Tax Deductions and Reliefs Available for Businesses in Singapore

Singapore has earned a reputation as one of the most business-friendly countries in the world, thanks in part to its attractive tax policies. Businesses in Singapore have access to a variety of tax deductions and reliefs designed to help reduce their overall tax burden and promote growth.

By leveraging these incentives, businesses can reinvest in their operations, hire more employees, and contribute to the economy. In this post, we'll explore the various tax deductions and reliefs available for businesses in Singapore and how they can be applied to optimize tax efficiency.

Productivity and Innovation Credit (PIC)

The purpose of the Productivity and Innovation Credit (PIC) scheme was to encourage businesses to invest in activities that improve productivity and drive innovation. While the PIC scheme has been phased out, businesses that incurred qualifying expenditures before the end of the program can still enjoy deductions or cash payouts.

The following are the qualifying activities under PIC:

• Acquisition of IT and automation equipment
• Training of employees
• Research and development (R&D)
• Registration of intellectual property (IP)
• Design projects
• Acquisition and licensing of intellectual property rights

The PIC scheme allows businesses to enjoy tax deductions or cash payouts for these activities, which will significantly reduce taxable income.

Startup Tax Exemption Scheme

For newly incorporated businesses in Singapore, the Startup Tax Exemption Scheme (SUTE) offers significant relief. Under this scheme, qualifying companies can benefit from substantial tax exemptions on the first three years of chargeable income. Chargeable income itself is the amount of income that will be taxed at the Corporate Income Tax (CIT) rate of 17%.

Here’s how the SUTE scheme works from 2020 onwards:

• 75% tax exemption on the first S$100,000 of chargeable income.
• A further 50% exemption on the next S$200,000 of chargeable income.

To qualify, the company must be a tax resident in Singapore, and it must not have more than 20 shareholders and at least one individual shareholder holding a minimum of 10% of the issued shares.

This scheme is highly beneficial for startups that are looking to reduce their initial tax liabilities and reinvest profits back into the business.

Partial Tax Exemption for Companies

Even if a company doesn't qualify for the Startup Tax Exemption Scheme, it can still benefit from the Partial Tax Exemption (PTE) available to all Singaporean companies. The PTE offers businesses tax relief on their first S$200,000 of chargeable income.

Here's how the PTE scheme works: 

• You get a 75% discount on the tax you owe on your first S$10,000 of profit.
• Then, you get a 50% discount on the next S$190,000 of profit.

This exemption helps reduce the overall tax burden for both small and medium-sized enterprises (SMEs) and larger companies.

Research and Development (R&D) Tax Incentives

Singapore places a strong emphasis on encouraging innovation through Research and Development (R&D) tax incentives. Businesses that engage in R&D activities can claim enhanced deductions for qualifying expenses.

Your company may be qualified for these incentives if it undertakes in-house R&D work, outsource the R&D by hiring a service provider, and participate in an R&D cost-sharing agreement. These incentives are particularly valuable for technology-driven companies and businesses looking to develop new products, services, or processes.

Capital Allowances

Capital allowances allow businesses to claim tax deductions on qualifying capital expenditures incurred when purchasing fixed assets, such as machinery, office equipment, and vehicles. Instead of deducting the entire cost of the asset in one year, businesses can spread the deduction over several years.

There are several qualifications of fixed assets that can qualify for the write-off. 

• Assets qualifying as plant or machinery include items like carpets, containers for goods transportation, furniture, fixtures, industrial machinery, etc.
• Plant and machinery used by subcontractors in outsourcing arrangements, provided there are commercial justifications and proper documentation. 
• For motor vehicles, allowances cannot be claimed for private cars unless used for business purposes like driving instruction, but they can be claimed for vans, lorries, and motorcycles used for business, including foreign-registered vehicles used exclusively outside Singapore. 

This relief helps businesses manage large capital expenditures and reduce their taxable income over time.

Double Tax Deduction for Internationalization (DTDi)

For businesses looking to expand beyond Singapore, the Double Tax Deduction for Internationalization (DTDi) is a valuable incentive. This scheme allows businesses to claim a tax deduction on eligible expenses incurred for international expansion and market development.

Qualifying activities under the Double Tax Deduction for Internationalisation (DTDi) scheme include participation in overseas trade fairs, conducting overseas business development trips, and performing overseas advertising or campaigns. These activities help businesses explore international markets and expand their global presence.

Corporate Income Tax Rebate

From time to time, the Singapore government offers a Corporate Income Tax (CIT) rebate to help businesses lower their tax obligations. While the CIT rebate is not a permanent fixture of Singapore's tax policy, it has been offered in previous years as part of budgetary support measures for businesses.

For a company to qualify for a tax rebate, it needs to have made Central Provident Fund (CPF) contributions for at least one local employee (either a Singapore Citizen or Permanent Resident). CPF is a savings scheme for social security contributed by employers and employees. 

However, the rules for receiving a tax rebate can change each year. To benefit from these temporary tax relief measures, businesses should stay informed about the latest government updates.

Goods and Services Tax (GST) Input Tax Deductions

GST, also known as Value-Added Tax (VAT) in other countries, is basically a tax added to the price of most things you buy in Singapore, whether they're imported or produced locally.

Businesses registered for GST in Singapore can claim input tax deductions, allowing them to offset the GST paid on purchases (input tax) against the GST collected from customers on sales (output tax). This effectively reduces the amount of GST they are required to pay to the Inland Revenue Authority of Singapore (IRAS).

However, not all expenses are eligible for GST input tax deductions. Some exempt supplies, like financial services or residential property rentals, may not qualify for GST claims. Similarly, goods and services purchased for personal use or non-business purposes are also not eligible for this deduction.

Maximizing Tax Benefits for Your Singapore Business

Singapore's tax system offers numerous deductions and reliefs to help businesses manage their tax burden and reinvest in growth opportunities. From startup tax exemptions to R&D incentives and capital allowances, businesses can take advantage of these tax breaks to reduce their overall liabilities. However, understanding and navigating these tax reliefs can be complex, which is why working with a professional accounting firm can be beneficial.

If you're looking for expert advice on tax deductions and reliefs for your business, AG Singapore offers comprehensive tax planning and accounting services tailored to your needs. Visit ag-singapore.com to learn more about how you can leverage your tax benefits and ensure compliance with Singapore's tax regulations.