Singapore is known as one of the world’s easiest places to start and run your own business. An important part of our business-friendly environment are tax exemptions, particularly for new companies. When you start a new company in Singapore, you can be exempted from paying corporate tax for your first $200,000 in chargeable income, for the first 3 years of your company’s operations. The maximum amount you could potentially save is up to $63,750 in total, over 3 years. If you’d like to make full use of this scheme, read on!
In this guide, we’ll explain 12 key facts about claiming Start Up Tax Exemption in Singapore:
- What is the Start Up Tax Exemption Scheme?
- How does the Start Up Tax Exemption Scheme work?
- How do Years of Assessment work?
- How much tax exemption can I get?
- What companies qualify for Start Up Tax Exemption?
- Do companies limited by guarantee qualify for tax exemption?
- How do I claim my Start Up Tax Exemption?
- Can I extend my Start Up Tax Exemption Scheme beyond 3 years?
- What are the penalties for abusing the tax exemption scheme?
- How do I protect my newly set-up business?
#1. What is the Start-Up Tax Exemption (SUTE) Scheme?
The Start-Up Tax Exemption (SUTE) scheme allows new companies to enjoy corporate tax reliefs, up to a certain limit, for the first 3 years after the company is set up. You will enjoy tax relief on the first $200,000 of chargeable income.
This scheme was introduced in 2005 by the Inland Revenue Authority of Singapore (IRAS). The purpose of this scheme is to incentivise entrepreneurs to start new ventures and grow the local economy.
#2. How does the Start-Up Tax Exemption Scheme work?
Companies can claim tax exemption for their first 3 Years of Assessment (YA). A Year of Assessment is the year in which corporate tax is calculated and paid (i.e. the year after a company’s financial year).
Unclaimed tax exemptions cannot be carried forward. For instance, if your company did not make any profit for its first 3 Years of Assessment, you cannot carry forward unclaimed tax exemptions into your 4th Year of Assessment and beyond.
#3. How do Years of Assessment work?
A Year of Assessment depends on the date which you choose as your company’s financial year end.
Date of financial year end: 31st March 2022
Year of Assessment: 1st April 2021 to 31st March 2022
Date of financial year end: 31st December 2022
Year of Assessment: 1st Jan 2022 to 31st December 2022
#4. How much tax exemption can I get under the Start Up Tax Exemption scheme?
Under this scheme, new companies will receive:
- 75% tax exemption on their $100,000 of normal chargeable income
- 50% exemption on their next $100,000 of normal chargeable income
|Tax payable with SUTE||Tax payable without SUTE|
|Tax on first $100,000 of chargeable income||$4,250||$17,000|
|Tax on next $100,000 of chargeable income||$8,500||$17,000|
|Total tax payable||$12,750||$34,000|
|Tax savings with SUTE||62.5%|
With the SUTE, you’ll save almost 2/3 in taxes payable! Those are some significant savings in tax burdens, and should serve as a great incentive to pursue the entrepreneurial route.
If you have $200,000 or more in chargeable income, the Start Up Tax Exemption scheme would save you $21,250 per year in taxes ($34,000 – $12,750). If you have $200,000 or more in chargeable income across 3 years, you would save a total of $63,750 in taxes!
#5. What companies qualify for Start Up Tax Exemption?
The Start-Up Tax Exemption Scheme is open to all newly-incorporated companies that:
- Were incorporated in Singapore;
- Were a tax resident in Singapore for that YA; and
- Have no more than 20 shareholders beneficially holding the company’s total share capital. Furthermore, either all the shareholders must be individuals, or at least 1 shareholder must be an individual holding at least 10% of the company’s issued ordinary shares.
The following companies do not qualify for Start Up Tax Exemption:
- A company whose principal activities are that of investment holdings, or
- A company which undertakes property development for sale, for investment, or for both investment and sale
Investment holding companies 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.
