We received this question from a prospective client. He is a foreigner and is considering shifting his business to Singapore. He is looking to incorporate a Singapore company and would be looking to apply for a valid work pass for him to live and work in Singapore. This article will be answering his question in his context.

There are two types of taxes that he has to take note of.

  1. Corporate Taxes
  2. Personal Income Taxes

 

Corporate Taxes

Corporate taxes are the taxes paid by the company. When he incorporates a company, the company will have to pay income taxes to the Inland Revenue Authority of Singapore (IRAS).

In Singapore, the corporate tax rate is a flat 17%. However, this is before considering the tax reliefs (if applicable) for new start-up companies.

The tax incentive is as such:

  • 75% exemption on the first $100,000 of normal chargeable income; and
  • A further 50% exemption on the next $100,000 of normal chargeable income.

Also, for the Year of Assessment 2024, companies will receive a 50% corporate tax rebate. Do note that this varies from year to year. Year of Assessment 2024 (YA2024) refers to the financial period that ended in the preceding year 2023.

Therefore, if the company makes a profit of $80,000, the corporate tax will be calculated as such.

Chargeable income: $80,000
75% exemption on the first $100,000 of normal chargeable income: 75% x $80,000 = $60,000 of normal chargeable income is exempted.
Therefore, chargeable income after tax incentive: $20,000

Corporate Tax: 17% x $20,000 = $3,400
50% corporate tax rebate for YA2024 = $1,700

 

Therefore, for a company that makes a profit of $80,000, the payable corporate tax is $1,700 in YA2024.

 

Effective tax rate: $1,700 / $80,000 = 2.125%

While the corporate tax rate is a flat 17%, the effective tax rate is 2.125%.

 

Personal Income Taxes

As the prospective client is going to be residing in Singapore, i.e. he is going to be a tax resident of Singapore, he will be deemed a tax resident of Singapore.

This is the resident tax rates from YA2024 onwards.

Chargeable Income Income Tax Rate (%) Gross Tax Payable ($)
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
Next $180,000		 –
22		 44,550
39,600
First $500,000
Next $500,000		 –
23		 84,150
115,000
First $1,000,000
In excess of $1,000,000		 –
24		 199,150

 

As you can see, the personal income tax rate is higher than the effective corporate tax rate. As directors employed by the company as well as shareholders of the same company, the client can decide whether to pay himself more salary as a director or not. If the company were to pay a director more salary, the director will have to incur more personal income tax whereas the company will have less profits as its expenses are reduced due to the higher wage bill. If the director is paid less, then the company will have less expenses due to a smaller wage bill and will have more profits.

A company’s profits after tax can be returned to the shareholders in the form of dividends. In Singapore, dividends so not incur taxes. Therefore, when shareholders receive dividends, they do not pay income taxes on these dividends.

 

If you are looking to know more about taxes in Singapore, you can contact us at +65 82222886 (Call, WhatsApp, SMS) or email [email protected].

 

Yours sincerely,

The editorial team at Raffles Corporate Services Pte Ltd