To answer this question, we will need to know the tax rates and we will also need to set a few assumptions.

 

Here is the Singapore Resident Tax Rate:

Chargable IncomeIncome Tax Rate (%)Gross Tax Payable (SGD$)
First $20,000
Next $10,000
0
2
0
200
First $30,000
Next $10,000
-
3.50
200
350
First $40,000
Next $40,000
-
7
550
2,800
First $80,000
Next $40,000
-
11.5
3,350
4,600
First $120,000
Next $40,000
-
15
7,950
6,000
First $160,000
Next $40,000
-
18
13,950
7,200
First $200,000
Next $40,000
-
19
21,150
7,600
First $240,000
Next $40,000
-
19.5
28,750
7,800
First $280,000
Next $40,000
-
20
36,550
8,000
First $320,000
In excess of $320,000
-
22
44,550

 

Singapore has a flat rate of 17% for Corporate Taxes. Here are some Common Tax Reliefs for companies. You should be familiar with the tax reliefs as they help to reduce the tax liabilities of your company. If you are thinking of setting up a company in Singapore, Singapore has one of the lowest corporate tax rates in the world and these tax reliefs help to lower the tax rates further.

Common Tax Reliefs that will help to reduce the tax bill for New Start-Up Companies

Common Tax Reliefs that will help to reduce the tax bill for Companies

 

Example 1: Year of Assesment 2019 (For financial years that closed in 2018)

We are assuming that the person who posted the question is the sole shareholder and is the director of the company. Let us also assume that ABC Pte Ltd is a newly incorporated startup. We will be focusing on Year of Assesment 2019 in this instance.

Company Name: ABC Pte Ltd
Director: Mr Tan
Shareholder: Mr Tan

 

Scenario A:

ABC Pte Ltd has a revenue of $100,000 and incurs costs of $70,000 which includes a salary of $50,000 to Mr Tan. Therefore company profits are $30,000.

Corporate Tax to be paid = $0 (Full exemption on the first $100,000 of normal chargeable income)

Personal Income Tax (Mr Tan) = $400 (First 40,000) + ($10,000 x 7%) = $1,100

Dividends can be paid out of the company profits of $30,000 to Mr Tan. Dividends are not taxable.

Total tax paid: $1,100

 

Scenario B:

ABC Pte Ltd has a revenue of $100,000 and incurs costs of $20,000. Mr Tan does not draw a salary. Therefore company profits are $80,000.

Corporate Tax to be paid = $0 (Full exemption on the first $100,000 of normal chargeable income)

Personal Income Tax (Mr Tan) = $0

Dividends can be paid out of the company profits of $80,000 to Mr Tan. Dividends are not taxable.

Total tax paid: $0

 

 

Example 2: Year of Assesment 2020 (For financial years that closed in 2019)

We are assuming that the person who posted the question is the sole shareholder and is the director of the company. Let us also assume that XYZ Pte Ltd is a newly incorporated startup. We will be focusing on Year of Assesment 2020 in this instance.

Company Name: XYZ Pte Ltd
Director: Mr Wong
Shareholder: Mr Wong

 

Scenario A:

XYZ Pte Ltd has a revenue of $100,000 and incurs costs of $70,000 which includes a salary of $50,000 to Mr Wong. Therefore company profits are $30,000.

Corporate Tax to be paid = 25% of $30,000 x 17% = $1,275

There is a 20% corporate tax rebate, capped at $10,000 for YA 2019. Rebate = $1,275 x 20% = $255

Final Corporate Tax to be paid = $1,020

Personal Income Tax (Mr Wong) = $400 (First 40,000) + ($10,000 x 7%) = $1,100

Dividends can be paid out of the company profits of $30,000 to Mr Wong. Dividends are not taxable.

Total tax paid: $2,120

 

Scenario B:

XYZ Pte Ltd has a revenue of $100,000 and incurs costs of $20,000. Mr Wong does not draw a salary. Therefore company profits are $80,000.

Corporate Tax = 25% of $80,000 x 17% = $3,400

There is a 20% corporate tax rebate, capped at $10,000 for YA 2019. Rebate = $3,400 x 20% = $680

Final Corporate Tax to be paid = $2,720

Personal Income Tax (Mr Wong) = $0

Dividends can be paid out of the company profits of $80,000 to Mr Wong. Dividends are not taxable.

Total tax paid: $2,720

 

 

Example 3: Year of Assesment 2020 (For financial years that closed in 2019)

We are assuming that the person who posted the question is the sole shareholder and is the director of the company. Let us also assume that DEF Pte Ltd is a newly incorporated startup. We will be focusing on Year of Assesment 2020 in this instance.

Company Name: DEF Pte Ltd
Director: Mr Goh
Shareholder: Mr Goh

 

Scenario A:

DEF Pte Ltd has a revenue of $130,000 and incurs costs of $100,000 which includes a salary of $80,000 to Mr Goh. Therefore company profits are $30,000.

Corporate Tax to be paid = 25% of $30,000 x 17% = $1,275

There is a 20% corporate tax rebate, capped at $10,000 for YA 2019. Rebate = $1,275 x 20% = $255

Final Corporate Tax to be paid = $1,020

Personal Income Tax (Mr Goh) = $3,350

Dividends can be paid out of the company profits of $30,000 to Mr Goh. Dividends are not taxable.

Total tax paid: $4,370

 

Scenario B:

DEF Pte Ltd has a revenue of $130,000 and incurs costs of $20,000. Mr Goh does not draw a salary. Therefore company profits are $110,000.

Corporate Tax = (25% of $100,000 x 17%) + (50% of $10,000 x 17%) = $4,250 + $850 = $5,100

There is a 20% corporate tax rebate, capped at $10,000 for YA 2019. Rebate = $5,100 x 20% = $1,020

Final Corporate Tax to be paid = $4,080

Personal Income Tax (Goh) = $0

Dividends can be paid out of the company profits of $110,000 to Mr Goh. Dividends are not taxable.

Total tax paid: $4,080

 

There are instances whereby some directors are also holding full-time employment outside of the company and thus if they were to be paid further salary from the company, it would push them further up into the higher tax brackets. In these instances, the directors may prefer to not draw a salary and instead be paid dividends.

Proper tax planning can help to reduce the overall tax liability of the company and individuals. Please note that tax planning is different from tax evasion where there is a deliberate attempt to evade tax by hiding income from the tax authorities. Our company can assist you in structuring and planning your corporate tax liabilities.

 

For accounting advice, you may contact our accounting partner Singapore Accounting Services at [email protected].

When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.

 

Yours Sincerely,
The editorial team at Singapore Secretary Services

 

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