There are many benefits to incorporating a company in Singapore. As part of a world-class financial hub, companies and start-ups can seek early-stage funding opportunities while enjoying a robust IP protection and legal system and excellent connectivity. However, the most important benefit – from a business point of view – is Singapore’s attractive tax framework.
By knowing when and how to plan your taxes, you can maximise tax savings for your business and reduce your tax bill. In this article, we share some useful tax planning tips, as well as an overview of the tax exemption schemes available for your company.
Deduct business expenses
Before filing your taxes, reduce your taxable income by offsetting it with your business expenses. Business expenses are expenses you have paid to run the business, such as wages, renovation and advertising fees.
Business expenses may be deductible or non-deductible. For expenses to be deductible, they must be incurred in the production of income. Examples of non-deductible business expenses therefore include personal travel or entertainment expenses that are not related to the running of your business.
Deduct business losses and capital allowances
Check if you have reduced your taxable income by offsetting it with your business’ losses or unabsorbed capital allowances.
When you incur business losses after deducting allowable business expenses against your gross profit, the trade losses and any capital allowances claimed can be used to offset against your other income such as employment, interest, rental income, and income from your other businesses in the same year.
Defer capital allowance claims
If you have insufficient income to offset these expenses against, or if your company is in a loss-making position for the year (i.e. no taxes to be paid), consider deferring your capital allowance claims. This is because companies can carry forward any unutilised capital allowances to offset against their income for subsequent Years of Assessment (YAs).
To qualify for this deferment, companies must meet certain criteria. It must not have made substantial changes to its shareholders and shareholdings (i.e. the shareholding test), and must be carrying on the same trade or business for which the capital allowances were first granted (i.e. the business continuity test).
Carry back losses and allowances
Here’s a tip on how you can claim tax refunds. Subject to the same business continuity and shareholding test, you can carry back any unutilised trade losses and capital allowances of up to S$100,000 to your previous YA. This should trigger a refund if you were in a taxpaying position.
Deduct expenses previously incurred
Before earning your first dollar of income, you are likely to have spent on operating necessities such as rental and utilities. However, strictly speaking, expenses incurred before a business commences its operations are not tax-deductible as they are not seen to be incurred in the production of income.
However, as a concession, the government has allowed such expenses to be deducted. These expenses must have been incurred no earlier than one year before the first dollar is earned. Thus, as you go about setting up your business, we would advise you to start keeping good accounting records of your business expenses.
Know your tax exemptions (for new companies)
If you are a new start-up, you can reduce your company’s tax burden by tapping on Singapore’s tax reliefs and exemptions. Under the Tax Exemption Scheme for New Start-Up Companies, for instance, the first $100,000 of your chargeable income is tax-free. Except for investment holding and property development companies, this scheme is applicable for the first three consecutive YAs of all newly-incorporated companies.
The amount of tax exemption will be restricted from YA 2020. Instead of full exemption for a company’s first $100,000 of chargeable income currently available for YA 2019, 75% of it will be tax-exempt. A start-up will also enjoy 50% exemption on the next $100,000 – instead of the $200,000 currently – of its chargeable income.
YA 2019 and before YA 2020 onwards Full exemption on the first $100,000
A further 50% exemption on the next $200,000
75% exemption on the first $100,000
A further 50% exemption on the next $100,000
To qualify, your company must fulfil conditions such as tax residency and shareholding requirements.
Leverage the Partial Tax Exemption
From your fourth YA, plan to leverage the Partial Tax Exemption scheme. For YA 2019, you will enjoy tax exemption on 75% of your first $10,000 of chargeable income, as well as a further 50% exemption on the next $290,000.
While your company can still enjoy a 75% tax exemption on its first S$10,000 of normal chargeable income from YA 2020, its second tier of tax will be adjusted. Instead of the current $290,000, its next $190,000 of chargeable income will get a 50% tax exemption.
YA 2019 and before YA 2020 onwards 75% exemption on the first $10,000
A further 50% exemption on the next $290,000
75% exemption on the first $10,000
A further 50% exemption on the next $190,000
Seek Group Relief
Under the Group Relief scheme, a company’s unutilised capital allowances or trade losses can be “transferred” to another company under the same group. This allows the latter to lower its taxes by offsetting these losses or allowances from its assessable income.
To qualify, both the transferor and claimant must be incorporated in Singapore, belong to the same group and have the same financial year end.
Let Corporate Services Singapore Assist
It is important for your company to manage its tax matters efficiently. At Corporate Services Singapore, we offer a complete suite of corporate secretarial services, from outsourced accounting to audit and taxation services. Our highly experienced tax specialists will work closely with you to optimise your taxes and keep your business tax-compliant.