The Tax Incentives in Singapore for SME Changes Every Year and This is Something You Should Know if You Will Do Business There
No one likes to pay taxes, but in Singapore, there are benefits available to taxpayers. With the benefits given, businesses can enjoy a considerable level of savings during the tax season. To encourage a new business setup and make it generally beneficial to a small business, the Inland Revenue Authority of Singapore (IRAS) started the Start-up Tax Exemption Scheme (SUTE) in 2004. This is one was able to provide newly mixed qualifying companies exemption that comes from taxable profits during the first 3 years. A lot of businesses want to invest in Singapore because their company will be part of an ever-growing economy.
Singapore has Innovation-focused Events and Programs
Since the country was founded, Singapore’s government have become acutely aware that in a country with a small population and poor resources, the most important route is innovation and technology. In the last 50 years, Singapore has developed national capabilities and moved up when it comes to skills and technology-intensive industries. The current achievements of Singapore are the world’s envy:
- The fourth-biggest high-tech products after China, the United States and Germany.
- It operates in one of the busiest ports in the world, and have witnessed concomitant growth in the service business related to trade and shipping.
- A key hub during the global financial system.
- Singapore has a classy and robust service sector with top positions in tourism, professional services, aviation, entertainment, and finance.
In order to maintain their leadership and play a long game, the Singapore government has a billion-dollar commitment to events and programs. These programs are expected to foster innovation and form a new business in the country.
Tax Exemption for New Startups
The Singapore tax authority is providing a special tax exemption to business startups during the first three years of assessment. This scheme’s main objective is to encourage entrepreneurship that helps startups grow and establish a country base.
All startup companies in Singapore have this scheme, but with a few exemptions. The principal activity is an investment holding or of developing properties for investment, sale, or it could be both.
How to qualify
A startup is eligible when they fulfil certain conditions to qualify for the exemption. First, they should be registered in Singapore. Second, the company has to be a tax resident during that assessment year. Lastly, the company shareholders should not exceed 20 during the assessment year.
The Singapore eligible startup will have an exemption from a tax during the first S$100,000 in a chargeable income. In addition, there is an exemption of up to 50% of taxes during the next $200,000. This is an exemption for startups in the consecutive assessment years. With these benefits, an effective tax rate during those startups has been drastically reduced in the first 3 three years.
PIC + Scheme
It was introduced with the 2014 budget. The main purpose of the scheme is to promote SMEs innovation. In order to qualify for the PIC + Scheme, there are important factors for this.
- The business revenue must not be more than $100 million
- The employees in the business should not be more than 200
Based on the PIC and PIC + Scheme, the business is eligible for a tax deduction and can be converted to $100,000 of their spending amount into a government cash payout. The conversion rate was 60% at first and it was reduced to 40% during the 2016 budget. Therefore, the business gets a cash payout of $40,000 that comes from the government spending of $100,000 on qualified activities. In addition, the payout is not taxed and the minister extended the PIC scheme until 2018.
Angel Investors Tax Deduction (AITD) Scheme
AITD is available to investors who invest at least S$100,000 in a startup that meets the qualifying criteria. The approved investors get a 50% tax deduction of the total investment made after a 2-year holding period. The maximum amount that can be deducted is S$250,000.
An individual can qualify for the AITD is they are experienced angel investors, business executives, senior management professionals, and successful serial-entrepreneurs.
The qualifying individual should be able to provide business guidance and startup mentorships.
Charitable Work Deduction
Companies that do charitable work is given a tax deduction by the Business and IPC Partnership Scheme. It is a scheme that was introduced during the 2016 budget. Their government and the Inland Revenue of Singapore (IRAS), created the scheme. Based on this scheme, companies in Singapore have a tax deduction of 250% on expenses and salaries which are paid to employees. That is done in case the company decides to send its employees to volunteer and also give services to Institutions of Public Character (IPC). The scheme’s aim is to encourage and empower philanthropy in Singapore.
The companies, sole proprietorships, partnerships, and registered corporations trust to carry out a Singapore business. Any of the persons like clubs and trade associations that are expected to do business in Singapore are also eligible.
The basic paid wages while doing services for the IPC and expenses that were incurred while providing services to the IPCs.
The total deduction that is applicable is 250% of a qualifying expenditure during business hours. The expenses up to $250,000 per financial year for business and the expenses levied on to any individual IPC has a maximum of $50,000.
Early-Stage Venture Funding Scheme (EVFS)
EVFS is operated by the National Research Foundation (NFR) of Singapore. As part of the EVFS, the NFR gives a 1:1 match funding capped at S$10 million to venture capitalists so they can invest in qualifying startups which are the innovative ones. Since 2008 when it started, the EVFS has invested in a total of 15 venture capitalist companies.
For an entrepreneur, these are very attractive tax incentives because it gives back part of what they have invested.