Startup Tax Exemptions: Unlocking Savings with Expert Strategies and Real Examples

At Counto, we’re not just about numbers; we’re about making the complex world of taxes simpler for you. Today, we’ll have a closer look at startup tax exemptions, an essential piece of knowledge for every new business owner and entrepreneur.

Startup Tax Exemption Scheme (SUTE) with Example

Eligible for startups in their first three consecutive tax returns, the Tax Exemption Scheme for startups significantly reduces the amount of tax you need to pay, letting you reinvest more back into growing your business. Let’s break it down with a simple example:

Imagine your startup’s financials look like this for the year:

• Revenue: $500,000
• Expenses: $200,000
• Profit (or chargeable income after tax adjustments): $300,000

With the Startup Tax Exemption, here’s how your taxes get lighter:

• You get a 75% exemption on the first $100,000 of your chargeable income. That’s a $75,000 reduction.
• On the next $100,000, you receive a 50% exemption, which equals $50,000.

This results in a total tax exemption of $125,000, which can be a game-changer for a growing business.

The Financial Impact after applying the SUTE:

• Final chargeable income: $175,000 (original profit of $300,000 minus the $125,000 exemption)
• With the current corporate tax rate at 17%, the tax payable would be $29,750.

Eligibility Criteria:

• Your startup must be a Singapore-registered company.
• Have no more than 20 shareholders, with at least one individual shareholder holding a minimum of 10% of the shares.
• Must be a tax resident of Singapore for the YA.

Note: SUTE is not applicable to companies engaged in investment holding, property development for sale, investment, or both.

Partial Tax Exemption (PTE) with Example

Once your company is more than three years old, you can take advantage of the Partial Tax Exemption (PTE) for ongoing support. This exemption isn’t just for companies moving past their startup phase; it’s also for those that didn’t qualify for the SUTE. All companies, regardless of their incorporation date, can enjoy:

• A 75% exemption on the first $10,000 of normal chargeable income.
• An additional 50% exemption on the subsequent $190,000.

Through an example, imagine your company’s financials look like this:

• Revenue: $500,000
• Expenses: $200,000
• Profit (or chargeable income after tax adjustments): $300,000

Under the PTE, your company benefits from:

• A 75% exemption on the first $10,000 of chargeable income, equaling a $7,500 exemption.
• A 50% exemption on the next $190,000 of chargeable income, providing a $95,000 exemption.

This results in a total tax exemption of $102,500, significantly reducing your taxable income.

The Financial Impact after applying the PTE:

• Final chargeable income: $197,500 (original profit of $300,000 minus the $102,500 exemption).
• With the current corporate tax rate at 17%, the tax payable would be $33,575.

Strategic Financial Planning: Timing is Everything

1. Maximising the Exemption Window: Aim to align your first financial year close to 12 months. This approach allows you to make the most out of your startup exemption phase.
2. Profit Matters: Remember, exemptions are only valid on taxable profits. If your startup isn’t generating income or profits in a financial year, these exemptions won’t apply.

Case Study and Expert Insights

Consider a hypothetical company incorporated on 1st April 2022, with various key dates and obligations ahead. Here’s a crucial piece of advice: If your startup doesn’t generate revenue in its initial months, consider extending your financial year to June 2023.

This strategy ensures you don’t waste your valuable startup exemption period on a shorter, less profitable span.

Moreover, being a tax resident of Singapore is vital to qualify for these exemptions. Ensure your company’s control and management are executed from Singapore, with strategic decisions and key operations based locally.

Summary

When you’re just starting, every dollar saved is a dollar earned. Leveraging startup tax exemptions equips you with a strategic advantage, allowing you to channel more resources into areas that spur growth. At Counto, our seasoned tax specialists are committed to guiding you through every step of this journey, ensuring your entrepreneurial dream thrives in the bustling economic landscape.

Experience the Counto advantage

Counto is the trusted provider of accounting, tax preparation and CFO services for startups and SMEs. Get accounting plans that combine bookkeeping with corporate tax filing to help you stay compliant at an affordable price. To learn more, speak to us directly on our chatbot, email us at [email protected], or contact us using this form.

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