According to the Income Tax Act, Singapore-based partnership and sole proprietorship businesses are taxed based on the owners’ personal income tax rate. Under Section 10(1)(a), the individual partners and owners are expected to pay tax based on profits earned from their shares.
Click here to learn more on the overview of Singapore taxation.
Singapore’s personal tax rate, while one of the lowest in the world, follows a progressive structure. The progressive resident tax rate starts at 0% for chargeable income below S$22,000 and ends at 22% for chargeable income over S$320,000. Learn to save on personal tax here.
Tax Schemes for Private Limited Companies
Private limited companies too have a few tax benefits. Some of the benefits are as mentioned below:
Tax Exemption for New Start-Up Companies:
Newly incorporated companies get a very generous tax exemption for the 3 initial years of assessments. According to the Start-up Tax Exemption Scheme (SUTE), the following tax rates apply:
- For the assessment year 2020 and onwards, the first S$100,000 of a company’s chargeable income is exempted at 75% while the company will receive a further 50% exemption for the next S$100,000.
- For the assessment years prior to 2020, the scheme involved 100% exemption on the first S$100,000 and another 100% on the next S$200,000 chargeable income.
Partial Tax Exemption
Existing companies that do not qualify for the SUTE scheme may claim tax exemption on their yearly profit based on the Partial Tax Exemption. The terms of this tax relief are stated below:
- For the assessment year 2020 and onwards, existing companies can claim a 75% tax exemption on the first S$10,000, and 50% on the next S$290,000 chargeable income.
- For the assessment years prior to 2020, Singapore incorporated existing companies will receive a 75% exemption for tax on the first S$10,000 and a 50% exemption on the next S$190,000 chargeable income.
Tax Savings for Private Limited Company
To summarize, while sole proprietors and partners adhere to a progressive personal tax rate based on their chargeable income, PLCs benefit from lucrative tax relief schemes such as Tax Exemption for New Start-up Companies and Partial Tax Exemption.
For example, a sole proprietor or partnership company would have to pay S$44,550 tax on a chargeable income of S$320,000. For the same amount of chargeable income, a newly incorporated PLC would pay S$33,150 (75% on the first S$100,000, 50% on the next S$100,000, and 0% on the next $120,000 based on the new start-up tax exemption scheme). On the other hand, an existing PLC would have to pay S$36,975 (75% on the first S$10,000, 50% on the next S$190,000, and 0% on the next $120,000 based on the partial tax exemption scheme). Based on this example, new and existing private limited companies have S$11,400 and S$7575 tax savings respectively on S$320,000 trade profits when compared to sole proprietorship and partnership businesses.
Clearly, your business can gain financially from being registered as a private limited company in Singapore. However, keep in mind that unlike a sole proprietorship or a partnership, there are corporate requirements that all private limited companies must comply with. These include ACRA and IRAS compliance.
If you are a foreign investor or entrepreneur, tax requirements differ for Singaporeans and PRs. Learn more on the taxation of international executives in Singapore.
Timcole can help incorporate your company as a Singapore PLC and therefore claim a tax exemption on your profit. We can offer tax advice regarding the commencement of business activities and also guide you to maximize your tax savings.
