Setting up a Private Limited Company in Singapore

Other characteristics: Own Identity

A company will have its own identity. Just like a natural person has his own passport number or identification card (IC) number, a company has a Unique Entity Number (UEN). This characteristic ties back with the key characteristic of separate legal personality. For example, when a company enters into a contract, say an employment contract with its employee, the contract is between the company with that UEN and the employee with that IC number. Any recourse that the employee will have is against the company.

Other characteristics: Corporate Tax Structure

The tax structure that a company adheres to is the corporate tax structure.

Corporate taxes are the taxes paid by the company. When he incorporates a company, the company will have to pay income taxes to the Inland Revenue Authority of Singapore (IRAS).

In Singapore, the corporate tax rate is a flat 17%. However, this is before considering the tax reliefs (if applicable) for new start-up companies.

The tax incentive is as such:

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.
Also, for the Year of Assessment 2024, companies will receive a 50% corporate tax rebate. Do note that this varies from year to year. Year of Assessment 2024 (YA2024) refers to the financial period that ended in the preceding year 2023.

Therefore, if the company makes a profit of $80,000, the corporate tax will be calculated as such.

Chargeable income: $80,000
75% exemption on the first $100,000 of normal chargeable income: 75% x $80,000 = $60,000 of normal chargeable income is exempted.
Therefore, chargeable income after tax incentive: $20,000

Corporate Tax: 17% x $20,000 = $3,400
50% corporate tax rebate for YA2024 = $1,700

Therefore, for a company that makes a profit of $80,000, the payable corporate tax is $1,700 in YA2024.

Effective tax rate: $1,700 / $80,000 = 2.125%

While the corporate tax rate is a flat 17%, the effective tax rate is 2.125%.

As you can see, the taxes that a company pays are typically less than personal income taxes for the same amount of profit.

Registering a Private Limited Company

Other characteristics: Credibility

This credibility refers to the company’s own credit rating. A company over time will have its own financial standing. Every year, it is required to produce a set of financial statements which will be presented at the Annual General Meeting and filed with the registrar when a company files its Annual Return. This will result in the company having its own credit profile that is distinct from its shareholders or directors. The shareholders and directors may not have good personal credit ratings. However, this will not affect the credit rating of the company. This works vice versa. Therefore, when a company takes a business loan from a financial institution, it is taking the loan in its own personal capacity. The bank assesses the company’s own credit rating.

Other characteristics: Own Identity

A company will have its own identity. Just like a natural person has his own passport number or identification card (IC) number, a company has a Unique Entity Number (UEN). This characteristic ties back with the key characteristic of separate legal personality. For example, when a company enters into a contract, say an employment contract with its employee, the contract is between the company with that UEN and the employee with that IC number. Any recourse that the employee will have is against the company.

Other characteristics: Corporate Tax Structure

The tax structure that a company adheres to is the corporate tax structure.

Corporate taxes are the taxes paid by the company. When he incorporates a company, the company will have to pay income taxes to the Inland Revenue Authority of Singapore (IRAS).

In Singapore, the corporate tax rate is a flat 17%. However, this is before considering the tax reliefs (if applicable) for new start-up companies.

The tax incentive is as such:

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.
Also, for the Year of Assessment 2024, companies will receive a 50% corporate tax rebate. Do note that this varies from year to year. Year of Assessment 2024 (YA2024) refers to the financial period that ended in the preceding year 2023.

Therefore, if the company makes a profit of $80,000, the corporate tax will be calculated as such.

Chargeable income: $80,000
75% exemption on the first $100,000 of normal chargeable income: 75% x $80,000 = $60,000 of normal chargeable income is exempted.
Therefore, chargeable income after tax incentive: $20,000

Corporate Tax: 17% x $20,000 = $3,400
50% corporate tax rebate for YA2024 = $1,700

Therefore, for a company that makes a profit of $80,000, the payable corporate tax is $1,700 in YA2024.

Effective tax rate: $1,700 / $80,000 = 2.125%

While the corporate tax rate is a flat 17%, the effective tax rate is 2.125%.

As you can see, the taxes that a company pays are typically less than personal income taxes for the same amount of profit.

Registering a Private Limited Company

Other characteristics: Ability to raise funds

A characteristic of a Private Limited Company is the ability to raise funds. In Singapore, companies are free to issue shares. There is no limit to the number of shares that a company can issue. What this means is that a company can easily raise funds by creating new shares and selling them to new or existing shareholders. When the new or existing shareholders pay for the shares, the money goes into the company’s bank account. This lack of limit to the number of shares a company can issue means that a company can raise as much capital as it wishes to. This ability allows a company to scale. If a company determines that it needs money for expansion, it can obtain this money by raising capital through the allotment of new shares.

Other characteristics: Credibility

This credibility refers to the company’s own credit rating. A company over time will have its own financial standing. Every year, it is required to produce a set of financial statements which will be presented at the Annual General Meeting and filed with the registrar when a company files its Annual Return. This will result in the company having its own credit profile that is distinct from its shareholders or directors. The shareholders and directors may not have good personal credit ratings. However, this will not affect the credit rating of the company. This works vice versa. Therefore, when a company takes a business loan from a financial institution, it is taking the loan in its own personal capacity. The bank assesses the company’s own credit rating.

Other characteristics: Own Identity

A company will have its own identity. Just like a natural person has his own passport number or identification card (IC) number, a company has a Unique Entity Number (UEN). This characteristic ties back with the key characteristic of separate legal personality. For example, when a company enters into a contract, say an employment contract with its employee, the contract is between the company with that UEN and the employee with that IC number. Any recourse that the employee will have is against the company.

