A newly incorporated company in Singapore receives a larger tax exemption for its first three Years of Assessment. You keep the benefit only when you meet the conditions in each of those years. Check them before you set up the shareholders, the year end and your own pay.
The start-up tax exemption
For each of the first three consecutive YAs, 75% of the first S$100,000 of normal chargeable income is exempt. 50% of the next S$100,000 is exempt as well. The largest exempt amount is S$125,000 a year. After the third YA, the partial tax exemption takes over, with a largest exempt amount of S$102,500.
The conditions
– Your company is incorporated in Singapore.
– Your company is a tax resident for the YA.
– Your company has no more than 20 shareholders throughout the basis period.
– Either all shareholders are individuals, or at least one individual holds 10% or more of the ordinary shares.
– Your company is not an investment holding company or a property development company.
The numbers
Take chargeable income of S$80,000.
With the start-up exemption:
– Exempt amount: 75% of S$80,000, which is S$60,000.
– Taxable amount: S$20,000.
– Tax at 17%: S$3,400.
With the partial tax exemption:
– Exempt amount: S$7,500 on the first S$10,000, plus S$35,000 on the next S$70,000, which gives S$42,500.
– Taxable amount: S$37,500.
– Tax at 17%: S$6,375.
The start-up exemption saves S$2,975 in this year.
Choices to make in the first year
– Structure. A sole proprietor pays personal income tax rates. A company pays corporate rates and stands as a separate legal entity. Incorporating through ACRA Bizfile costs S$300 plus S$15 for the name application.
– Shareholders. Adding a corporate shareholder is fine when an individual still holds 10% or more of the ordinary shares. Adding a twenty-first shareholder ends your eligibility.
– Financial year end. Your ECI falls due 3 months after the year end, so choose a date which leaves you time to close the books.
– Your own pay. The start-up exemption changes the answer between salary and dividends, so run both options before you fix your pay.
– GST. Registration is compulsory only when taxable turnover exceeds S$1 million in the 12 months to a calendar year end. Voluntary registration brings duties: an e-learning course (unless you are exempt), GIRO, at least 2 years on the register, and InvoiceNow for a newly incorporated company. Register when a customer or a cost structure gives you a reason.
– Records. Open a business bank account on day one and keep every invoice and receipt. IRAS expects tax records for at least 5 years.
File on time in every one of the three years. The exemption covers tax on profit, and late returns still bring composition, summons or estimated assessments.
Send your latest profit figure or your question by WhatsApp to +65 9876 3553 or by email to henry@cschow.com.sg.
Henry Chow
Public Accountant, C S Chow & Co