A recent report of taxes in Singapore vs Malaysia indicates that Malaysian based companies and entrepreneurs can achieve substantial tax savings by relocating to Singapore.

The report highlights the significant difference between the corporate income tax rates of Singapore and Malaysia. Singapore's corporate income tax rate is less than 9% for profits up to S$300,000 and flat 17% above S$300,000. In comparison, Malaysia resident companies are subject to a significantly higher corporate tax rate of 25%.

According to the report, Singapore offers more attractive incentives to support entrepreneurship and foster the growth of SMEs as compared to Malaysia. In Singapore, a newly incorporated company that satisfies certain qualifying conditions enjoys full tax exemption (i.e. 0% tax rate) on the first S$100,000 of taxable income for each of its first three tax filing years. In Malaysia, SMEs with a paid-up capital of RM 2.5 million or less are subject to a corporate tax rate of 20% for the first RM 500,000 of taxable income and 25% on the remaining taxable income.

The report also contrasts Singapore’s Goods and Services Tax (GST) and Malaysia’s sales tax and services tax. Singapore resident companies must register for GST when the annual turnover is above or expected to be above 1 million SGD. The GST rate in Singapore stands only at 7%. Malaysia on the other hand currently imposes a service tax and sales tax on certain prescribed goods and services. Malaysia resident companies with an annual turnover of more than RM 100,000 must register for sales tax. Sales tax presently stands at 10% and the service tax (imposed on F&B, tobacco, health services, provision of accommodation and most professional and consultancy services) is currently 5%.

Singapore and Malaysia follow a single-tier corporate income tax system, whereby tax paid by a company on its profits is the final tax and all dividends paid to its shareholders are exempt from further taxation. With the development of international trade and MNCs, double taxation is an area that has gained importance. Both Singapore and Malaysia currently have more than 50 DTAs providing specific guidelines for double taxation relief.

According to Andrew Chen, a spokesperson from the Singapore information portal that released the tax report, "we find more foreign entrepreneurs and investors turning to low tax countries to set up or relocate their business operations, especially in the current economic environment. Singapore is emerging as a preferred destination due to its low corporate tax rates and highly attractive incentives for start-ups. Businesses are also taking notice of its GST rate which is significantly low and well below the Asia-Pacific average of 10.5%. Although Malaysia may qualify as a reasonably tax friendly jurisdiction, many foreign entrepreneurs and investors find it unattractive due its high corporate income tax rates and complex indirect tax system."

The report reaffirms Singapore's position as a tax friendly jurisdiction for Malaysian based companies and business professionals.