Tax Exemption Scheme for New Start-Up Companies in Singapore

Starting a business in Singapore comes with significant tax advantages, particularly for new start-up companies. To encourage entrepreneurship and support the growth of small businesses, the Inland Revenue Authority of Singapore (IRAS) offers the Tax Exemption Scheme for New Start-Up Companies. This guide provides a comprehensive overview of the scheme, eligibility criteria, benefits, and how to claim the tax exemption.

What is the Tax Exemption Scheme for New Start-Up Companies?

The Tax Exemption Scheme for New Start-Up Companies was introduced to support entrepreneurship and foster the growth of local businesses. Eligible companies can enjoy substantial tax savings on their chargeable income for the first three consecutive years of assessment (YAs).

Key Features of the Scheme

Under the scheme, eligible companies can enjoy the following tax exemptions for their first three YAs:

1. 100% Exemption on the first $100,000 of chargeable income.
2. 50% Exemption on the next $200,000 of chargeable income.

This means that new start-up companies can enjoy up to $125,000 in tax exemptions annually, translating to significant tax savings during their critical growth phase.

Eligibility Criteria for the Scheme

To qualify for the Tax Exemption Scheme for New Start-Up Companies, a company must meet the following conditions:

1. Incorporated in Singapore:
   • The company must be incorporated in Singapore.
2. Tax Resident in Singapore:
   • The company must be a tax resident in Singapore for the relevant YA.
3. Ownership:
   • The company must have no more than 20 shareholders throughout the basis period for the YA.
   • All shareholders must be individuals, except when at least one shareholder is an individual holding at least 10% of the issued shares.
4. Exclusions:
   • The scheme does not apply to:
   • Property development companies
   • Investment holding companies

How to Claim the Tax Exemption

Step 1: Prepare Financial Statements

• Ensure your company’s financial statements are accurate and complete.

Step 2: File Form C-S or Form C

• Declare your company’s income and claim the tax exemption through the Corporate Income Tax Return (Form C-S or Form C).

Step 3: Calculate Chargeable Income

• Compute your company’s chargeable income and apply the exemption limits accordingly.

Step 4: Submit on Time

• File your tax return by 30 November for each YA to avoid penalties.

Examples of Tax Savings

Scenario 1: Chargeable Income of $200,000

• First $100,000: 100% exempted = $0 taxable
• Next $100,000: 50% exempted = $50,000 taxable
• Total taxable income = $50,000

Scenario 2: Chargeable Income of $300,000

• First $100,000: 100% exempted = $0 taxable
• Next $200,000: 50% exempted = $100,000 taxable
• Total taxable income = $100,000

Common Mistakes to Avoid

1. Missing Filing Deadlines:
   • Ensure timely submission of tax returns to claim the exemption.
2. Incomplete Financial Records:
   • Maintain accurate financial statements to support your claims.
3. Misunderstanding Ownership Rules:
   • Verify that your company meets the ownership criteria to qualify for the scheme.

Benefits of the Tax Exemption Scheme

1. Significant Tax Savings:
   • Save up to $125,000 annually in corporate tax during the first three YAs.
2. Improved Cash Flow:
   • Reduced tax liabilities free up cash for business expansion and operations.
3. Encourages Entrepreneurship:
   • Lowers the financial barriers to starting a business in Singapore.

How Apexia Corporate Advisory Can Help

At Apexia Corporate Advisory, we specialize in helping new start-ups navigate the complexities of tax regulations and maximize the benefits of the Tax Exemption Scheme. Our services include:

1. Tax Advisory Services
   • Assess your company’s eligibility for the scheme and provide tailored advice.
2. Tax Filing Assistance
   • Prepare and file accurate corporate tax returns to claim the exemption.
3. Financial Record-Keeping
   • Ensure your financial statements meet IRAS requirements.
4. Compliance Reviews
   • Conduct reviews to ensure ongoing compliance with tax regulations.

Conclusion

The Tax Exemption Scheme for New Start-Up Companies is a valuable incentive for entrepreneurs in Singapore, offering substantial tax savings during the critical early years of business. By leveraging this scheme, you can reduce your tax liabilities and focus on growing your business. For professional advice and assistance, contact Apexia Corporate Advisory today.