Other characteristics: Corporate Tax Structure

The tax structure that a company adheres to is the corporate tax structure.

Corporate taxes are the taxes paid by the company. When he incorporates a company, the company will have to pay income taxes to the Inland Revenue Authority of Singapore (IRAS).

In Singapore, the corporate tax rate is a flat 17%. However, this is before considering the tax reliefs (if applicable) for new start-up companies.

The tax incentive is as such:

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.
Also, for the Year of Assessment 2024, companies will receive a 50% corporate tax rebate. Do note that this varies from year to year. Year of Assessment 2024 (YA2024) refers to the financial period that ended in the preceding year 2023.

Therefore, if the company makes a profit of $80,000, the corporate tax will be calculated as such.

Chargeable income: $80,000
75% exemption on the first $100,000 of normal chargeable income: 75% x $80,000 = $60,000 of normal chargeable income is exempted.
Therefore, chargeable income after tax incentive: $20,000

Corporate Tax: 17% x $20,000 = $3,400
50% corporate tax rebate for YA2024 = $1,700

Therefore, for a company that makes a profit of $80,000, the payable corporate tax is $1,700 in YA2024.

Effective tax rate: $1,700 / $80,000 = 2.125%

While the corporate tax rate is a flat 17%, the effective tax rate is 2.125%.

As you can see, the taxes that a company pays are typically less than personal income taxes for the same amount of profit.

Registering a Private Limited Company

What are the characteristics of a Private Limited Company?

The key characteristic: Separate Legal Personality

The key characteristic of a Private Limited Company is the concept of separate legal personality. A company is distinct from its shareholders and directors. This means that the shareholders and directors are not personally liable for the debts of the company. The amount of liability that the shareholders can be held accountable for is their investment in paid-up share capital.

This means that if there is a breach of contract or an unpaid debt, the creditor needs to take legal action against the company. The company will be treated like another person who is distinct from its shareholders and directors. If the company is required to pay a debt, the monies that the creditor can claim will be what the company has in its accounts or what it is worth. Creditors cannot go after the shareholders and directors and make them liable to pay for the debts of the company. This is often referred to as a corporate veil. There is an exception when this corporate veil can be lifted. It is when the company is used by the shareholders and directors to perpetrate fraud. In the absence of such circumstances, this corporate veil cannot be lifted.

This is a very significant advantage. The example referred to in the above paragraph is one that veers towards the extreme. A practical example would be as such. For restaurants, the company owes a duty of care to people who come and dine at the restaurant. Imagine a scenario where one of its staff is negligent and spills water on the floor without cleaning it. Consequently, there is a customer who slips and falls and hurts his head. This customer can seek damages. The damages that are sought will be against the company. The customer will not be able to make the shareholders and directors personally liable for his injuries.

Other characteristics: Ability to raise funds

A characteristic of a Private Limited Company is the ability to raise funds. In Singapore, companies are free to issue shares. There is no limit to the number of shares that a company can issue. What this means is that a company can easily raise funds by creating new shares and selling them to new or existing shareholders. When the new or existing shareholders pay for the shares, the money goes into the company’s bank account. This lack of limit to the number of shares a company can issue means that a company can raise as much capital as it wishes to. This ability allows a company to scale. If a company determines that it needs money for expansion, it can obtain this money by raising capital through the allotment of new shares.

Other characteristics: Credibility

This credibility refers to the company’s own credit rating. A company over time will have its own financial standing. Every year, it is required to produce a set of financial statements which will be presented at the Annual General Meeting and filed with the registrar when a company files its Annual Return. This will result in the company having its own credit profile that is distinct from its shareholders or directors. The shareholders and directors may not have good personal credit ratings. However, this will not affect the credit rating of the company. This works vice versa. Therefore, when a company takes a business loan from a financial institution, it is taking the loan in its own personal capacity. The bank assesses the company’s own credit rating.

Other characteristics: Own Identity

A company will have its own identity. Just like a natural person has his own passport number or identification card (IC) number, a company has a Unique Entity Number (UEN). This characteristic ties back with the key characteristic of separate legal personality. For example, when a company enters into a contract, say an employment contract with its employee, the contract is between the company with that UEN and the employee with that IC number. Any recourse that the employee will have is against the company.

Other characteristics: Corporate Tax Structure

The tax structure that a company adheres to is the corporate tax structure.

Corporate taxes are the taxes paid by the company. When he incorporates a company, the company will have to pay income taxes to the Inland Revenue Authority of Singapore (IRAS).

In Singapore, the corporate tax rate is a flat 17%. However, this is before considering the tax reliefs (if applicable) for new start-up companies.

The tax incentive is as such:

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.
Also, for the Year of Assessment 2024, companies will receive a 50% corporate tax rebate. Do note that this varies from year to year. Year of Assessment 2024 (YA2024) refers to the financial period that ended in the preceding year 2023.

Therefore, if the company makes a profit of $80,000, the corporate tax will be calculated as such.

Chargeable income: $80,000
75% exemption on the first $100,000 of normal chargeable income: 75% x $80,000 = $60,000 of normal chargeable income is exempted.
Therefore, chargeable income after tax incentive: $20,000

Corporate Tax: 17% x $20,000 = $3,400
50% corporate tax rebate for YA2024 = $1,700

Therefore, for a company that makes a profit of $80,000, the payable corporate tax is $1,700 in YA2024.

Effective tax rate: $1,700 / $80,000 = 2.125%

While the corporate tax rate is a flat 17%, the effective tax rate is 2.125%.

As you can see, the taxes that a company pays are typically less than personal income taxes for the same amount of profit.

Registering a Private Limited Company