In order to make Singapore an attractive investment destination, the headline corporate tax rate in Singapore has been consistently reduced since 1997. From the year 2010 onwards, the rate has been kept at a constant 17%, which is immensely attractive for businesses.
This rate is considered one of the lowest in economically advanced countries in the world. The effective rate is actually lower than the headline tax rate after deducting tax exemptions, rebates and allowances offered by the Singapore government.
Here are the 10 most current and relevant ways in 2020 to reduce corporate tax, which includes COVID-19 relief measures for businesses meted out in the 2020 Budget.
1. Singapore Budget 2020 for COVID-19
A total of four fiscal packages were rolled out from February 2020 to assist businesses in Singapore during the ongoing COVID-19 pandemic. They were the Unity, Resilience, Solidarity and Fortitude Budgets amounting to almost S$100 billion.
a. Fortitude Budget
The last to be rolled out, it was delivered in May 2020. Its main focus for businesses was to strengthen them on three fronts: cash flow, costs and credit. Here is a summary of the benefits under this Budget.
i. Rental Relief
The expanded relief for SME tenants are:
- S$2B in cash grants to help with rental costs
- 2 months rental offset for qualifying tenants of commercial proper ties
- 1 month rental offset for qualifying tenants of industrial and office properties
For tenants of government properties, they receive additional waivers according to type of business
- Stallholders of hawker centers and markets: 5 months
- Commercial: 4 months
- Industrial, office and agricultural: 2 months
ii. Deferment of CPF contribution rates
The increase of contribution rate for senior workers has been deferred to 1 Jan 2022.
iii. Financial support for promising startups
An additional S$285M is being given out to catalyse and crowd in matching private investments as well as to sustain startup innovation and entrepreneurship activities.
iv. Digital resilience bonus
- Maximum of S$5000 payout to businesses to digitise with PayNow Corporate, e-invoicing, business process or e-commerce solutions
- An additional S$5000 for those that use advanced solutions
b. Solidarity Budget
Delivered in April 2020, up to S$5.1 billion was allocated to subsidise wages and help companies keep their employees, and increasing rental waivers.
i. Enhanced finance support
The government bears a risk share of loans up to 90% for loans initiated from 8 April 2020 to 31 March 2021, including the Temporary Bridging Loan Programme and Enterprise Finance Scheme for Working Capital Loan and Trade Loan.
ii. New bill for property tax rebate
The COVID-19 Bill ensures pass-through of Property Tax Rebate from property owners to tenants. Non-residential properties for the year 2020 receive up to 100% Property Tax Rebate.
c. Resilience Budget
Delivered in March 2020, it supports business sectors most affected by COVID-19 – including aviation, tourism, food services and arts & cultural sector.
i. Sector-based support
Aviation – S$350M Enhanced Aviation Support Package (provides cost relief for airlines, ground handlers and the cargo industry) and Enhanced Jobs Support Scheme (offsets 75% of wages on the first S$4,600 of monthly salaries for 9 months)
Tourism – S$90M for tourism recovery efforts and Enhanced Jobs Support Scheme
Food Services – Enhanced Jobs Support Scheme
Arts & Culture sector – S$55M support package to safeguard jobs, retain capabilities, and step up digitalisation efforts
ii. Payment changes
1-year freeze on all government fees and charges from 1 Apr 2020 to 31 Mar 2021
iii. Property Tax Rebate for the year 2020
- 100% for qualifying commercial properties
- 60% for integrated resorts
- 30% for non-residential properties
iv. Enterprise Financing Scheme (EFS)
- EFS Trade Loan – maximum load quantum is doubled to S$10 million and government’s risk share is upped to 80%
- EFS-SME Working Capital Loan – maximum load quantum is increased to S$1 million
- Loan insurance scheme – subsidies for loan insurance premium is raised to 80%
- Temporary Bridging Loan Programme – expanded to cover all sectors with maximum supported loan quintupled to S$5 million
d. Unity Budget
The first to be delivered in 2020, it has S$4 billion for helping companies weather near-term economic uncertainties due to COVID-19 including job and cash-flow support to help firms retain and retrain workers.
i. Corporate Income Tax Rebate
It is capped at S$15,000 per company with a rate of 25% for the year of assessment 2020.
ii. Enterprise Financing Scheme
The working capital loan is enhanced for one year with a maximum load quantum doubled to S$600,000 and government’s risk-share on loans raised to 80%.
2. Start-up Tax Exemption Scheme (SUTE)
Set up by the Singapore government to encourage entrepreneurship and the growth of local enterprises, the scheme exempts:
- 75 percent on the first S$100,000 of a start-up’s normal chargeable income
- 50 percent on the next S$100,000 of a start-up’s normal chargeable income
The exemptions are applicable for the first three consecutive YAs and take effect on or after YA2020. To qualify, a firm must be a ‘start-up’ (a business in Singapore incorporated for less than 3 years) and other factors. A Variable Capital Company (VCC) can also qualify for this tax exemption.
3. Partial Tax Exemption (PTE)
Companies that are incorporated for more than 3 years in Singapore, have more than 20 shareholders, or are in the investment and property development industries can qualify for this scheme. Companies are exempted:
- 75 percent on the first S$10,000 of normal chargeable income
- 50 percent on the next S$190,000 of normal chargeable income
4. Business and IPC Partnership Scheme (BIPS)
Applicable for voluntary services conducted from 1 July 2016 to 31 December 2021, it grants a 250% Singapore corporate tax deduction on qualifying expenses incurred when their employees volunteer, provide professional services, or provide services (including secondments) to recognized Institutions of Public Character (IPCs).
