The Singapore government has been working on developing a pro-business environment in Singapore ever since its independence. The Singapore government offers several benefits, incentives, and grants, to encourage businesses to set up their base in Singapore. If you need help setting up your business in Singapore, check out our company incorporation services.
The tax deduction is a significant component that eats up a company’s profits. And, if you are worried about the same, we have some good news for you, my friend. The corporate tax rate in Singapore is already competitive and is charged at a flat 17%.
And to make matters even better for corporates, from YA 2005, the Singapore government introduced tax exemptions for newly incorporated companies for the first three consecutive years of assessment (YAs). This scheme was revised in YA 2020 and is as below:
- 75% exemption on the first $100,000 of normal chargeable income* in each of the three YAs;
- and a further 50% exemption on the next $100,000 of normal chargeable income in each of the three YAs.
*Normal chargeable income refers to the income that would be taxed at the prevailing corporate tax rate of 17%.
Any income over the first $200,000 is charged at the regular corporate tax rate of 17%.
Read more about Corporate Income Tax 2021 and COVID-19 Support for businesses.
Tax Exemption Schemes for New Startup Companies
For example, Company X qualifies for the tax exemption scheme for new start-ups from YA 2019 to YA 2021. Their total normal chargeable income before tax exemption for the 3 YAs is $300,000 for YA 2019, $280,000 for YA 2020, and $250,000 for YA 2021. Company A can compute the exempt amount and tax payable for the three YAs as follows:
YA 2019
| Normal chargeable income before the exempt amount | % Exempted (Rates applicable before the 2020 revision) |
Amount Exempted |
| First 100,000 | 100% | 100,000 |
| Next 200,000 | 50% | 100,000 |
| Total | 200,000 |
Computation of Company A’s taxable income after the exemption for YA 2019:
| Particulars | Amount (S$) |
| Chargeable income before the exempt amount | 300,000 |
| Less – Exempt amount | 200,000 |
| Chargeable income after the exempt amount | 100,000 |
YA 2020
| Normal chargeable income before the exempt amount | % Exempted (Rates applicable after the 2020 revision) |
Amount Exempted |
| First 100,000 | 75% | 75,000 |
| Next 100,000 | 50% | 50,000 |
| Total | 125,000 |
Computation of Company A’s taxable income after the exemption for YA 2021:
| Particulars | Amount (S$) |
| Chargeable income before the exempt amount | 250,000 |
| Less – Exempt amount | 125,000 |
| Chargeable income after the exempt amount | 125,000 |
Fourth-year onwards, the companies can leverage the partial tax exemption scheme to continue saving on their tax. From YA 2020 onwards, the scheme gives a 75% tax exemption on the first $10,000 of normal chargeable income and a further 50% on the next $190,000 of normal chargeable income, making the maximum total tax saving $102,500 per annum.
Eligibility for Tax Exemption Scheme for New Start-Up Companies
All companies new start-up companies incorporated in Singapore are eligible to claim tax exemption under this scheme, except for:
- Companies whose principal activity are that of investment holding;
- Companies that undertake property development for sale, investment, or both
Also, the companies should meet the following criteria to quality:
- Be a Singapore tax resident for that YA;
- There should be a maximum of 20 shareholders in that YA who are either all individuals or at least one individual holding a minimum of 10% of the issued ordinary shares.
The companies must file their annual returns as usual to claim the tax benefits. IRAS would automatically compute the amount of tax exemption applicable to them. So make sure you put in all your details correctly while filing your returns to get the most from this scheme.
