Newly-incorporated companies may enjoy tax exemption of up to $125,000.
If you have just incorporated a new Singapore company, you’ll be glad to know that it may qualify for corporate tax exemption for the first 3 years of its incorporation.
From Year of Assessment 2020 onwards, the tax exemption under this Start-Up Tax Exemption scheme is:
This equates to a total possible tax exemption of $125,000.
Check whether your company qualifies for such tax exemption, how to claim it and whether your company can continue to get exempted from tax after its third year of incorporation here:
The Start-Up Tax Exemption (SUTE) scheme reduces the amount of corporate tax that new companies have to pay on their normal chargeable income for their first few years of incorporation.
The SUTE scheme was introduced in Year of Assessment (YA) 2005 by the Inland Revenue Authority of Singapore (IRAS) to encourage entrepreneurship and support local enterprises.
Normal chargeable income refers to the company’s taxable income (e.g. income from investments) after deducting allowable business expenses (e.g medical expenses of employees).
Income is taxable when the income is earned in Singapore, or received in Singapore from outside of Singapore. However, income is non-taxable when it is a capital gain (e.g. gains on sale of fixed assets like machinery, and gains on foreign exchange of capital transactions).
On the other hand, the YA is the period of time for which the company’s income will be assessed for tax purposes. This period of time is known as the “basis period” and is generally 12 months long.
The SUTE will apply for the company’s first 3 consecutive YAs. The exemption will start running from the first YA, even if the company has not made any chargeable income yet.
Hence, if the company only starts making chargeable income in its third YA, it will only qualify for 1 year of tax exemption under the SUTE.
The dates of the company’s first YA depends on the date chosen as the company’s financial year-end when the company was first incorporated, and the closing date for its first set of accounts.
For example, Company A was incorporated on 1 November 2019. Company A chooses its financial year-end date as 31 October. This means that Company A’s first set of accounts will close on 31 October 2020.
As a result, the basis period for Company A’s first YA will be 1 November 2019 to 31 October 2020.
On the other hand, Company B also incorporated on 1 November 2019. However, it chooses its financial year to end on 30 June. This means that Company B’s first set of accounts will close on 30 June 2020.
Therefore, the basis period for Company B’s first YA will be 1 November 2019 to 30 June 2020 – a shorter period than Company A’s first YA, even though both companies incorporated on the same date.
Where at least one of the start-up’s first 3 YAs falls in YA 2020 onwards, the start-up can claim a tax exemption on their first $200,000 of normal chargeable income.
The start-up will receive a 75% tax exemption on the first $100,000 of normal chargeable income, with a further 50% exemption on the next $100,000 of normal chargeable income. The maximum exemption for each YA is $125,000 (75% x $100,000 + 50% x $100,000).
Where at least one of the start-up’s first 3 YAs falls in YA 2010 to YA 2019, the start-up will be able to claim a tax exemption on their first $300,000 of normal chargeable income.
The start-up will receive a 100% exemption on the first $100,000 of normal chargeable income and a further 50% exemption on the next $200,000 of normal chargeable income. The maximum exemption for each YA is $200,000 (100% x $100,000 + 50% x $200,000).
SUTE is open to all newly-incorporated companies that:
The newly-incorporated company also cannot be:
This is because investment holding companies generally only earn passive income (e.g. dividend and investment income), while property developers typically incorporate a new company for each new property development.
With its aim of encouraging entrepreneurship, the SUTE is not intended for such companies. These companies will instead be given partial tax exemption (see below).
A company is considered tax-resident in Singapore if its control and management had been exercised in Singapore for the preceding YA. Control and management refers to the making of strategic decisions by the company.
Generally, the location of the company’s board meetings will determine whether control and management had been exercised in Singapore or elsewhere, rather than the company’s place of incorporation.
Companies limited by guarantee also qualify for SUTE, provided that:
To claim the tax exemption under SUTE, you simply need to file your corporate tax return as per normal. IRAS will then compute the amount of tax exemption you’re entitled to automatically.
There are penalties for making incorrect tax returns, even if you had no intention to evade tax.
After its first 3 YAs, the company will no longer be eligible for SUTE. However, it can still enjoy Partial Tax Exemption (PTE).
Under the PTE, from YA 2020 onwards, companies enjoy a 75% tax exemption on the first $10,000 of normal chargeable income, and a further 50% exemption on the next $190,000 of normal chargeable income.
The maximum exemption for the company for each YA is $102,500 (75% x $10,000 + 50% x $190,000).
For YA 2019 and before, companies enjoy a 75% tax 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 maximum exemption for the company for each YA is $152,500 (75% x $10,000 + 50% x $290,000).
There have been instances where companies were set up without any genuine commercial reasons in order to abuse the SUTE scheme. Please note that tax evasion or fraud is a criminal offense that you may be held liable for.
Matters such as determining your eligibility for SUTE and filing your company’s corporate tax returns can be complicated and confusing.
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