for establishing their operations in Singapore or expanding their enterprises in order to take advantage of the benefits associated with the favorable tax environment.
In addition to the low corporate tax rate, Singapore also offers various tax schemes and incentives to facilitate businesses in legally reducing their corporate tax even more.
It is important for businesses to pay attention to these measures because taxation offers the capability for a business to reinvest in its operations and expand its workforce.
Let’s discuss the different strategies and schemes that a company can use to get Singapore tax incentives and reduce their corporate tax.
Tax Exemption Schemes
Singapore offers a wide range of tax exemption schemes and incentives for different types of businesses and industries. The quickest and most common way to reduce corporate taxes is to claim these deductions and exemptions.
Deductions are meant to reduce your taxable income, while exemptions are meant to exclude a certain part of your income from getting taxed.
Companies should rely on experienced accounting firms in Singapore to learn about the specific exemptions, deductions, and tax incentives they can claim.
The Corporate Income Tax Rebate in 2020 is one of the many incentives that the government has introduced to support businesses.
Some of the other popular Singapore tax incentives and schemes are:
- Development & Expansion Incentive
- Foreign Branch Profit Remission Scheme
- Investment Allowances
- Start-up Exemption Scheme
- Business and IPC Partnership Scheme (BIPS)
- Pioneer Certificate Incentive (PC)
- Development & Expansion Incentive (DEI)
- Research & Development Scheme
- Double Tax Deduction Scheme for Internationalization (DTDi)
- Regional Headquarters Award (RHA)
- International Headquarter Award (IHA)
All of these tax incentives, rebates, and schemes in Singapore have varying eligibility criteria that you have to fulfill. Since business owners typically don’t have the time to handle such compliance procedures, they should consider hiring an accounting firm in Singapore to get the relevant tax incentives.
Exemption on Foreign Income
Since a lot of international companies expand to Singapore to enjoy their business-friendly environment, it is important for such companies to be familiar with Singapore’s policies about foreign-sourced income.
Generally, any income generated outside of Singapore is taxed twice, first in the foreign country in which the company is operating and then in Singapore.
However, Singapore has the Avoidance of Double Tax Agreement (DTA) scheme to facilitate companies in avoiding double taxation.
Companies can get a tax exemption on foreign-sourced companies when their income belongs to the categories of foreign-sourced dividends, foreign-sourced service income, or foreign branch profits.
Ultimately, this scheme helps multinational companies save money by avoiding double taxation.
Singapore Tax Incentives for Startups
Most private companies do have efficient accounting systems and financial policies in place. However, there is a huge difference between the financial management of a private company and a public company.
A public company is expected to have a robust accounting system with detailed financial reporting procedures. Even if the company does not have an internal team, it can rely on a professional audit firm in Singapore to deal with the auditing and accounting processes.
Moreover, experienced accountants and auditors will be able to guide the company through the various disclosures it has to make during the process of going public via SPAC.
Ultimately, if a private company already has strong accounting protocols, it can succeed as a public company as well.
Companies can also reduce their corporate tax by contributing to their employees’ MediSave. The
Additional MediSave Contributions Scheme (AMCS) is available for companies for this purpose.
As per the rules of the scheme, companies have to make MediSave contributions of S$2,730 per employee per year to qualify for tax deductions.
These contributions towards the employees are tax-free for them, and the employers also get significant tax benefits other than ensuring job satisfaction among the employees and improving brand image.
Accounting, auditing, and taxation are complicated matters that every business must go through periodically for smooth functioning. It is not always easy for businesses to identify the right Singapore tax incentive and rebate scheme that can help them save money on their taxes.
However, with the help of experienced accounting firms in Singapore, companies can qualify for tax incentives and save a significant amount of money in taxes. The saved money can be reinvested in the business and drive the growth and productivity of the entire business.