Every year, accountants and finance teams alike need to file their businesses’ Estimated Chargeable Income (ECI) within 3 months of their financial year end.
For companies whose financial year ends on 31 December 2021, the deadline to file your ECI before the deadline of 31 March 2022 is fast approaching.
But, not to worry.
While Singapore has the most competitive corporate income tax rates in the world (pegged at a fixed 17%), it’s important to consider all the tax-saving opportunities available before you file. After all, more savings is always better than none at all一especially for early-stage startups looking to protect their bottom line.
Here are 5 steps you can take to help your business save more on taxes.
#1. Apply for the Startup Tax Exemption Scheme (SUTE)
One of the sure-fire ways companies can reduce their taxes is by tapping on tax exemption schemes. Fortunately, there are a variety of schemes available here in Singapore. One that you should be aware of is the Startup Tax Exemption Scheme (SUTE). Introduced by the Singapore government in the Year of Assessment (YA) 2005 to encourage entrepreneurship and support business growth, SUTE was further revised after the Budget 2018 announcement to offer even more support.
If your startup is eligible for SUTE, it can enjoy the following exemptions on or after YA 2020:
- 75% tax exemption on the first $100,000 of your startup’s chargeable income
- 50% tax exemption on the next $100,000 of your startup’s chargeable income
It’s worth noting that the exemptions above will only kick in for the initial 3 consecutive YAs. Once your startup has been incorporated for more than 3 years, you can apply for the Partial Tax Exemption (PTE) scheme instead.
Under the PTE, look forward to:
- 75% tax exemption on the first $10,000 of your startup’s chargeable income
- 50% tax exemption on the next $190,000 of your startup’s chargeable income
The good news is that there’s no need to do the math on how much tax exemption your startup is qualified for before filing your ECI. IRAS helps to calculate and apply the SUTE or PTE amount automatically. All you need to do is indicate that your company is eligible for the tax exemption schemes for new startups in the File ECI portal.
FYI: If you have businesses that provide distinctly separate services and are run by separate teams, you can consider setting them up as two separate companies to minimize your tax liabilities. However, be mindful that there are consequences to bear for companies who attempt to misuse any of the tax incentives provided by the government.
Find out more on SUTE here.
#2. Boost corporate volunteerism and claim under the Business & IPC Partnership Scheme (BIPS)
Organize good ol’ volunteer work for your employees at charities recognized as Institutions of a Public Character (IPCs) and you may receive tax relief in return. That’s right, qualified companies receive a 250% tax deduction on qualifying expenditure incurred, albeit subject to the IPC’s agreement and having met the conditions under BIPS.
What you can claim under BIPS:
- Basic wages
- Related expenses necessary to providing services to IPCs
Keep in mind that the qualifying deduction amount is capped at $50,000 per calendar year for each IPC. This means that if you’ve spent more than $50,000 in expenditure from your startup’s volunteer work, the tax deduction of 250% will only be applicable to the first $50,000 for that calendar year.
Learn more about BIPS here.
#3. Apply for Pioneer Certificate Incentive (PC) or the Development and Expansion Incentive (DEI)
Ambitious startups with innovative solutions, this one’s for you. In order to bolster businesses to conduct new or expanded activities in Singapore and strengthen their capabilities in areas like technology, startups can tap on PC or DEI for corporate tax exemptions.
PC or DEI also applies to companies that manage, coordinate and control business activity for a group of companies on a regional or even global scale as the incentives are still applied to the HQ.
Tax exemptions your startup might qualify for:
- PC: 5%
- DEI: 10%
To be eligible for these incentives, your company must be ready to make significant investments that will contribute and grow the economy or ramp up your capabilities (example: skill sets, technology, etc) in globally leading industries.
Furthermore, there are a slew of qualitative and quantitative criteria companies must meet, including:
- Total business expenditure
- Employment opportunities created
- Growth of capabilities in Singapore
Learn more about PC and DEI here.
#4. Get awarded by the Singapore Economic Development Board (EDB)
As a way to incentivise both regional and international corporations to set up their headquarters in Singapore thereby establishing Singapore as a business hub, the EDB recognizes these companies with two awards, namely the Regional Headquarters Award (RHQ) and the International Headquarters Award (IHQ).
Companies who are successfully recognized under the RHQ will receive a 15% corporate tax rate on their incremental income from qualifying activities for 3 to 5 years maximum.
On the other hand, international companies who are awarded the IHQ will enjoy a reduced tax rate that ranges from 5% to 10%.
Learn more about EDB here.
#5. Check out Entreprise Singapore’s Double Tax Deduction Internationalisation (DTDi) and Automatic DTDi Scheme
Is expansion in the pipeline for your startup? Look no further than Enterprise Singapore’s DTDi Scheme. Introduced as a way to help motivate Singapore businesses to expand abroad, those who are approved will enjoy deductions against their taxable income that comprises twice the qualifying expenses incurred for qualifying activities.
On top of that, businesses can also opt for Automatic DTDi which provides businesses with 200% reduction in taxes on the first $150,000 of qualifying expenses per YA without getting prior expenses approval from Enterprise Singapore or Singapore Tourism Board.
Some of these qualifying activities include:
- Overseas advertising campaigns
- Overseas market development trips
- Overseas trade fair participations
Learn more about DTDi here.
Want to know more about Tax Relief In Singapore: Incentives, Allowances & Tax Rebate, download our e-book now!
Conclusion: What to do when filing your ECI
Now that you’ve caught up to speed on the tax reducing measures to consider before filing, you can now roll up your sleeves and get started. If this is your first time filing your company’s ECI, we’ve got you covered on your next steps below.
1. Determine whether your company needs to file ECI.
2. Check when to file ECI. Take note: it is always within 3 months of your company’s financial year end.
3. If you are due to file your ECI by March 31, 2022: Calculate your ECI here.
4. Log into myTax Portal.
5. Follow IRAS’s steps to file.
6. Lastly, be sure to check out the IRAS FAQs page if you have any unanswered questions.
DISCLAIMER: Aspire FTE is not a tax consultant. Please check with your accountants or tax consultants for any formal advice.
Frequently Asked Questions
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