Though the nominal corporate income tax rate in Singapore is 17%, small companies pay a much smaller fraction of their total income, thanks to deductions, allowances, and rebates.
The actual fraction of income paid in taxes is known as the effective tax rate.
Let's look how the effective tax rate is calculated for a small business with the following parameters:
- Annual revenue: 500,000 Singapore Dollars
- Annual expenses: 420,000
in its first year of operations, from 21 October 2022 to 30 September 2023.
Gross profit is 80,000 Singapore Dollars.
To calculate the taxable income, we apply
The tax exemption scheme for new start-up companies
The scheme provides 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.
In our case, the taxable profit will be 20,000 Singapore Dollars.
The tax payable at the rate of 17 per cent is 3,400 Singapore Dollars.
Effective tax rate is (3400)/(80000)*100= 4.25%
However, the story doesn't end here.
In 2024, the Singapore Government announced a tax rebate of 50 per cent capped by 40,000 Singapore Dollars.
In other words, the Company will receive back half of the tax paid or 1,700 Singapore Dollars.
It makes the actual effective tax rate 2.125%.
Isn't that a miracle?
Actually, not at all – just an example of how sound policies support small businesses during their first and the most challenging years.
