How Do Taxes Affect Business Decisions

Every country has their own taxation system which is imposed on local businesses. Singapore uses a single-tier corporate income tax system, which means that the business income tax imposed is final and all dividends paid to its shareholders are exempted from further taxation in Singapore. Having to commit to a substantial amount for taxes, one might be compelled to ask, “how do taxes affect business decisions?”

Both business and taxes involve understanding your business finances. To help you understand how they are interconnected, we’ve listed out some crucial business decisions that could be affected by business tax in Singapore:

Setting up a business is a massive accomplishment by itself. But before setting up the business, you need to consider the tax implications when selecting the appropriate legal structure for your business. If you are starting a new e-commerce store as a side business, you might wish to manage costs and setup the business through a sole-proprietorship. The main tax consequences is that you will be subjected to tax on the profits of the business at your personal income tax bracket. So you need to consider the impact of the profits to your personal income tax when selecting the legal structure. By examining these, you would need to identify which can possibly yield the best returns. Your business can be taxed differently depending on how you register them.

After proving that your product or services fit in the market, the business is now on a growth trajectory. The next big goal is to scale your business to grow market share. This is where professional business income tax planning is useful to help you better plan and manage your expansion effectively and financially efficient. You want to consider the tax implications when deciding on obtaining financing from debt or equity investors. The tax considerations would also impact your investors decisions. For example, If you are issuing debt instruments to investors, they would be subjected to a variety of tax implications on their interest income. For a Singapore Tax resident, the investor would be required to pay their own personal or corporate taxes on the interest income received. For overseas investors, the company would need to withhold certain portion of the interest payment and make the tax payment to IRAS on their behalf. Consider seeking the support of a professional corporate service provider for corporate tax and compliance and advisory services.

Newly minted businesses can be tight for cash once the business gets off the ground. The location planning of your business depends largely on how much you can spare for monthly rent. If your business relies heavily on strategic locations, you should be prepared to pay a premium – vice versa. If you are planning to purchase the premise, business tax in Singapore could also play a huge role in your decision.

The purpose of a business is to maximise the returns from the capital you have invested into your business. In running a business, you would have different ideas on how to scale and operate the business. The strategy, the way you scale the business and invoice to your customers would have tax implications and strategic considerations. For instance, if a bakery owner would also like to set up franchises across Singapore and overseas, the structure of the franchise agreement and billing have different tax implications on the business. You can also tap onto our business and financial expertise to help you structure and review the business proposition.

A successful business hinges on the quality of its operational staff. When asking yourself “how do taxes affect business decisions,” structuring of your HR benefits would help you optimise your dollar spent from both a business and tax perspective.

The tight rope around wages, HR benefits and hiring could increase your time spent on administrative matters and reduce your time available to scale your business with capable resources. Consider certain outsourcing options with us so that you can focus on the business.

The highest tax rate in a particular jurisdiction or headline corporate tax rate in Singapore is set at 17%. Most startups and small and medium-sized enterprises (SME) end up paying lower than this amount after factoring in rebates, exemptions, deductions, and allowances.

Singapore startup tax exemption is a Tax Exemption Scheme for Newly incorporated operating Companies targeted at the first 3 tax years of companies that qualify. Every tax year, 75% of the first S$100K of taxable profits will be exempted from tax which translates to an effective tax rate of 4.25% on the first S$100K of taxable profits. For the next S$100K of taxable profits, 50% of the profits will be exempted from tax.

For businesses that do not qualify and companies in their fourth year, The Partial Exemption Scheme will be granted where 75% of the first S$10K of taxable profits will be exempted from tax and 50% of the remaining S$190K will be exempted from tax.

Taxes are a necessary part of running successful businesses. However, there are various tax reliefs and exemptions are available concerning capital gains tax, stamp duty, and VAT/GST.

Businesses can engage a professional corporate service provider to implement an effective corporate tax planning programme. This can help you identify tax savings opportunities and gain insights into Singapore’s tax rules and regulations.

Here are some of the tax services that you can attain from a professional corporate service provider in answering the question of “how do taxes affect business decisions:”

Want to keep the worries of business tax away? Engage a professional corporate service provider today to achieve your desired business growth efficiently and effectively.