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• Company Tax Exemption Scheme
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Company Tax Exemption Scheme

Tax Exemption Scheme for New Start-Up Companies

The tax exemption scheme for new start-up companies was introduced in Year of Assessment (YA) 2005 to support entrepreneurship and help our local enterprises grow.

As other support for companies to build capabilities is being strengthened, it was announced in Budget 2018 that the tax exemption under the scheme will be revised. The changes will take effect from YA 2020 for all qualifying companies that claim the tax exemption under the scheme.

With the changes, qualifying companies will be given the following tax exemption for the first three consecutive YAs where the YA falls in:

YA 2020 onwards

• 75% exemption on the first $100,000 of normal chargeable income*; and
• A further 50% exemption on the next $100,000 of normal chargeable income*.

YA 2019 and before

• Full exemption on the first $100,000 of normal chargeable income*; and
• A further 50% exemption on the next $200,000 of normal chargeable income*.

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

The tables below summarise the amount of tax exemption.

Qualifying Conditions for Start-Up Companies

The tax exemption is open to all new companies except these two types of companies:

• A company whose principal activity is that of investment holding; and
• A company which undertakes property development for sale, for investment, or for both investment and sale.

To qualify for tax exemption for start-ups, eligible companies must satisfy these three qualifying conditions:

1. The company must be incorporated in Singapore;
2. The company must be a tax resident* in Singapore for that YA;
3. The company’s total share capital is beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:
   • all of the shareholders are individuals; or
   • at least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company.

* A company is resident in Singapore if the control and management of its business is exercised in Singapore.

The First Year of Assessment

The first YA refers to the YA relating to the basis period during which the company was incorporated.

From the fourth YA onwards, your company will be given partial tax exemption instead of the exempt amount for new start-up companies.

To illustrate, if your company was incorporated on 1 Jul 2006 and your financial year end and the period covered in your first set of accounts are as follows:

* The first set of accounts covered a period of 18 months. As the basis period for the first YA cannot be more than 12 months, it is necessary to apportion the income for YA 2007 and YA 2008. As such, the first YA will be YA 2007 instead of YA 2008.

The apportionment of income can be based on the number of days for the period from 1 Jul 2006 to 31 Dec 2006 (YA 2007) and the period from 01 Jan 2007 to 31 Dec 2007 (YA 2008).

For details on how to prepare your tax computation, please refer to Preparing tax computation.

What if your company incurs losses or has no income in any of the first three YAs

If during any of the first three YAs, your company incurs losses or it has no income (e.g. business has not commenced), your chargeable income and tax payable will be nil. In this case, since there is no chargeable income, your company cannot enjoy the benefit given under the tax exemption scheme for new start-up companies for that particular YA. However, that particular YA will still be included in determining the first three consecutive Yas.

For example:

Your company`s first three YAs are YA 2007, YA 2008 and YA 2009. It has not commenced trading and has no income in YA 2007 and YA 2008. In this case, your company can only claim for tax exemption for new start-up companies in YA 2009 (assuming your company satisfies all the qualifying conditions and there is chargeable income in YA 2009). YA 2009 is considered your third YA although this is your first claim for tax exemption for new start-up companies. You cannot claim for tax exemption for new start-up companies in YA 2010, which is considered your fourth YA. However, you will be given partial tax exemption in YA 2010.
 

Partial Tax Exemption for Companies (PTE)

As other support for companies to build capabilities is being strengthened, it was announced in Budget 2018 that the tax exemption under the scheme will be revised. The changes will take effect from YA 2020 for all qualifying companies that claim the tax exemption under the scheme.

Qualifying companies can enjoy the following tax exemption:

YA 2020 onwards

• 75% exemption on the first $10,000 of normal chargeable income*; and
• A further 50% exemption on the next $190,000 of normal chargeable income*.

YA 2019 and before

• 75% exemption on the first $10,000 of normal chargeable income*; and
• A further 50% exemption on the next $290,000 of normal chargeable income*.

The tables below summarise the amount of tax exemption.