Tax Exemption Scheme for New Start-Up Companies

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.

New! 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 New!

  • 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.

Tax Exemption on First $200,000 of Chargeable Income (where any YA of the first 3 YAs falls in or after YA 2020) New!

Chargeable Income % Exempted from Tax Amount Exempted from Tax
First $100,000 75% $75,000
Next $100,000 50% $50,000

The maximum exemption for each YA is $125,000 ($75,000 + $50,000).

Tax Exemption on First $300,000 of Chargeable Income (where any YA of the first 3 YAs falls in YA 2010 to YA 2019)

Chargeable Income % Exempted from Tax Amount Exempted from Tax
First $100,000 100% $100,000
Next $200,000 50% $100,000

The maximum exemption for each YA is $200,000 ($100,000 + $100,000).

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.

Determining the First YA of a Qualifying Company

The exemption is for the company’s first three consecutive YAs. The first YA is the YA relating to the basis period during which the company is incorporated.

The first YA of a company depends on the financial year end chosen and the closing date of the first set of accounts. Hence, the first YA of a company may be different from another company that is incorporated on the same day.

Deduction of Expenses Incurred Before Commencement of Business

Only revenue expenses incurred after your business commences are deductible for tax purposes.

As a concession, revenue expenses incurred one year before the first day of the financial year in which you earn your first dollar of business receipt will be tax-deductible.