| 5-minute read | Tax Rates for Sole Proprietorship and Pte Ltd, Tax Savings, Reductions and Exemptions
- Individual Income (Sole Proprietorship) Tax Rate: 2%-24%
- Corporate (Private Limited / Pte Ltd) Tax Rate: Flat 17%
- Tax exemption of up to 62.5%, for the first $200k taxable income for newly incorporated companies.
- In contrast, there are no tax exemptions for sole proprietorships or partnerships apart from individual tax exemptions.
- Are you starting or currently running your own business? Do you want to maximise your tax savings?
- Blaze Global provides Accounting, Business Advisory and Corporate Secretarial services.
- Our accounting services start at $125 a month, and tax advice start from $250.
- WhatsApp or chat with us today at 9819 9108 or email us today at contact@blazeglobal.com.sg
Introduction
In Singapore, according to ACRA, from Jan 2022 to Jan 2023, an average of 5257 new businesses are formed every month. Taxes play a significant role in shaping business decisions; Understanding the tax rates, exemptions, and regulations can help businesses make informed decisions that can positively impact their business. This article explores how taxes affect business decisions in terms of structuring your businesses.
Tax rates for different company structures
One way taxes affect business decisions is through the different tax rates for
various company structures. In Singapore, companies can be structured as sole
proprietorships/partnerships, or private limited companies. Each structure is
subject to different tax rates.
Individuals registered as sole-proprietors or partners with the Accounting and
Corporate Regulatory Authority (ACRA) are considered
self-employed. They are required to report their business income as
part of their total personal income. This business income is
then subject to individual income tax rates.
Tax rates for different business structures
| Sole Proprietorships / Partnerships |
2% to 22% (YA 2017 to YA 2023) 2% to 24% (YA 2024) |
| Private Limited / Pte Ltd | 17% |
The effective tax rate that a self-employed pays on their total personal income depends on various factors such as income level, tax deductions, and reliefs.
How can I save on taxes based on the above tax rates?
A self-employed person earning an annual income of SGD320,000 would be
potentially paying an effective tax rate of 17% and more.
Correspondingly, a private limited company earning more than SGD320,000,
pays a flat rate of 17%. This tax rate is attractive to many
businesses and is one reason why many choose to structure their businesses as a
private limited.
Hence, structuring your business as a Private Limited/Pte Ltd company may
potentially save you money in tax payments as you pay a flat fee of
17%, especially if you earn above SGD320,000. The
following part, "1. Start-Up Tax Exemption (SUTE)", will provide a detailed
explanation on how this is achieved.
Tax exemption for different company structures
Another way taxes impact business decisions is through the different tax exemptions available for various company structures. Sole proprietorships/partnerships have no tax exemptions. But, the owner may enjoy personal tax benefits when the government grants them.
How can I reduce tax as a self employed individual?
Self-employed individuals can also reduce their income tax via several methods:
1. Cash donations to charities
One includes, cash donations made to an approved Institution of a Public
Character (IPC) or the Singapore Government for causes that benefit the local
community are deductible donations.
DPM and Minister for Finance, Mr Lawrence Wong, announced in Budget 2023 that in
order to continue encouraging Singaporeans to give back to the community and to
provide strong support for the charity sector, the 250% tax deduction for
qualifying donations will be extended for another three years till 31 December
2026. However, not all registered charities are approved IPCs. Donations made to
a charity without approved IPC status are not tax-deductible.
For a list of IPCs, please refer to https://www.charities.gov.sg.
2. Voluntary CPF / MediSave Contributions
Another, includes voluntary contributing to CPF. The tax relief applies to both mandatory MediSave contributions and voluntary CPF contributions. The CPF Relief is capped at the lower of:
- 37% of net trade income assessed;
- CPF relief cap of $37,740;
- The actual amount contributed.
How can I reduce tax as a Private Limited / Pte Ltd?
There are many corporate rebates and tax exemptions schemes available for a new Pte Ltd:
1. Start-Up Tax Exemption (SUTE)
In YA 2020, corporate income tax rebate was 25%, capped at SGD15,000. Also, the
Start-Up Tax Exemption (SUTE) scheme introduced in 2005, provides qualified
start-ups with a special tax exemption for the first 3 years of assessments.
Currently, newly incorporated companies in Singapore can enjoy a 75% tax
exemption on the first S$100,000 of chargeable income for the first three
years of assessment. A further 50% exemption is granted on
the next $100,000 of normal chargeable income. This exemption is a
significant advantage for start-ups and can help them reinvest their earnings
back into the business.
In simple terms:
- $100,000 in taxable profits will be taxed at 4.25%.
- Next $100,000 will be taxed at 8.5%.
- Anything over $200,000 will be taxed at 17%.
Let us take a look at a comparison between a self-employed and a Private Limited.
Self-employed earning SGD300,000 per year
| Self-Employed (Sole Proprietorship / Pte Ltd) | ||
|---|---|---|
| Tax Rate | Tax Paid | |
| First $280,000 | Up to 19.5% | $36,550 |
| Next $20,000 | 20% | $4,000 |
| Total | $40,550 | |
Effective tax rate for a self-employed earning SGD300,000 would be $40,550 / $300,000 = 13.52%.
Private Limited earning SGD300,000 per year
| Private Limited / Pte Ltd with Start Up Tax Exemption (PTE) | ||
|---|---|---|
| Tax Rate | Tax Paid | |
| First $100,000 | 4.25% | $4,250 |
| Next $100,000 | 8.5% | $8,500 |
| Next $100,000 | 17% | $17,000 |
| Total | $29,750 | |
Effective tax rate for a Private Limited/Pte Ltd earning SGD300,000 would be
$29,750 / $300,000 = 9.92%.
Hence, there is a total of $40,550 - $29,750 = $10,800 saved on
a taxable income of SGD300,000.
2. Partial Tax Exemption Scheme for Companies
There are also Partial Tax Exemptions for companies who do not qualify for start-up exemptions or for those beyond the first 3 years of their incorporation.
| Chargeable Income | Tax Rate | Amount Exempted from Tax |
|---|---|---|
| First $10,000 | 4.5% | $425 |
| Next $190,000 | 8.5% | $16,150 |
Please refer to the following link for more information:
https://www.iras.gov.sg/taxes/corporate-income-tax/basics-of-corporate-income-tax/corporate-income-tax-rate-rebates-and-tax-exemption-schemes
3. Enterprise Innovation Scheme
Fresh from the oven, Budget 2023 introduces the Enterprise Innovation Scheme
(EIS). This scheme encourages R&D, intellectual property(IP) registration, IP
rights acquisition and IP rights licensing.
One of the enhancements is raising the tax deduction to 400% for the first
$400,000 of staff cost and consumables incurred on qualifying R&D projects
conducted in Singapore for each YA from YA 2024 to YA 2028. With an additional
150% tax deduction on the balance of qualifying R&D expenditure in excess of
$400,000.
Read here for more information:
https://www.iras.gov.sg/schemes/disbursement-schemes/enterprise-innovation-scheme-(eis)
About this post and Blaze Global
Information from this post was contributed by Blaze Global.
Want to be advised professionally about liability issues and take advantage of
tax benefits? Talk to Blaze Global today about your business. We will be happy
to help structure your company optimally based on your requirements. WhatsApp or
chat with us today at 9819
9108 or email us at contact@blazeglobal.com.sg.
|
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|---|---|
| Address | 14 Robinson Road, #08-01A Far East Finance Building, Singapore 048545 |
| WhatsApp/Phone | +65 9819 9108 |
| contact@blazeglobal.com.sg | |
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