In today’s competitive business environment, the least one wants to encounter is an excessive tax bill. Though Singapore is considered a “Tax Heaven,” you will still pay more in taxes than you legally should if you do not utilize tax exemptions and deductions.
At times, it can drain a considerable chunk of your gross profit — Leaving you with a portion just a little over the survival need of your business! Surprisingly, there are many legal ways to reduce taxes in Singapore for small businesses to consider.
This article focuses on the different tax reductions and exemptions in Singapore that you can utilize to pay fewer taxes.
Make a Charitable Donation
Any charitable donation in Singapore is subject to 2.5 times tax relief as long as the charity is registered as an IPC (Institute of Public Character) (Institute of Public Character) in Singapore. This relief offers support to organizations that work for causes that benefit the local community.
For example, if you donate $1,000 to a qualifying charity, you are allowed to deduct S$2,500 (250% of the donation) from your taxable income. This will reduce your business’s tax liability by S$425 (17% corporate tax rate)
You do not need to declare the donation amount in your tax return because the organization will automatically send your donation details to the IRAS (Inland Revenue Authority of Singapore), and they can electronically check the status of your donation.
Deduct Business Expenses
Every business incurs tens of direct and indirect expenses. Luckily, in Singapore, you can deduct most of your business expenses from the sales figure before it is taxed. These expenses include administrative costs, wages, accounting fees, marketing costs, staff recruitment and training, and other business-related expenses.
Suppose that your gross profit is S$5,000, and you have incurred the following expenses in the period:
- Administration Costs= S$500
- Advertisement Costs= S$300
- Salaries paid to employees= S$1,000
- Interest paid= S$100
Total Expenses= S$1,900
You can deduct these expenses from the gross profit figure of S$5,000 to calculate your tax liability which means the tax liability of S$850 (5000*17%) becomes S$527 ((5000-1900) *17%).
It is advisable to keep your business records up-to-date, accurate and safe to avoid IRAS penalties and investigations. Our cloud technology can store your records safely, and you can update them remotely from your laptop.
Exclude Foreign Income
The Inland Revenue Authority of Singapore (IRAS) has a robust system for preventing double taxation, and you are allowed to have a tax-free foreign income given that:
- The foreign income is a subject to tax in the foreign jurisdiction from which you received it
- The tax rate of the foreign jurisdiction is at least 15%.
If the foreign income does not meet the above criteria, it is subject to taxation by the IRAS. However, you will receive a tax credit for any tax that you have paid overseas. The Singapore government and the IRAS ensure to prevent your corporate income from double-taxation, and small businesses can significantly benefit from it.
Cash the Start-Up Tax Exemption Scheme (SUTE)
The Singaporean government offers this scheme to encourage entrepreneurs and local start-ups. The SUTE is a tax exemption scheme for registered businesses younger than 3 years. All companies can avail this scheme except:
- Businesses that primarily operate in investment holding
- Businesses whose principal activity is developing properties for sale, investment, or both.
Under the SUTE, your business is exempt from tax on the first S$100,000 chargeable income and up to 50% of the tax on the next S$200,000 chargeable income. This scheme is available for the first 3 consecutive assessment years. To be eligible for the scheme, your business must:
- Be a Singaporean registered company
- Be a tax resident in Singapore for the underlying assessment year
- Not have more than 20 shareholders.
Businesses that have been operating for over 3 years have more than 20 shareholders and whose primarily niche is investment or property can still qualify for the Partial Tax Exemption (PTE). It can secure up to 75% tax exemption on their first S$10,000 chargeable income and up to 50% on the next S$190,000 chargeable income. Therefore, you should definitely consider this scheme to pay fewer taxes in Singapore.
Minimizing Your Business Taxes in Singapore (Step-By-Step)
These are some of the significant tax exemptions for small businesses in Singapore, and if you want to pay a minimum amount of taxes, you should consider these exemptions. The right way to reduce your tax bill is to plan effectively since most of these techniques have specific requirements, and you should keep your business operations in line with the requirements. Here is our 3-step approach for minimizing your business taxes in Singapore:
- Ideally, you should first deduct your business expenses because this one doesn’t have any requirements. However, the IRAS may not allow you to deduct certain expenses such as amortization and non-trade bad debts. These expenses are known as Non-Deductible Business Expenses.
- The next step is to deduct your foreign income from the total chargeable income — Given that it meets the above criteria. Also, deduct 250% of the donations that you may have paid to charitable organizations in the period.
- Lastly, check whether your business is eligible for schemes like SUTE and PTE to significantly reduce your corporate tax in Singapore.
Though tax calculation is straightforward since Singapore has a flat rate tax system, it can get complicated as you grow your business and have various income streams and expenses. Also, fully utilizing the exemptions is an intricate step, and you might need professional help to pay fewer taxes.
You can either hire professional accountants for your tax calculations or switch to automated accounting software that can take care of everything under the umbrella of accounting and taxation.
Automa8e is a cloud-based software that automatically calculates your taxes. The cloud setting means you can use the software anywhere using your phone, tablet, or laptop. With a dynamic dashboard, Automa8e offers many other accounting features and can make your journey much easier.
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