Tax exemptions for startup companies in Singapore

Tax exemptions for startup companies in Singapore

To maintain a business-friendly environment in its state and remain competitive in the South-East Asian market,  Singapore’s Government has implemented several tax exemption schemes. Tax authority in Singapore, the Inland Revenue Authority of Singapore (IRAS), have put in place dedicated tax reliefs for startup companies to promote entrepreneurship and attract foreign investors.

Tax Exemption Scheme for New Start-Up Companies

To qualify for this scheme, the company must satisfy the following conditions:

  • It must be incorporated in Singapore
  • It must be a tax resident in Singapore for the current Year of Assessment (YA)
  • Its total share capital is beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:
    • All of the shareholders are individuals; or
    • At least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company.

The exemption is for the company’s first three consecutive YAs. The first YA is the YA relating to the basis period during which the company is incorporated. The first YA of a company depends on the financial year end chosen and the closing date of the first set of accounts, which means that two companies incorporated on the same day can have a different first YA.

It was announced in Budget 2018 that the tax exemption under the scheme will be revised. This change will affect all qualifying companies from YA 2020 onwards. The tax exemptions are the following:

YA 2020 onwards:

  • 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.

 
YA 2019 and before:

  • Full exemption on the first $100,000 of normal chargeable income; and
  • A further 50% exemption on the next $200,000 of normal chargeable income.

 

Partial Tax Exemption for Companies (PTE)

All companies including companies limited by guarantee are eligible for PTE, unless they have already claimed the Tax Exemption Scheme for New Start-Up Companies.

It was announced in Budget 2018 that the tax exemption under the scheme will be revised, beginning YA 2020 for all qualifying companies. The tax exemptions are the following:

From YA 2020 onwards:

  • 75% exemption on the first $10,000 of normal chargeable income; and
  • A further 50% exemption on the next $190,000 of normal chargeable income.

 
YA 2019 and before:

  • 75% exemption on the first $10,000 of normal chargeable income; and
  • A further 50% exemption on the next $290,000 of normal chargeable income.

The normal chargeable income refers to income to be taxed at the prevailing corporate tax rate.

To claim tax exemptions, you have to complete the relevant sections of the Estimated Chargeable Income (ECI) form and income tax return (Form C/C-s).

Singapore has one of the lowest tax rates in the world, and the country also provide several tax incentives and cash grants to help companies grow and maintain a favorable business environment. If you are interested in starting your business in Singapore, Ace Success can help you with your incorporation and a number of corporate services like corporate tax computation and filing.

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