This doesn’t mean that new investment holding companies or property development companies don’t qualify for tax exemption at all. Such companies will qualify instead for Partial Tax Exemption (PTE), which still offers great tax exemption benefits – just not as generous as those found under the SUTE scheme. We’ll provide an overview of the PTE scheme later in this article.
#6. When is a company considered a Singapore tax resident?
If a company’s its control and management was exercised in Singapore for the previous Year of Assessment, then the company would be considered tax-resident in Singapore.
Control and management refers to the making of strategic corporate decisions. For instance, if management is based in Singapore, or if board meetings are held in Singapore, then the company would be considered a Singapore tax resident.
#7. Do companies limited by guarantee/non-profits qualify for tax exemption?
Yes. Companies limited by guarantee can claim tax exemption under this scheme. Companies limited by guarantee are commonly formed by non-profit groups like charities, trade associations, etc.
There are 2 conditions to claim tax exemption:
- All members are only individuals, with no corporate members. This applies throughout the company’s Year of Assessment in which tax exemption is being claimed.
- At least 1 of its members is an individual who has contributed at least 10% of the total contributions of the members of the company throughout the company’s Year of Assessment.
#8. How do I claim my Start-Up Tax Exemption?
You don’t have to fill in any special forms to claim the Start Up Tax Exemption. All you need to do is simply file your annual corporate tax return, as you normally would. IRAS will automatically calculate the amount of tax exemption you’re entitled to. It’s a straightforward process.
#9. Can I extend my Start Up Tax Exemption beyond 3 years?
No. There is no extension of the Start Up Tax Exemption beyond the 3rd Year of Assessment. However, all companies will enjoy Partial Tax Exemption (PTE) after their 3rd Year of Assessment. PTE is another tax exemption scheme that reduces corporate taxes payable, subject to certain conditions. This is designed to recognise the economic contributions of SMEs, and to promote entrepreneurship.
#10. What is the tax exemption amount under the Partial Tax Exemption (PTE)?
Under the Partial Tax Exemption scheme, companies can claim:
- 75% tax exemption on the first $10,000 of normal chargeable income, and
- 50% exemption on the next $190,000 of normal chargeable income
|Tax payable with PTE||Tax payable without PTE|
|Tax on first $10,000 of chargeable income||$425||$1,700|
|Tax on next $190,000 of chargeable income||$16,150||$32,300|
|Total tax payable||$16,575||$34,000|
|Tax savings with PTE||51.25%|
With the PTE scheme, you get to reduce your tax burden by more than half for your first $200,000 in chargeable income! Those are some serious savings.
Since there is no limit to the number of years that you can claim Partial Tax Exemption, you will be able to save up to $17,425 in taxes per year. This represents substantial savings when you compound it over a lifetime of running a business.
#11. What are the penalties for misusing the Start-Up Tax Exemption Scheme?
The authorities take a strict view towards individuals who try to abuse tax exemption schemes. A common method employed by those with nefarious motives is to start up a successive chain of new companies every few years, so that they can file tax exemption claims.
Be forewarned that tax evasion is a criminal offence in Singapore, and the penalties for this crime are heavy. If you are convicted of tax evasion, you can be:
- Jailed for up to 3 years, per count of tax evasion, and/or
- Fined up to $10,000, per count of tax evasion, and/or
- Fined up to 3x the amount of tax evaded
#12. How do I protect my start up against lawsuits and other business risks?
Since you’ve invested lots of money and time into starting your new business, you definitely want to protect your company from major risks that could jeopardise everything you’ve sunk into your venture. Having a comprehensive suite of affordable insurance coverage will protect your company from business lawsuits, employee liability, premises damage, and more.
Provide offers the most affordable and comprehensive business insurance plans in Singapore. Click the links below to get insured online, in just 3 mins!
- Public Liability Insurance with Food Poisoning Extension from $9/month
- Work Injury Compensation (WICA) Insurance from $5/month
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- Business Interruption Insurance from $9/month