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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
Rate Gross Tax Payable
  $ (%) $
On the first 20,000 0 0
On the next 10,000 2.0 200
On the first 30,000   200
On the next 10,000 3.5 350
On the first 40,000   550
On the next 40,000 7.0 2,800
On the first 80,000   3,350
On the next 40,000 11.5 4,600
On the first 120,000   7,950
On the next 40,000 15 6,000
On the first 160,000   13,950
On the next 40,000 18 7,200
On the first 200,000   21,150
On the next 40,000 19 7,600
On the first 240,000   28,750
On the next 40,000 19.5 7,800
On the first 280,000   36,550
On the next 40,000 20 8,000
On the first 320,000   44,550
Above 320,000 22  

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

Exemption Chargeable income Rate Gross tax payable
  $ % $
100% on first $100,000 100,000 0 0
50% on next $200,000 200,000 8.5 17,000
0% on next $20,000 20,000 17 3,400
  320,000   20,400

 

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

COMPANY TAX – under partial tax exemption

Exemption Chargeable income Rate Gross tax payable
  $ % $
75% on first $10,000 10,000 4.25 425
50% on next $290,000 290,000 8.5 24,650
0% on next $20,000 20,000 17 3,400
  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

Exemption Chargeable income Rate Gross tax payable
  $ % $
75% on first $100,000 100,000 4.25 4,250
50% on next $100,000 100,000 8.5 8,500
0% on next $120,000 120,000 17 20,400
  320,000   33,150

 

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

COMPANY TAX – under partial tax exemption

Exemption Chargeable income Rate Gross tax payable
  $ % $
75% on first $10,000 10,000 4.25 425
50% on next $190,000 190,000 8.5 16,150
0% on next $120,000 120,000 17 20,400
  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.