In an effort to encourage more businessmen to setup a Singapore company, the government provides corporate tax exemptions and developmental incentives to those who will adopt this business structure.
All new startup companies that are legally considered as exempt companies enjoy these following tax incentives given within the first three years of their operation:
● "Zero Tax" on their first S$100,000 chargeable income
● A reduced tax rate of 8.5 percent in their S$100,001-S$300,000 chargeable income
● A tax rate of 17 percent in their succeeding chargeable income
But to enjoy the tax exemptions, an exempt company should meet these requirements:
● Must be incorporated in Singapore
● Have no more than 20 shareholders who are all "natural" persons and not corporate entities OR at least one individual shareholder who has a minimum of 10 percent shareholdings
● Must practice its management and control in Singapore
In case that a startup company did not meet these requirements, it will still enjoy reduced tax rates within the first three years of its operation. These incentives include a 4.25 percent tax rate for its first S$10,000 chargeable income and another 8.5 percent on its succeeding chargeable income of S$10,001-S$300,000.
Meanwhile, all companies, including those non-exempt companies, are subjected to 17 percent corporate tax after they have consumed their tax exemptions and incentives.
Currently, Singapore follows a single-tier tax system in which the taxes are only deducted at the corporate levels and do not cover the shareholder’s dividends. In addition, the country has no capital gain tax to further attract more foreign businessmen and companies.
Some startup companies also enjoy tax incentives, usually in the form of reduced tax rates (5-10 percent) if they operate in any of these industries: offshore leasing, cyber trading, insurance, arts and antique dealing, commodity derivatives trading, international commodity trading, finance and treasury center, securities, pioneer, members of commodity futures exchange, trustee, and Asian currency unit.
In exchange for all these tax incentives, companies are subjected to strict requirements which can promote business transparency. For example, companies are required to submit their corporate income tax returns on or before 31 October. These documents should include the tax computation, director’s report, and Form C.
However, small companies will be exempted from a tax audit if they will meet any of the following requirements: there are no more than 20 shareholders who are all individuals and not corporate entities; the business is dormant; or the business has annual revenue of less than S$5 million.
