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Understanding Tax Exemption Schemes for Singapore Businesses

19 June 2024

Editor: ET


Singapore offers attractive tax exemption schemes to support new start-up companies and existing businesses. These schemes help reduce the corporate tax burden, fostering entrepreneurship and business growth.

This article delves into the tax exemption schemes available, highlighting key details and benefits for companies operating in Singapore.


Tax Exemption Scheme for New Start-Up Companies

Introduced under Section 43 of the Income Tax Act 1947 in the Year of Assessment (YA) 2005, the tax exemption scheme for new start-up companies aims to support entrepreneurship and boost local enterprises. Revised in Budget 2018, the scheme provides tax relief for the first three consecutive YAs for qualifying companies.


Tax Exemptions from YA 2020 Onwards

From YA 2020, the tax exemptions are structured as follows:

  • 75% exemption on the first $100,000 of normal chargeable income

  • 50% exemption on the next $100,000 of normal chargeable income

This allows qualifying start-ups to enjoy a maximum exemption of $125,000 per YA.


Tax Exemptions for YA 2019 and Before

Prior to YA 2020, the exemptions were more generous:

  • 100% exemption on the first $100,000 of normal chargeable income

  • 50% exemption on the next $200,000 of normal chargeable income

This provided a maximum exemption of $200,000 per YA for qualifying companies.


Qualifying Conditions

To benefit from the tax exemption scheme, new start-up companies must meet certain conditions:

  • Be incorporated in Singapore.

  • Be a tax resident of Singapore for the relevant YA.

  • Have total share capital beneficially held directly by no more than 20 shareholders, with at least one shareholder being an individual holding at least 10% of the issued ordinary shares.


Exclusions:

  • Companies primarily involved in investment holding.

  • Companies engaged in property development for sale, investment, or both.


How to Claim the Tax Exemption

To claim the tax exemption, companies need to complete the relevant sections of the Estimated Chargeable Income (ECI) filing and Form C-S/Form C-S (Lite)/Form C. It is crucial to ensure that all conditions are met and the necessary documentation is accurately filed to benefit from the scheme.


Abuse of the Tax Exemption Scheme

The Inland Revenue Authority of Singapore (IRAS) takes a strict view on the abuse of the tax exemption scheme. IRAS has identified several forms of abuse, including:

  • Setting up shell companies to exploit the tax exemption threshold.

  • Charging fees or expenses to profitable companies without bona fide commercial reasons.


Such abusive arrangements result in overall tax reduction for the companies involved. As of January 2021, IRAS audited over 300 companies for potential abuse, recovering more than $25 million in taxes and penalties.

Singapore’s tax exemption schemes provide significant benefits for new start-up companies and existing businesses, helping to reduce tax liabilities and promote economic growth. Companies must ensure compliance with the qualifying conditions and avoid abusive practices to fully leverage these tax relief measures.


For more detailed guidance and insights, visit expede.com.sg.

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