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Taxes in Singapore

Running your own business, enterprise or branch offices means either you fail or you succeed. However, when you decide to set up a business without much information just for the sake of having one is not right. It is important that you should know the business inside and out, what business ideas are successful, the product you are going to sell and the taxation involved, etc. The locale where you are setting up your business also should be taken into consideration but that is not all. For instance, it is true that Singapore is a good place for foreign investors to set up international companies for many reasons not only limited to a favorable corporate tax, but then that does not guarantee that the business will succeed and we cannot also exactly tell whether it will fail.

There is an old saying that says among the new businesses, 70 percent of which fail in the 1st year. So it goes without saying that some businesses win and some lose. Of course, neither any expert can tell 100% that a legal business in Singapore will fail or succeed but by knowing what businesses are predictably going to flop at present will help you in any way to avoid such business operations. Below then is the list of 5 business ideas that are not encouraged when you set up a company in Singapore today.

1. A Private Gym

It is true that private gyms also succeed but only some of them and not definitely because of the company’s dedication, hard work and the quality time they give to their customers but because of the capital they put into their fitness centre such as the top California Fitness or Fitness First. The capital they actually have is more than what small African nations invest. Without high maintenance marketing and strong funding, it is quite impossible to reach the level of success they have attained.

The cost of the rent for the private gyms is the primary reason that they are not a good business idea in Singapore since you cannot definitely charge more from your clients only because your rent was raised by your landlord. They are not a business idea considered viable any more not only because of the high cost of rent but also because gyms are also part of the facilities offered for free in many condos now.

2. A Small Cafe

It is the University students’ typical business idea to open a small café. Actually, this idea is not exclusive to University students alone but hipsters, amateur chefs and food bloggers have this idea in mind as well. However, Singapore is already filled with so many cafes and food establishments that your small café would have lots of competition such as Settlers, Café Del Mar, Café Cartel, etc.

You have to also bear in mind that Singapore commercial property requires high rents. Not to mention the mentality that once business is making progress, the landlord raises the rent. Unless owning the rights and buying the property is something that is affordable to you, starting a small café is risky.

3. A Small Tuition Agency

Based on Singapore employment rate, the job of private tutors can earn them more money but starting a small tuition agency is a different story. In the years back then, a small tuition agency would work with schools to give enrichment classes at a decent amount. Teaching a second language and Maths brought good profit to the educational entity until 2007 and since then the profit has decreased. At present, many agencies offering such educational services are struggling since the fee for every student has plummeted to $2. Now, parents try to find MOE-qualified teachers for their children, thus agencies formed by ex- MOE teachers are more preferred than the older ones.

4. Interior Decorating

In Singapore, interior decorating is not really the type of business to set up especially that the Singapore renovations market already have a great number of contractors and designers and both offer Fittings, Furnishings, & Fitting (FF&E). As opined by a sales designer, one cannot survive only on interior decorating since FF&E is very subjective and most Singaporean residents will not consider paying the designer on matters regarding good taste. For instance, the cost for painting walls can be justified but the cost for the choice of color. Sales designers can offer both for just a single price.

5. A General Bookstore

Niche bookstores may be successfully run provided there are target demographics. Setting up a general bookstore requires a great deal of inventory that can only be handled by huge companies with advanced logistics. Thus, for smaller bookstores, inventory is daunting work.

It is possible to succeed in selling books on topics like politics and history or gardening. However, when you plan to run a general bookstore where all topics are available is not a very promising investment. Simply put, customers of niche bookstores after their search will probably leave the store with something but those of general bookstores perhaps only 1 customer out of 10 will make a purchase for every visit.

Singapore is ace when it comes to business friendly countries. According to Santa Ana Charles Hart City Council Ward 3 website, business friendly refers to low taxes, low fees, few and fair regulations, educational and training opportunities and a safe working environment for the business and its customers. Now that we know that Singapore is ranked first, this all means that business opportunities in Singapore are extremely high. Reason being, just by the fact that Singapore has managed to stay at the top for seven consecutive years. Many people are still admiring the country’s efficiency.

The ranking was determined by exploring the eleven areas of business regulation. This involved- just to name a few- the ease of starting a business, getting construction permits, electricity and credit, paying taxes, enforcing contracts, getting support from the government and employing workers.

