Singapore is known as a regional startup hub because of its business-friendly environment and policies, and a government policy to promote the growth and expansion of businesses is the numerous tax incentive schemes that provide tax exemptions and/or deductions to eligible companies. In this article, we have highlighted the outstanding tax incentives in Singapore.
Tax Exemption Scheme for Startups
The first type of tax incentive is the Tax Exemption Scheme for Startups (SUTE). This incentive supports entrepreneurship and helps startups grow in the country. If the startups’ first three years of assessment (YA) is from 2020 onwards, they are eligible to enjoy a 75% tax exemption on the first SGD 100,000 of chargeable income and a 50% exemption on the next SGD 100,000. The SUTE only applies to the first three tax years of operating the business. After the third year, the company can apply for the Partial Tax Exemption (PTE).
The SUTE is applicable to all types of companies except for companies that have a principal activity of investment holding, developing property for sale, investment or both. To qualify for the scheme, startups must be a Singapore registered company, have no more than 20 shareholders in that assessment year and be a tax resident for that assessment year.
Partial Tax Exemption
Companies that do not qualify for the SUTE can apply for the PTE which companies can enjoy a 75% tax exemption on the first SGD 10,000 and an additional 50% exemption on the next SGD 190,000.
Productivity and Innovation Credit
The third type of incentive is the Productivity and Innovation Credit (PIC) scheme, which grants business owners with businesses that invest in activities involving innovation with a tax reduction.
This scheme supports businesses to continuously invest in innovation to improve productivity and operational efficiency. Eligible companies for the PIC scheme are all business entities registered in Singapore, including companies, partnerships, sole proprietorships, foreign holding companies, branches and subsidiaries.
Qualifying business activities for this scheme are:
- Acquiring licenses of IPR
- Acquisition and leasing of IT and automation equipment
- Design project investment,
- Employee training,
- Patents, trademarks, plant varieties and designs registration
- R&D activities
The incentive for the six qualifying activities listed above is a 400% tax deduction, with a maximum of SGD 400,000, of the expenses spent on the activities each year. Companies that qualify for the PIC+ scheme are allowed a maximum of SGD 600,000.
The PIC+ scheme promotes innovation by SMEs, and to qualify for the scheme, the company’s revenue should not exceed SGD 100 million, and the number of employees should not be more than 200.
Investment Allowance Incentive
The fourth tax incentive is the Investment Allowance incentive. This allows businesses to enjoy a tax exemption of up to 100% on fixed capital expenditure incurred, which is expenditure incurred for qualifying projects within a five-year period and can be extended to a maximum of eight years. The types of expenditure that is covered by the investment allowance include acquiring patents and know-how, building factories in Singapore and new productive equipment.
Qualifying projects include:
- Construction projects
- Energy efficiency projects
- Maintenance, repair and overhaul services for the aircraft industry
- Manufacture of new products or increase production of existing products
- Projects that focus on reducing water consumption
- Promotion of the tourism industry
- Provide specialised engineering or technical services
- Research and development activities
Pioneer Tax Incentive
The fifth incentive is the Pioneer Tax Incentive applies to businesses engaging in high-value-added products or services and grants a tax exemption from five to 15 years for each qualifying project or activity.
To qualify for this incentive, applicants must satisfy the following requirements:
- Ability to create employment for Singapore citizens
- Business activities must be new and have not been undertaken by other companies
- Introduce new skills, expertise, new technology and know-how that can improve an industry
- Manufacturing projects must commit to developing soft and hard infrastructure
- The capability for business expenditure to create economic spin-off
Development and Expansion Incentive
Once the period for the Pioneer Tax Incentive has ended, businesses can apply for the Development and Expansion Incentive (DEI).
This incentive allows businesses that engage in new high-value-added projects, undertaking incremental activities or expanding or upgrading their operations to be entitled to a reduced rate of not less than 5% of their profits for up to 10 years. The total tax relief period is up to a maximum of 40 years.
Double Tax Deduction Scheme for Internationalisation
Companies that intend to expand overseas can benefit from the Double Tax Deduction Scheme for Internationalisation (DTDi). The DTDi supports four key categories of a company’s overseas expansion, which include market preparation, market exploration, market promotion and market presence.
This scheme grants businesses a 200% tax deduction on the first SGD 150,000 that is made on expenses for international expansion and investment development activities. Expenses that exceed SGD 150,000 require Enterprise Singapore’s (ESG) approval.
These activities include:
- Advertising in approved local trade publications
- Design of packaging for overseas markets
- Local trade fairs approved by the ESG or Singapore Tourism Board (STB)
- Overseas advertising and promotional campaigns
- Overseas investment study trips or missions
- Overseas market development trips or missions
- Overseas trade fairs
- Product/service certification
- Virtual trade fairs
The government of Singapore provides tax exemptions and reductions to support businesses in the country. Additionally, the corporate income tax rate is currently 17% which is one of the lowest tax rates in the world. There are many benefits of starting a company in Singapore, but these tax benefits are partially a reason that makes Singapore an attractive country for foreign investors. If you have any inquiries about taxation in Singapore, do not hesitate to contact Acclime.
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