In one way or another, businesses of all nature will have to pay taxes. The best way to remain compliant with tax policies is to have a clear understanding of Singapore tax regulations and reliefs. By identifying specific opportunities for tax savings and by employing appropriate tax planning, you can optimize the amount of income tax your business must bear.
New companies often benefit from Start-up Tax Exemption Scheme (SUTE), which allows new and qualifying start-ups to benefit from a 75% tax exemption on their first S$100,000 chargeable income within the first 3 years. They get an additional 50% tax relief on the next S$100,000 chargeable income for the period. Additionally, companies can benefit from partial tax exemption and tax exemption on expenses incurred before business commencement.
While these are lucrative tax exemptions, corporate income tax planning may include a thorough knowledge of several other pointers, some of which will be mentioned below.
Companies in Loss or a Non-Tax Paying Position
Based on enhanced carry-back relief, unutilized donations and capital allowances can be carried forward for 3 YA to reduce taxes payable. The unutilized items will not be subject to the business and shareholding tests.
There is also an option to claim for a carry-back of unabsorbed trade losses of up to S$100,000. The shareholding test will apply but this is a valid way to get a tax refund for companies that were in a tax-paying position in the preceding year but in loss at present.
Implemented from 2012, expenses made 1 year before the company makes its first dollar are tax-deductible.
If companies meet qualifying conditions that prove that they belong to the same group, they can utilize the Group Relief Scheme. This scheme allows companies in Singapore to deduct their unabsorbed trade losses and unutilized capital allowances and donations from the chargeable income of another company in the group.
Companies in a Tax-paying Position
Businesses can utilize capital allowances to lower the chargeable income, and therefore tax payable.
Director fees can be declared if the arrangement offers potential tax savings. The director remunerations should be attributed based on economic reality while considering factors such as the amount of work done, the nature of work, the extent of the director’s involvement in business functions, etc. Even though the comparison of effective tax rates is advised, tax savings must not be the prime objective of the declaration of director remuneration.
Foreign income by Singapore companies is often subject to taxation not only in the foreign country but also when the income is remitted into Singapore. Singapore tax resident companies can benefit from the Foreign Tax Credit scheme. This scheme permits such companies to claim a credit for the tax amount paid in the foreign country against the Singapore tax payable on the same income.
As interest expenses are tax-deductible, companies may benefit from choosing debt financing instead of equity financing. Companies can also re-assess accounts to pinpoint omitted accrual expenses if any.
Business decisions you make will have tax implications in the future. To help efficiently manage your income tax requirements, we at Timcole work closely to help identify ideal tax strategies for you and your organization. Check out our bookkeeping packages and corporate tax filing services.