5. Pioneer Certificates Incentive (PC) and Development & Expansion Incentive (DEI)
Both schemes encourage businesses in Singapore to conduct new business activities and expand production capabilities.
PC applies to companies that have anchored economic activities in Singapore over time. Approved companies are eligible for a 5 percent Singapore corporate tax rate on income derived from qualifying activities for a period of 5 years.
DEI focuses on companies which have invested in technology, equipment and operational upgrades that advance the capabilities of specific industries to globally competitive levels. Qualified companies are eligible for a 10 percent Singapore corporate tax rate on income derived from qualifying activities for a period of 5 years.
6. Regional Headquarters Award (RHA)
The RHA encourages international companies to base their regional operations in Singapore. They enjoy a corporate tax rate of 15% on the incremental income from qualifying activities for 3 to 5 years, provided they satisfy and maintain all conditions throughout the period of the award.
Criteria to qualify for the RHA:
- A paid-up capital of S$200,000 by the end of Year 1 and S$500,000 by the end of Year 3 of the incentive period.
- The headquarters’ services should provide at least 3 types of services to company-owned entities in three countries outside Singapore by the end of Year 3.
- Employment of at least 75% skilled staff (minimum high school certificate) and at least 10 professionals (minimum diploma holders and above) by the end of Year 3.
- Average salaries of at least S$100,000 annually for the top five executive positions by the end of Year 3.
- An additional S$2 million in annual total business spending in Singapore by the end of Year 3.
7. International Headquarter Award (IHA)
This is for enterprises that wish to establish their International Headquarters in Singapore. Qualified applicants enjoy corporate tax rates of only 5% to 10%. The company must be incorporated or registered locally in Singapore and exceed the minimum requirements of the RHA.
8. The Start-up tax exemption for YA2020
Introduced to help relieve some of the tax burden for new start-up companies:
- 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
Requirements to qualify for the tax exemption are:
- Must be a registered company with ACRA;
- Be a tax-resident in Singapore for the applicable YAs.
- Must not have more than 20 shareholders throughout the basis period for that YA where the total share capital is beneficially held directly by:
- individual shareholders only; or
- at least one individual shareholder holding 10% or more of the issued ordinary shares of the company.
- Be in any industry except investment holding and property development (for sale or for investment).
If a firm does not qualify for this exemption, it can still qualify for the Partial Tax Exemption (PTE) scheme from YA 2020 which offers:
- 75% on the first S$10,000 of the chargeable income
- 50% on the next S$190,000 of the chargeable income
9. Research & Development (R&D) Expenditure
Interested companies need not apply for approval. However, it has to ensure that its R&D activities are qualified for the claim in the tax return. Following are the 3 requirements for the qualifying activities:
- Acquire new knowledge, create new or improve existing products/process
- Involves 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 are:
- 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 company must have proprietary rights of the final products/process and bear the full cost of R&D activities. It can claim the following tax incentive on qualifying activities from Year of Assessment 2019 onwards:
- 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 overseas: 100% tax deduction for R&D related to trade.
The Corporate Tax System in Singapore
The corporate tax system is applicable to all companies except Sole Proprietorship and all forms of Partnerships. It has only one tier, meaning tax paid by a company on its chargeable income is the final tax, i.e. it only pays taxes on profits and post-tax profit distribution (i.e. dividends) to shareholders is tax-free.
Companies are split into two broad groups: (1) Startups and SMEs, (2) All Other Companies. There are 3 tax brackets, with the lowest 2 brackets being a different limit for both groups.
To avoid double taxation, the foreign tax credit is granted for income earned from treaty countries (over 80 countries) which have the DTA (double taxation agreement). For non-treaty countries, the Unilateral Tax Credits applies if the income from those countries is repatriated to Singapore
Below is a snapshot of corporate tax according to the type of income:
Type of corporate tax
|Tax rate %|
|Tax on corporate profits||17%|
|Tax rate on capital gains by the company||0%|
|Tax rate on dividends distributed to shareholders||0%|
|Tax rate on foreign-sourced income that was already subjected to taxation overseas||0%|
What is Taxable
- Gains or profits from any trade or business
- Income from an investment such as interest and rental property income
- Royalties, premiums and any other profits from property and
- Other gains that are considered revenue
Tax deductible expenses
Expenses that are wholly and exclusively incurred in the production of income must fulfill these criteria:
- Be revenue in nature, not capital expenditure
- The deduction must not be prohibited under the Income Tax Act
- Not a contingent liability
Tax residency status
Being incorporated in Singapore is not enough for a company to be considered a tax resident of Singapore. It must be controlled and managed from Singapore, i.e. make decisions on strategic matters, such as those on company policy and strategy. The location of board meetings must be in Singapore.
It is important to note that a Singapore branch of a foreign company is generally not treated as a Singapore tax resident since it is controlled and managed by an overseas parent company.
The 3-bracket tax rates and long list of tax incentives ultimately shave the 17% corporate tax rate down to a very low figure for companies with tax residency status. Nonetheless, keeping up with all the prerequisites and new initiatives rolled out by the Singapore government can be overwhelming for some firms. In such an instance, an experienced corporate tax service provider can expedite the process and lighten the load.