When it concerns business opportunities in Singapore, there are a few things to take note if you want the recipe to success and to blow away the competition. First up, it is important for a business to have a friendly and efficient way to dealing with contacts. By the time you exceed all expectations and achieve  exponential success, your company will get the competitive advantage and be the best in the business.

The Business Times has stated that while it would be tough for Singapore to make convincing advancement, the country has the opportunity to seek for improvement in the area of property registration.

Singapore, among other countries- 23 economies in East Asia and the Pacific to be exact- have made their administrative background more business friendly since 2005. Additional countries include San Antonio and other Texas sites. There are even several countries sending up their representatives to Singapore to learn its business system.

To cater to the high demand of business opportunities in Singapore, the country made sure that there are plenty of business hotels for clients. There are over 50 hotels ranging from Swissotel Merchant Court, The Ritz-Carlton Millenia, Pan Pacific Orchard Hotel to Amara Sanctuary Resort Sentosa. These are mainly four/five stars hotels located at the central business and shopping district and the airport.

In terms of ease of doing business and trading across borders, Singapore is also ranked first. The country’s export goods include machinery and equipment, pharmaceutical and refined petroleum products. Some of the most common import goods is comprised of mineral fuels, chemicals, foodstuffs and consumer goods. The country still stands among the top three when it comes to dealing with construction permits, protecting investors and resolving insolvency.

Numerous sites have reported that Singapore’s economy has been ranked as the most open in the world, the least corrupt, most pro-business, with low tax rates (14.2% of GDP) and one of the highest per-capita gross domestic products in the world. These reports include the World Economic Forum and the Transparency International 2012.

In addition, the country has several international trade agreements with other countries. As you’re reading this, you might recall the Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP) and the Agreement between Japan and the Republic of Singapore for a New-Age Economic Partnership (JSEPA). Both agreements concluded on 2000 and 2001 respectively.

To conclude, we can all agree that while the costs of living in Singapore is high, the economic viability of country has established it as an attractive business location. Because of the huge number of business opportunities in Singapore, the little red dot has proven it as an accomplished and diversified country.

It is not surprising to see Singapore as a burgeoning powerhouse in the Asian business industry. Because of its non-toxic business environment, what with its friendly business legislations, a lot of entrepreneurs really choose Singapore as a place for their ventures. Not to mention that the country is conveniently located at the heart of the flourishing Asian economy.

Most of the businesses, if not all, situated in Singapore, actually gain benefits from the country’s ties with other booming tiger economies. It also has the reputation as a trustworthy jurisdiction to work in and a country with great corporate tax policies. They have competitive, but fair, tax rates that other jurisdictions do not offer. Because of all of this, Singapore definitely has become one of the globally recognized business hubs.

If we look closely at the country’s tax policies, one can see why Singapore is so popular with businesses.

Corporate Tax in Singapore

Unlike other jurisdictions, in Singapore, they do not discriminate businesses according to their origin. Whether you are a local or a foreign business, you will be taxed all the same. If you look at it, it may seem like disadvantageous, but actually, Singapore favors both local and offshore business, therefore, resulting into a productive entrepreneurial culture in the country.

All businesses operating in Singapore pay taxes on all of their income coming from the country or are remitted to it. This means that if a company that is operating in Singapore gains most of its income from overseas business transactions; the business is not obliged and liable to pay tax in Singapore from a legal perspective. There are a lot of policies about business transactions; therefore, it is really recommended that entrepreneurs seek the help from professionals that are experts on the tax policies in Singapore, just so the business is sure that they are legally complying with the jurisdiction of Singapore.

General Corporate Tax Rates in Singapore (2010)

  • Tax rate went down from 18 percent to 17
  • Taxes are charged according to profit blocks. It depends on how much is the income. Tax is applied to the first 10,000 SGD at 4.5%. Next to be charged is at the 290,000 SGD profit bracket and is charged at 8.5%. Thereafter, the rest of the income falling above the 290,000 is taxed at 17%. For example, if a company only made 8,000 SGD for the year, they will only be taxed 360 SGD.

