Navigating the intricate landscape of corporate tax in Singapore is a critical responsibility for entrepreneurs and small business owners. Understanding and strategically leveraging the various tax deduction schemes can significantly impact your bottom line.
In this comprehensive guide, we will delve into four effective hacks. Each one illuminates the intricacies of corporate tax in Singapore. More importantly, they offer practical strategies. These strategies aim to help you save tax savings. At the same time, they ensure full compliance with the regulations. These rules are established by the Inland Revenue Authority of Singapore (IRAS).
Overview of Corporate Tax Rate in Singapore
At the heart of Singapore's allure for businesses lies its competitive corporate tax rate, meticulously regulated by IRAS. As of 2024, the corporate tax rate in Singapore stands at 17%. Establishing this foundational knowledge is crucial as we delve into the practical hacks that can lead to substantial tax savings for your business.
Singapore's commitment to maintaining a business-friendly tax environment has contributed to its reputation as a global economic hub. The competitive tax rate ensures that businesses can operate with greater financial flexibility. This, in turn, allows them to reinvest profits for sustained growth.
How To Calculate My Corporate Tax in Singapore?
So, when it comes to figuring out corporate taxes in Singapore, it's pretty straightforward. The basic formula is:
Corporate Tax = Income Taxable x Corporate Tax Rate
Now, there's this neat tool from the Inland Revenue Authority of Singapore (IRAS), called The Basic Corporate Income Tax Calculator (BTC). It's an Excel workbook that makes the whole tax computation and filing process a breeze for companies. It's not just about crunching numbers; it also has these handy notes that guide you through each step and even check your work for the usual slip-ups.
Hack 1: Leverage Tax Exemption Scheme for New Start-Up Companies
One of the most attractive tax incentives for startups in Singapore is the Tax Exemption Scheme for New Start-Up Companies. This scheme aims to encourage entrepreneurship and support the growth of new businesses. Under this scheme, qualifying new companies can enjoy significant tax exemptions for the first three consecutive Years of Assessment (YAs).
The revised tax exemptions for qualifying companies in their first three consecutive YAs, starting from YA 2020, are as follows:
- A 75% exemption on the first $100,000 of normal chargeable income; and
- An additional 50% exemption on the next $100,000 of normal chargeable income.
To qualify for the Tax Exemption Scheme for Startups, the company must be incorporated in Singapore, be a tax resident in Singapore for that YA, and have no more than 20 shareholders throughout the basis period for that YA.
Hack 2: Capitalise on Partial Tax Exemption Scheme To Reduce Corporate Tax in Singapore
If your company does not qualify for the Tax Exemption Scheme for Startups, don't worry. Singapore offers another attractive tax incentive called the Partial Tax Exemption (PTE) Scheme. The PTE scheme is applicable to all companies that do not qualify for the startup tax exemption.
Under the PTE scheme, qualifying companies can enjoy a 75% exemption on the first SGD 10,000 of normal chargeable income and a further 50% exemption on the next SGD 190,000 of normal chargeable income. This can result in significant tax savings for businesses, especially those with moderate levels of taxable income.
For example, if your company has a profit of SGD 50,000, you will be taxed at 17% on SGD 22,500 of income only, resulting in an effective tax rate of 8.50%. The PTE scheme allows you to reduce your tax liability and retain more of your profits for reinvestment and business growth.
Hack 3: Corporate Volunteer Scheme
If you're looking for a way for your company to make a positive impact while also reaping some benefits to reduce corporate tax in Singapore, the Corporate Volunteer Scheme (CVS) in Singapore might be just what you need. Initiated on July 1, 2016, and continuing through to December 31, 2026, this scheme is a brilliant opportunity for businesses to engage in corporate volunteerism. The best part? Companies can claim an impressive 250% tax deduction on qualifying expenses incurred when their employees volunteer or provide services, including secondments, to Institutions of a Public Character (IPCs).
And there's more good news: starting January 1, 2024, the scheme is getting an upgrade. The scope of eligible volunteer activities is expanding to include both virtual engagements, like online mentoring or educational support, and projects outside of IPCs’ premises, such as refurbishing rental flats. Additionally, the cap on qualifying expenditures per IPC will increase from $50,000 to $100,000 annually.
This scheme is open to a wide array of businesses operating in Singapore, including companies, sole proprietorships, partnerships (both limited partnerships and limited liability partnerships), registered business trusts, and other bodies such as clubs and trade associations that conduct business. It's essential for these volunteering projects to be mutually agreed upon by both the IPC and the business.
This expansion, a highlight of Budget 2023, not only broadens the horizons for corporate volunteerism but also makes it more advantageous for businesses to contribute meaningfully to the community. Your company can be part of this rewarding journey, leveraging the benefits while making a significant difference.
Hack 4: Proper Record Keeping Expenses
Deductible business expenses are an important part of managing a business's money. They help reduce how much tax a company has to pay. For example, imagine your business makes $80,000. It spends $15,000 on various things for running the business. Out of this, $5,000 can be counted as deductible expenses, meaning these can be used to reduce the taxable income. So, instead of paying tax on the full $80,000, your business only pays tax on $75,000. It's crucial for your business to correctly identify and record these deductible expenses. They should be expenses made purely for making money, not based on future events, and they should be for day-to-day costs, not big purchases. Plus, they shouldn't be the kind of expenses that you're not allowed to deduct according to the Income Tax Act of 1947.
This is where an expense management solution like Grof makes a big difference. Grof can your business keep track of your expenses in an organised way. It's much easier to see which expenses are deductible and which are not with Grof. For example, Grof can help tell apart regular running costs from big one-time purchases. This makes it easier for your business to claim the right deductions and pay the correct amount of tax. With Grof, you don't have to worry as much about the details of your expenses. You can focus more on running your business, knowing that your financial records are in good shape and they're making the most of their tax deductions.
Maximising Business Growth through Strategic Tax Management
In conclusion, smartly navigating the realm of corporate taxes in Singapore is not just about compliance; it’s a strategic move that can greatly benefit your business. By capitalising on the array of tax incentives and exemptions offered, you can effectively minimise your tax liabilities and save on corporate taxes. This approach not only ensures adherence to regulations but also positions your company to retain a larger portion of its profits.
The funds saved can then be strategically reinvested into your business, fueling growth, innovation, and long-term success. Remember, efficient tax management is an integral part of savvy financial planning and can be a game changer in the competitive business landscape of Singapore.
Getting Advice from the Experts on Corporate Tax in Singapore
While these hacks offer valuable insights, it's crucial to acknowledge the complexity of tax laws. Seeking advice from accounting experts ensures a tailored approach for your business. This will further maximise opportunities and ensure compliance with the latest tax policies. Engaging with professionals in the field can provide your business with a competitive edge in navigating the intricate web of corporate taxes.
Accounting experts like Grof not only assist in navigating current tax regulations but also stay abreast of upcoming changes. Understanding and strategically navigating Singapore's corporate tax landscape is a continuous process that can lead to substantial savings for entrepreneurs and small business owners. By implementing these hacks and staying informed about the latest tax policies, you can optimise your business's financial health and foster long-term success.
