Chart of the Day: Singapore’s business tax one of the lowest in the world

Corporate income tax rate shall stay at 17% as the 2012 Budget did not propose any reduction but find out the implications.

Here's from Ernst & Young:

The corporate income tax rate has remained at 17% since YA 2010. At 17%, Singapore’s corporate income tax rate continues to be one of the lowest headline corporate tax rates in the world. This rate is only 0.5% higher than the current Hong Kong corporate tax rate of 16.5% and 4.5% higher than the corporate tax rate of 12.5% in Ireland for trading income.

After taking into account the partial tax exemption, a company in Singapore with S$500,000 of normal chargeable income will have an effective tax rate of only 11.8%. This is notably lower thanthe 16.5% tax rate in Hong Kong and is also lower than the 12.5% tax rate in Ireland. Only with normal chargeable income exceeding S$5.2m and S$577,000 would a company in Singapore be paying tax at an effective rate higher than 16.5% and 12.5% respectively.

While Singapore’s corporate income tax rate remains at 17%, it is clear that double deduction reliefs and various other tax incentives, such as the PIC, introduced in this Budget and past Budgets will further reduce the effective tax rate to well below the headline tax rate of 17%, especially for SMEs. A further enhancement to benefit SMEs that can be considered in the future is to increase the threshold for partial tax exemption.

The three percentage points rate difference between the corporate income tax of 17% and the top marginal personal income tax rate of 20% continues to exist. Clearly, self-employed individuals, depending on their level of income, should give serious consideration to corporatising their businesses in view of the lower corporate income tax rate and partial tax exemption. The additional costs of operating a company, e.g., audit and secretarial fees, will have to be taken into account before such a decision is made.

Lower tax rates are available under the various tax incentive regimes. Qualifying companies may enjoy concessionary tax rates ranging from 0% to 15%, depending on the types of incentive awarded. The attractiveness of applying for tax incentives where the concessionary tax rate is above 10% continues to be challenged.