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Understanding Singapore’s Taxation System: A Guide for Small Businesses

Singapore is a conducive place for small businesses, entrepreneurs, and multinational corporations due mainly to its business-friendly environment and world-class infrastructure. If you’re planning to kickstart your new venture here, understanding and being able to navigate our taxation system is crucial to your success. In this article, we’ll take a look at Singapore’s taxation system, shedding light on the corporate income tax regime, GST system, and various incentives available to enable you to make informed decisions for your new venture. If the taxation system here is something you are not familiar with, the professionals at K E Wee & Associates PAC can lend you a helping hand. Keep reading to learn more. 

An Overview of Singapore’s Corporate Income Tax Regime

Singapore operates a territorial basis of taxation where corporate income tax is levied on income derived from Singapore or received in Singapore. Under the foreign-sourced income exemption regime, certain foreign-sourced income received in Singapore are exempt from tax if certain conditions are met. 

Singapore’s corporate income tax rate may be considered a very competitive one in the region. Currently set at 17%, it is ranked among the lowest globally, and provides an attractive environment for businesses to thrive. And for small companies, this allows them to grow without worry over possible high taxation rates.

Understanding the implications of corporation tax is vital for effective planning and ensuring compliance with local regulations. Hence, businesses in Singapore should seek professional assistance from income tax consultants like K E Wee & Associates PAC to navigate the taxation landscape efficiently. 

Learn More: Compliance Requirements for Companies in Singapore

  • Tax Exemptions for Newly Incorporated Companies

Newly incorporated companies in Singapore can enjoy a generous tax incentive—a 75% tax exemption on the first S$100,000 of chargeable income for their first three years of assessment, and partial exemptions for the next S$100,000. This gives startups and small businesses a significant boost, providing them with the financial breathing space they need during the formative years. From the fourth year onwards, companies can continue to benefit from partial tax exemptions—75% on the first S$10,000 of normal chargeable income, and a 50% exemption on the next S$190,000 of chargeable income. Do note that there are eligibility criteria for these tax incentives. Consider engaging the professionals of a tax review service to work out these details and find out more information. 

  • Tax Deductions and Incentives for Research and Development (R&D)

A culture of innovation is highly valued in Singapore, hence businesses with a focus on R&D can benefit greatly from tax deductions and incentives available to such activities. For example, the Enterprise Innovation Scheme (EIS) grants a 150% tax deduction on the first $400,000 of qualifying expenditure to businesses that invest in R&D projects. Companies should consider leveraging these incentives for financial support, especially during their early stages. 

For more information, get in touch with our qualified professionals for more assistance. 

Other Incentives and Schemes to Leverage

  • Financial Sector Incentive (FSI) Scheme

If your business falls within the financial sector, there is another incentive scheme you can leverage—the Financial Sector Incentive (FSI) Scheme. It is designed to bolster Singapore’s position as a financial centre, and it works by offering concessionary tax rates to qualifying financial institutions including fund management companies. 

  • Family Office Scheme

There are tax exemptions for funds to set up family offices in Singapore. There are eligibility criteria to be met to qualify for this incentive including business spending, the need to employ qualified professionals and philanthropy requirements. The tax exemption status is granted after submission of the application. 

An Overview of Singapore’s GST System

GST is charged on supplies of goods and services made in Singapore, imported services, “distantly taxable goods” and remote services. Like the Goods and Services Tax (GST) or value-added tax (VAT) system in other countries, Singapore’s GST is a tax on local consumption. It was originally set at 3% in 1994 and has been increased over the years. The rate was recently increased to 8% in 2023 and to 9% in 2024. While the burden of GST will usually fall on consumers in Singapore, companies may choose between absorbing the GST or charging the GST to their customers, effectively raising the prices to consumers. 

Businesses are required to register for GST when their supplies in Singapore (including those made by businesses outside Singapore) or purchases exceed or are expected to exceed certain thresholds. 

Learn More: Registration for GST in Singapore

While Singapore’s business environment is already favourable to the numerous corporations that have set up headquarters here, understanding the country’s corporate income tax structure and GST system is still important to essential business planning and decisions. By staying informed, you can unlock financial opportunities and position yourself competitively in this thriving space.  

Need help with corporate tax planning? K E Wee & Associates PAC specialises in assisting businesses with company taxation activities and compliance with GST regulations. Get in touch with us for more information.