Due to the country’s low taxes and multiple incentive programmes, Singapore has become a tax haven for many entrepreneurs and investors worldwide. Take a look at some of the most beneficial tax policies foreigners can enjoy when they set up their company in this modern city-state.
Progressive Tax Rates
In Singapore, residents benefit from progressive personal tax rates from 0% to 22%. This means that the tax rate of every resident is proportional to the annual income they earn. For individuals earning less than S$160,000 annually, their tax rates range from 0% to 15%. On the other hand, individuals earning S$160,000 to more than S$320,000 can expect their tax rate to range from 18% to 22%. For non-residents or foreigners working in Singapore, their tax rate ranges from 15% to 22%.
Having a progressive tax rate allows people to enhance their real spending power without being a burden on their income.
Although Singapore promotes a standard corporate tax rate of 17%, the government allows partial tax exemptions for the first S$ 200,000 chargeable incomes of eligible businesses and other incentives introduced by IRAS.
- Start-up tax exemption scheme
This was introduced in 2005 with the goal of supporting emerging entrepreneurs and their businesses in the country. In 2020, qualified start-up companies can benefit from a 75% tax exemption for the first S$100,000 of their chargeable income during the first three consecutive years of doing business. Afterwards, they can benefit from a 50% tax exemption for their next S$100,000 of the chargeable income.
In order to qualify for this exemption, companies must meet the following criteria:
- The company must be incorporated in Singapore
- Owner/s must be a tax resident in Singapore
- The company must be owned by a maximum of 20 shareholders, with one individual holding at least 10% of the total shares.
Companies that are not eligible for the Start-up tax exemption scheme can apply for partial tax exemptions.
- Partial tax exemptions
This scheme allows businesses to get a 75% tax exemption for their first S$10,000 chargeable income. Another 50% tax exemption can be applied to the following S$190,000 chargeable income.
Besides tax exemptions, Singapore also provides several tax incentives to offer financial support to foreign investors. These incentives include:
- Wage credit scheme
As part of the government’s support package, this scheme enables governing bodies to co-fund the increase in wages for Singaporean employees earning a monthly salary of S$4,000.
As of 2021, the government provides 15% of the gross wage increases for employees earning up to S$5,000.
- Industry-specific incentives
Apart from the universal schemes available, the government also offers industry-specific incentives to adequately cater to diverse business needs. The government agencies responsible for enacting these incentives include:
- Singapore Economic Development Board, which oversees the development and execution of strategies to facilitate investment in the country’s various industries.
- Inland Revenue Authority of Singapore, which is responsible for the tax system in the country.
- Enterprise Singapore, which assists local companies in their global expansion endeavours and promotes Singaporean exports.
- Monetary Authority of Singapore, which is considered the authority in central banking and accounting services in the country.
Their offerings vary depending on the needs of the industries they accommodate. Check their websites for more information.
- Investment allowance incentive
Administered by the Economic Development Board, this incentive enables businesses to enjoy a 100% tax exemption on fixed capital expenditure.
According to the governing agency, a fixed capital expenditure is any expenses incurred to finance qualifying projects within the period of five to eight years. The maximum support they can offer has a ceiling of S$10 million. Some of the approved projects include construction, research and development, new product manufacturing, tourism promotion, energy efficiency, and specialised technical and engineering services.
At present, this incentive is granted for businesses only until 2023.
Besides the existing tax incentives, the Singapore accounting body likewise offers corporate loans for businesses that may need additional financial support. Loans such as venture debt loans, SME assets loans, and merger and acquisition loans can help give foreign entrepreneurs the footing they need to kickstart their companies.
Given the multitude of tax incentives available, interested foreign investors should first consult with professional accounting firms in Singapore to obtain the ideal scheme for their company. Engaging with experts gives them a higher probability of maximising the benefits of a suitable plan.