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Tax Saving For Setup Company | Private Limited Companies

All sole proprietorships and partnership in Singapore are taxed based on the personal income tax rate of their owners under the Income Tax Act. Owners or individual partners will be subjected to a tax based on their share of profits from their trade under Section 10(1)(a) of the Income Tax Act. The current progressive tax rates are as listed below:

YA 2017

 Chargeable
Income
RateGross Tax Payable
 $(%)$
On the first20,00000
On the next10,0002.0200
On the first30,000 200
On the next10,0003.5350
On the first40,000 550
On the next40,0007.02,800
On the first80,000 3,350
On the next40,00011.54,600
On the first120,000 7,950
On the next40,000156,000
On the first160,000 13,950
On the next40,000187,200
On the first200,000 21,150
On the next40,000197,600
On the first240,000 28,750
On the next40,00019.57,800
On the first280,000 36,550
On the next40,000208,000
On the first320,000 44,550
Above320,00022 

By registering your business as a private limited company (PLC) and setting up a private limited company in Singapore, the company is entitled to:

  1. Tax Exemption for New Start-up Companies: Newly established Singapore incorporated companies are entitled to full tax exemption in their first three years of assessments.
    • Before YA 2020: the first S$100,000 is exempted at 100 percent; the next S$200,000 is exempted at 50 percent.
    • YA 2020 onwards: the first S$100,000 is exempted at 75 percent; the next S$100,000 is exempted at 50 percent.
  2. Partial Tax Exemption: All existing Singapore incorporated companies may claim partial tax exemption on their profits yearly.
    • Before YA 2020: the first S$10,000 is exempted at 75 percent; the next S$290,000 is exempted at 50 percent.
    • YA 2020 onwards: the first S$10,000 is exempted at 75 percent; the next S$190,000 exempted at 50 percent.

Comparison of the tax savings of a private limited company over a sole proprietor or partnership:
As you can see from the table above, personal tax for a chargeable income of S$320,000 is S$44,550. We will do a comparison with corporate tax figures to illustrate the tax savings.

 

BEFORE YA 2020

COMPANY TAX – under tax exemption for new start-up companies

Please refer to IRAS website for the qualifying criteria for new start-up tax exemption

ExemptionChargeable incomeRateGross tax payable
 $%$
100% on first $100,000100,00000
50% on next $200,000200,0008.517,000
0% on next $20,00020,000173,400
 320,000 20,400

 

Tax savings: 44,550 – 20,400 = $24,150

COMPANY TAX – under partial tax exemption

ExemptionChargeable incomeRateGross tax payable
 $%$
75% on first $10,00010,0004.25425
50% on next $290,000290,0008.524,650
0% on next $20,00020,000173,400
 320,000 28,475

 

Tax savings: 44,550 – 28,475 = $16,075

 

YA 2020 ONWARDS

COMPANY TAX – under tax exemption for new start-up companies

Please refer to IRAS website for the qualifying criteria for new start-up tax exemption

ExemptionChargeable incomeRateGross tax payable
 $%$
75% on first $100,000100,0004.254,250
50% on next $100,000100,0008.58,500
0% on next $120,000120,0001720,400
 320,000 33,150

 

Tax savings: 44,550 – 33,150 = $11,400

COMPANY TAX – under partial tax exemption

ExemptionChargeable incomeRateGross tax payable
 $%$
75% on first $10,00010,0004.25425
50% on next $190,000190,0008.516,150
0% on next $120,000120,0001720,400
 320,000 36,975

 

Tax savings: 44,550 – 36,975 = $7,575

3E Accounting Pte Ltd can help to incorporate your new business as a private limited company and thus claim a tax exemption on your trade profits. We can provide tax advice on commencement of business activities and describe how to maximise the year of assessment during the first three years where tax exemptions are available to newly incorporated companies through effective tax planning.