Singapore definitely has earned the respect from entrepreneurs all over the world because of its very flexible corporate tax policies. Their policies are very friendly, even to rookie companies who just incorporated. In their jurisdiction, new companies have tax exemptions, just so they can jumpstart their business easily, given the fact that they are starting from scratch. Singapore acknowledges the fact that it is very costly for new businesses to set up shop, so they created policies to make these newbies breathe a little bit easier. Their policy is that, for newly incorporated companies, whether local or foreign, they are exempt to pay taxes on their first 100,000 SGD of annual income. This is applicable for the company’s first three fiscal years and is only for companies that qualify in the following:

  • Must be registered tax payers in Singapore
  • Must have only 20 stockholders or less
  • Must have 10% of its stockholders be comprised of individuals

If the new company does not pass such criteria, there are still partial exemptions that apply. Instead of having the tax exemption on the 100,000-income bracket, they can have tax exempted on the 200,000 SGD bracket. The tax rate can be calculated at roughly around 8.5% on the company’s first 300,000 SGD of income, which is considered as a very low rate.

As one can observe, Singapore really does have a favorable tax environment for companies, without sacrificing its own welfare. Singapore has a very reputable status as a country as well, given its productivity and very good quality of living, even with its low and competitive tax rates. It makes one think why other countries have very high taxes when you can still have a good economy with charging smaller rates. Overall, Singapore, along with its good business policies and tax benefits, has truly transformed into a haven for entrepreneurs, making it a very important business environment globally.

More updated details about Tax Rates in Singapore can be found at IRAS.

A good factor to look at when you’re deciding to set up your operations in any jurisdiction is their tax policies being implemented. If you compare different jurisdictions all over the world, Singapore, as well as Hong Kong, are considered as one of the jurisdictions that have business-friendly tax policies in force.

Tax Jurisdiction

Singapore Hong Kong
Taxes charged depend on territorial principle, meaning the companies or individuals are only taxed on the income sourced in Singapore Taxes charged depend on territorial principle, meaning taxes only apply to income that comes from Hong Kong
All income coming from offshore operations are only taxed when they are remitted in Singapore Offshore income are not taxed even with remittance to Hong Kong

 

Corporate Tax Rate
Singapore Hong Kong
Corporate Income Tax – 18%

As of 2010 – 17%

Note: For profits in the SGD 300,000 below bracket, tax rate is 9% and below. For profits above the said bracket, it is capped only at 18%.

Corporate Income Tax – 16.5%

 

Value-Added Tax/Sales Tax
Singapore Hong Kong
Rated at 7% No tax

 

Taxes on Capital Gains
Singapore Hong Kong
None None

 

Group Relief (in case of losses)
Singapore Hong Kong
Allowed Allowed

 

Withholding Tax
Singapore Hong Kong
Withholding tax is only applied to royalties, interests, management fees, technical fees, rentals on movable assets/properties, directors fees (applicable to non-residents, may it be a company or an individual). No withholding tax is charged on dividends. Withholding tax is applied to fees given to non-residents (entertainers or athletes), rentals on movable assets/properties. No withholding tax is charged on interest and the dividends.
Double Tax Agreements
Singapore Hong Kong
Singapore has more than fifty treaties on bilateral comprehensive taxes. Hong Kong has a DTA network composing of thirty-seven treaties.

 

Tax Year
Singapore Hong Kong
Fiscal year from the start of January (1) up to the last day of December (31) Fiscal year from the 1st of April to the 31st of March

 

Filing Tax Returns
Singapore Hong Kong
On or before the 31st of October, all tax returns and audit reports must already be filed with Singapore’s IRA (Inland Revenue Authority), with the exception of dormant companies (companies with no financial transactions for the current fiscal year), and exempted private companies (<20 shareholders, with all shares controlled by the company, yearly turnover should be less than 5 million) On or before the 31st of April, all tax returns and audit reports must already be filed with Hong Kong’s IRD (Inland Revenue Department). The auditor who accomplished the reports should be part and accredited by the Hong Kong Institute of CPAs. The filing is with the exception of dormant companies (companies with no financial transactions for the current fiscal year), and small companies (total gross profit is less than HKD 500,000)

For more on corporate tax in Singapore click here.