Corporate Tax Benefits for Singapore Companies

When Singapore separated from Malaysia almost 50 years ago, it was a struggling city-state with no natural resources, except its people. Thus, to promote economic growth and development, the leadership of the country decided to open doors and invite foreign investments and international trade.

Business-friendly and efficient tax policies were implemented; English educated skilled workforce was brought up; a robust and transparent regulatory environment was initiated; and a world-class infrastructure was set up.

Slowly, Singapore became the world’s easiest place to do business, one of its busiest ports, a prolific oil refining and distribution centre, a leading supplier of electronic components, and arguably Asia’s financial hub.

Corporate Tax Policies in Singapore

Territorial Corporate Tax System with Remittance

Strategically located in the middle of Asia, where the East synergises with the West, Singapore is an attractive location for global businesses to access cheap labour and booming markets available in the continent.

But the most important attraction for foreign companies remains the city-state’s territorial tax system, which also exempts some qualifying foreign-sourced incomes from taxation (dividends, branch profits, service income).

The city-state also imposes neither any capital gains tax nor any withholding tax on dividends. An advance ruling on taxation is possible too.

Avoiding Double Taxation

As the world grew to become a global village, Singapore Government realised the importance of remaining attractive to businesses by introducing means to help the companies avoid double taxation.

This led to the provision of a foreign tax credit (FTC Scheme) for taxes suffered by the Singapore-registered companies overseas on the remitted income; as well as through avoidance of double taxation agreements that Singapore signed with various countries/regions.

The foreign-sourced income exemption regime was introduced in 2003, aiming to simplify the foreign tax credit administration for businesses.

Moreover, the Singapore Government introduced an FTC pooling system in 2011 to give businesses greater flexibility in their FTC claims and reduce the taxes payable on foreign income.

Another scheme was the Double Tax Deduction Scheme for Internationalisation (DTDi) introduced to provide support to local businesses looking to venture into the international markets.

This was a recognition by the government that Singapore’s domestic market limits the growth of local businesses here.

Corporate Tax Rates

Since 2010, all corporate income in Singapore is taxed at a rate of 17%, which though is very low, can be reduced even further if companies take advantage of several of government’s corporate tax schemes and subsidies.

How BEPS 2.0 Will Affect Singapore’s Corporate Tax Rate

In Budget 2023, the Singapore government revealed that the city-state will implement a 15% minimum effective tax rate (METR) for large multinational enterprises in Singapore from 1 Jan 2025.

This change is part of the Base Erosion and Profit Shifting initiative, or BEPS 2.0, an international framework that aims to ensure a fairer distribution of tax rights on large MNEs through a fixed global minimum tax rate by the Organization for Economic Co-operation and Development (OECD). Singapore is part of this organisation.

Tax Saving Schemes for Companies

In a bid to encourage new investment and maintain a conducive business environment, the Start-up Tax Exemption Scheme (SUTE) was introduced in 2004, which provided newly-incorporated qualifying companies exemption on their taxable profits in their first three years of operations.

The Government further realised the importance of Small and Medium-sized Enterprises (SMEs) in Singapore’s economy and introduced the Partial Tax Exemption (PTE) Scheme in 2008, which lowers the taxable profits of these companies.

The SME sector contributes more than 50% of economic output and 70% of employment in the country, and need all the help they can get to grow and establish themselves, especially in the initial few years of incorporation.

Notably, while the partial exemption is available to all companies, the qualifying conditions and exemption thresholds are designed to trickle maximum benefits to the SME sector.

Merger & Acquisition Allowance Scheme

Another scheme introduced in 2010 with a focus on the SME sector is the Merger & Acquisition (M&A) allowance scheme aimed at facilitating M&A in Singapore’s most economically vibrant sector. The scheme has helped in progressive restructuring of the country’s economy leading to high productivity growth.

The scheme provides an allowance to a company that obtains the ordinary shares of another company from 1 Apr 2010 to 31 Dec 2025 on a straight-line basis over 5 years.

Qualifying share acquisitions taking place from 1 Apr 2016 have an increased acquisition value cap from S$20 million to S$40 million. The M&A allowance rate is set at 25% of the acquisition value, with the allowance capped at S$10 million for all qualifying share acquisitions in the basis period per YA.

Corporate Income Tax (CIT) Rebate

In Budget 2024, the Singapore government announced a new Corporate Income Tax Rebate to help businesses alleviate growing costs. Taxpaying companies, whether resident or non-resident, can get a CIT rebate of 50% of the corporate tax payable for YA 2024.

Those that employed a local staff in 2023 will also obtain a S$2,000 cash payout. The maximum total benefits of CIT Rebate and CIT Rebate Cash Grant that a business can get is S$40,000.

The Refundable Investment Credit (RIC)

Similarly, the government also revealed a new RIC scheme to help Singapore remain a top choice for MNCs to invest in it. This tax credit comes with a refundable cash feature and will be awarded based on qualifying expenditures incurred by a company, for a qualifying project for up to 10 years.

Eligible expenditures include capital expenditure, manpower, and training costs, and companies can obtain up to 50% of support for each category. Unused credits will be refunded to the company in the form of cash within 4 years from the time that the company satisfies the conditions for getting the credits.

Pioneer Certificate Incentive

It provides a tax exemption on income from qualifying activities to enterprises incurring significant capital expenditure in introducing cutting-edge technology and manufacturing skills to Singapore.

International Headquarters (IHQ) Award

This award provides a reduced corporate tax rate to foreign companies that begin or expand their regional or international headquarters to Singapore.

Development and Expansion Incentive (DEI)

The scheme provides a reduced corporate tax rate on incremental income from qualifying activities to enterprises bringing significant economic benefit in terms of overall business spending to Singapore.

Finance & Treasury Centre (FTC) Tax Incentive

The FTC incentive provides an exemption on interest payments on loans from banks, as well as reduced corporate tax rate on fees, interest, dividends, and gains from qualifying services and activities.

Singapore’s Group Relief System for Loss Transfer

Another unique benefit that foreign companies enjoy in Singapore is the country’s group relief system for loss transfer.

In a world of an ever-changing business landscape, companies routinely reorganise themselves into multiple subsidiaries, or holding and associate companies. This is done to limit liabilities, save taxes, and sometimes even to protect the brand name.

To assist in such a re-organisation and hedge some of the risk-taking by reducing the overall tax burden for the entire company group, the Singapore Government has introduced the loss transfer system of group relief, which permits the transfer of current year not utilised losses, donations, and unabsorbed capital allowances within group companies.

Productivity, Research, and Technology Schemes/Grants

Research and Innovation Scheme for Companies (RIS(C))

This scheme endeavours to motivate companies to take part in technology development and innovation-related activities that lead to the development of products and processes from Singapore.

Conclusion

Overall, Singapore’s plethora of tax incentive schemes, low corporate income tax regime, even lower compliance costs, and absence of any bureaucratic hassle, makes it the first choice for companies looking to relocate to favourable corporate tax regimes.

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FAQs About Corporate Tax Benefits in Singapore