Singapore is a rapidly growing hub for business in Asia. Many entrepreneurs choose Singapore because of its intricate legislation that protects intellectual property while facilitating business ventures. Furthermore, Singapore is favourably located at the centre of the expanding Asia economy. Hence, businesses located in Singapore benefit from productive ties with the other tiger economies while maintaining the name of a reputable and trustworthy jurisdiction. Singapore's corporate tax policy further enhances it as an ideal location for company incorporation by implementing fair and competitive tax rates. For all these reasons Singapore has taken the forefront over the past decade as a globally recognized business nation.
By taking a look at Singapore's corporate tax policy it is possible to understand one of the many factors that contribute to Singapore's popularity with entrepreneurs.
Corporate Tax in Singapore
In Singapore, foreign and local companies pay tax equally. This may sound unfavourable at first glance but in fact, Singapore favours its own businesses as it does offshore companies, thus the entrepreneurial culture that exists within Singapore.
In Singapore companies are taxed on all income sourced in Singapore or remitted into Singapore. What this means is a company that is incorporated in Singapore but does most of its business with other Asian countries and receives its income overseas, is legally not liable to tax in Singapore. Business transactions are often more complicated and for that reason it is recommended to seek assistance from a professional services firm that is experienced in Singapore tax policy, in order to ensure compliance with the law.
The general corporate tax rates that apply in Singapore are as follows. - It should be noted, however, that substantial tax benefits exist for entrepreneurs and start-ups that will be explained later in the article.
In 2010 Singapore's corporate tax rate was reduced from 18% to 17%. The tax is charged in blocks, dependent on the amount of income received. The first S$10,000 of income is taxed at a small rate of 4.5%. The next S$290,000 of profits is charged at 8.5% and thereafter, all income is charged at 17%.
Therefore, a small company that makes S$8,000 in 2010 will be taxed a mere S$360. A medium sized company that makes S$250,000 in 2010 will be taxed a total of S$20,850, an effective rate of 8.34%. A larger company making S$1 million in 2010 will be taxed a total of S$144,100, an effective rate of 14.41%.
Over the years Singapore has also gained a lot of respect from entrepreneurs specifically, as its corporate tax policy accommodates to the general issues and needs of most newly incorporated companies. The Singapore government has implemented tax exemptions for new companies, in order to facilitate the process of starting and growing a business from scratch. Newly incorporated companies face costs, including the simple costs of registration, to the costs of hiring and building a company, and the costs of gaining a presence in the market. Most countries provide minimal resources to help these companies get started, and for that reason Singapore is a very welcomed exception.
In Singapore, a newly incorporated Singapore company, or foreign company incorporated in Singapore, is exempt from taxation on the first S$100,000 of annual profits for the first three years of business. This exemption applies only to companies that are (i) tax residents in Singapore (ii) have 20 shareholders or less (iii) at least 10% of its shareholders are individuals. For companies that do not comply with this criteria, although full tax exemption is not available for the first S$100,000 of profits, partial exemption still applies. Companies that do comply with the full exemption, also benefit from partial tax exemption on the next S$200,000 of profits. Partial tax exemption involves a 50% tax exemption on a maximum of S$300,000 of profits - S$200,000 for those that benefit from full exemption as well. This works out to a tax rate of approximately 8.5% on the first S$300,000 of profits, an extremely low rate for an OECD member country.
Singapore provides a tax environment that is highly favourable to company setup without causing detriment to the social and economic environment the Singapore government provides for its people. With such low tax rates working effectively in a nation that maintains prestige, efficiency and high quality of life, many may begin to question the need for such high tax rates in other nations. Ultimately, tax benefits, amongst Singapore's many other impressive facets, provides a key selling point for entrepreneurs.
It is therefore no surprise that Singapore has become an important business centre in Asia and globally.
Healy Consultants is a leading corporate services firm providing international entrepreneurs with all Singapore company formation requirements. The firm provides a range of services for Asia business set up, tax planning and offshore investing. More information can be found on the Singapore company incorporation section of our business website.