Key Singapore Startup Tax Exemption Schemes

Singapore is renowned for its business-friendly environment, and one of the perks it offers to budding entrepreneurs is a range of tax exemption schemes. These schemes aim to foster entrepreneurship, attract startups, and boost local businesses. In this blog post, we’ll delve into the key tax exemption schemes that can significantly benefit your new company in Singapore.

1. New Start-up Tax Exemption Scheme (SUTE)

Singapore introduced the New Start-up Tax Exemption Scheme (SUTE) in 2005 to support local entrepreneurship and the growth of startups. Under this scheme, newly-incorporated companies in Singapore enjoy significant tax exemptions for their first three consecutive Years of Assessment (YAs) following their incorporation.

Here’s a breakdown of the tax exemptions provided by the SUTE scheme:

• 75% exemption on the first $100,000 of normal chargeable income, resulting in an effective tax rate of 4.25% on the initial $100,000 of income.
• An additional 50% exemption on the next $100,000 of chargeable income, resulting in an effective tax rate of 8.5% on the subsequent $100,000 of income.

Normal chargeable income refers to income taxed at the prevailing corporate tax rate.

Qualifications for SUTE Scheme:

To qualify for the SUTE Scheme, your company must meet the following conditions:

• The company must be incorporated in Singapore.
• The company must be a tax resident in Singapore for that YA.
• The company’s total share capital should be beneficially held directly by no more than 20 shareholders throughout the basis period for that YA. These shareholders must either be individuals or include at least one individual holding at least 10% of the issued ordinary shares of the company.

Exceptions: The SUTE scheme is not applicable to companies primarily involved in investment holdings or property development for sale and/or investment.

Determining the First Three YAs:

The first YA for your business depends on the financial year-end chosen and the closing date of the first set of accounts. Consequently, two companies incorporated on the same day may have different first YAs. However, the SUTE scheme is only available for the first three YAs of your business.

2. Partial Tax Exemption Scheme (PTE)

Who’s eligible?

• Companies in the fourth YA onwards that have completed the SUTE.
• Businesses that are ineligible for the SUTE.

This scheme offers tax exemptions on a portion of your company’s chargeable income.

Under the PTE scheme, companies receive:

• A 75% exemption on the first $10,000 of normal chargeable income, resulting in an effective tax rate of 4.25% on the initial $10,000 of income.
• An additional 50% exemption on the next $190,000 of chargeable income, resulting in an effective tax rate of 8.5% on the subsequent $190,000 of income.

3. Tax Exemption for Foreign Sourced Income

Singapore also offers tax exemptions for various types of foreign-sourced income, including foreign sourced dividends, foreign branch profits, and foreign-sourced service income. To be eligible for this exemption, the foreign-sourced income must meet certain criteria, such as a minimum tax rate in the foreign jurisdiction and being beneficial to the Singapore tax resident.

4. Deductible Expenses

Businesses can deduct revenue expenses incurred after the commencement of their business operations. Additionally, revenue expenses incurred up to one year before the start of the financial year in which you earn your first income are tax-deductible. These expenses include capital allowances (CA) on fixed assets and renovation and refurbishment (R&R) expenses.

Summary

Singapore’s startup tax exemption schemes offer significant advantages to newly-incorporated companies, promoting entrepreneurship and fostering business growth. However, it’s crucial to comply with the regulations void abusing tax exemption schemes, as the Inland Revenue Authority of Singapore (IRAS) takes a firm stance against such practices. By understanding and utilising these schemes wisely, you can enjoy substantial tax benefits during your startup’s initial years in Singapore.