Singapore has always been a welcoming location for entrepreneurship and business building. According to the World Bank’s Business Ready 2024 Report, Singapore is one of the top “Business Ready” economies.
Besides being one of the easiest places in the world to do business, Singapore is also an attractive location for its low corporate tax rate. The Singapore Government also attempts to attract global (as well as local) entrepreneurs to set up shop in Singapore by offering new start-up companies very generous tax breaks.
For entrepreneurs and Singaporeans alike, here’s a guide to Singapore’s tax exemption scheme for start-ups and how they can benefit from opening a new business in the city state.
Read Also: Complete Guide To Singapore Corporate Taxes: Tax Rates, Tax Rebates And Tax Exemptions
Tax Exemption For Start-Ups For First Three Years
Singapore is already a very attractive place for businesses given its flat corporate income tax (CIT) rate of 17%. However, start-up companies in Singapore can also receive an exemption of a portion of their chargeable income (i.e. profits) for the first three years of assessment after being formed.
This tax exemption scheme was introduced for new start-up companies under Section 43 of the Income Tax Act 1947 and was first introduced in the Year of Assessment (YA) 2005. The original plan was later revised from YA2019 onwards.
The current tax exemption scheme means that for the first S$100,000 in chargeable income a newly-created Singapore company has, 75% of that amount (or S$75,000) will be exempt from CIT. This exemption also extends to the next S$100,000 in chargeable income, but in that case, there is a step down in the percentage that is exempt – with 50% of the next S$100,000 in chargeable income being exempt from CIT.
Tax Exemption On First S$200,000 Of Chargeable Income
Source: iras.gov.sg
Therefore, the maximum amount that is exempt from CIT, for any one YA, is S$125,000. This tax exemption scheme extends to start-up companies for its first three years and the maximum tax exemption that can be claimed across those three years is S$375,000 of chargeable income.
At a 17% corporate income tax rate, this can boost cash flow for young businesses, up to the tune of $63,750.
What Companies Are Eligible For The Tax Exemption Scheme?
The qualifying criteria to be eligible for the start-up tax exemption scheme is – fortunately – not that stringent. All start-up companies in Singapore are eligible to apply for the tax exemption scheme it but there are two notable exceptions to this:
- Companies where the principal business activity/activities are that of investment holding
- Companies that undertake property development for sale, investment, or both
Besides not being one of these types of companies, new start-up firms in Singapore need only be:
- Incorporated in Singapore
- A tax resident of Singapore for that YA
- Have its total share capital beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where all shareholders are individuals, or at least one shareholders is an individual holding at least 10% of the issued ordinary shares of the company
Generous Exemption For Companies Starting Out
As with the broader benefits of Singapore’s start-up ecosystem – from the networks to the infrastructure – we can also add tax benefits to the list of reasons that entrepreneurs want to set up here.
To claim, or apply, for the tax exemption scheme, the Inland Revenue Authority of Singapore (IRAS) directs applicants to complete the relevant sections of the Estimated Chargeable Income (ECI) filing here as well as Form C-S/Form C-S Lite/Form C here.
The low CIT rate of 17% in Singapore is further boosted by the attractiveness of a tax exemption scheme on S$125,000 of the first S$200,000 of chargeable income for the first three YAs for new companies.
Read Also: What Does The Average Business In Singapore Look Like?
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