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Explaining the New Start-up Company Tax Exemption Scheme

Some good news if you’re about to start a company in Singapore. You are eligible for the new start-up company tax exemption scheme.

As a business (new or old), taxes are one of those aspects of running a business you need to deal with. You may not like it, but it needs to be done. But investors definitely perk up when they know they may be exempted from tax during the early years of their business.

 

What Is the New Start-up Company Tax Exemption Scheme?

The new start-up company tax exemption scheme was introduced in Singapore in 2005 by the Inland Revenue Authority (IRAS). This scheme helps to minimize how much corporate tax a new company needs to pay on the normal chargeable income. The scheme is applicable for the first few years after the incorporation of the company.

Part of the aim of the scheme is to encourage new investors to come and set up a base in Singapore. New companies can claim an exemption for the first $200,000 of their normal chargeable income.

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*.

 

Calculations of Taxes in Singapore

Any income earned in Singapore is taxable. Any income that is received in Singapore from outside sources is also taxable. Only capital gains earnings are not taxable. A company’s has to pay taxes on all of its chargeable income.

Chargeable income is any income that is left after deducting all the allowable business expenses. Taxes take place every financial year or Year of Assessment (YA). One year of assessment is 12 months long. A company’s YA begins from the date of incorporation.

The new start-up company tax exemption scheme will be applicable for a new company’s first three YAs. This applies even if the company does not have chargeable income yet.

 

Does My Company Qualify for the Tax Exemption Scheme?

Yes, your company can qualify for the new start-up company tax exemption scheme if you’ve incorporated it in Singapore. Your business must have been a Singapore tax resident for that YA to be eligible.

Eligibility is also dependent on the fact that your business has no more than 20 shareholders. Shareholders should be holding the company’s total share capital beneficially. In addition, the company must have at least 1 shareholder, an individual holding at least 10% of the issued ordinary shares of the company.

Your newly incorporated company must not have investment holdings as its primary business to be eligible. Investment holding companies usually earn passive income, and if so, you will not qualify for the scheme.

A company that is limited by a guarantee may also be eligible for the scheme. This is provided they meet certain conditions. The criteria includes having members who are all individuals throughout the duration of the YA.

 

How Do I Claim the Exemption?

To apply for the exemption, you must complete your corporate tax return forms and submit them to IRAS. IRAS will automatically compute how much exemption you qualify for.

Alternatively, you may contact 3E Accounting. Our tax specialists can help you make quick work of your tax filing. Let us help you get the claims you deserve.