Tax Exemptions for New Companies in Singapore: Benefits and Qualifying Criteria
One of the attractions for starting a business in Singapore is the tax exemptions for new businesses in the city-state. Over the years, the government has come up with a myriad of schemes and tax exemptions designed to help new startups get going in their ventures as soon as possible, and if you are an aspiring entrepreneur, it is worth considering these tax exemptions for new companies if you have your eyes set for Singapore.
It is a fact that newly started businesses will always experience financial turbulence during the initial stages, and sometimes they may not register profits during their first few years of operation. The government of Singapore is well aware of this, and this was one of the main reasons for coming up with different schemes such that startups may be shielded financially when they are still struggling to get their foot strong in the business.
However, it is not just every business that will benefit from this philanthropic gesture by the Singapore government. There is a set of criteria every startup must meet if they are to be considered for the tax exemptions. Some of the eligibility criteria include-:
- Incorporation in Singapore- the company must have been incorporated in Singapore. It means foreign companies incorporated outside Singapore but with operations in Singapore are not eligible.
- For a company to qualify the exemption, they must be task residents of Singapore. It means that they must have been registered with the Inland Revenue Authority of Singapore and liable to pay taxes in the country.A
- number of shareholders – companies qualifying for exemptions must have a maximum number of 20 shareholders.
- The company must not be a property development company or an investment holding company.
With the exemptions, companies usually receive complete tax exemptions for new companies or partial exemption for the first three years of their operations as shown below-:
- The first year – for companies who meet the exemption criteria, a 100% tax exemption for new companies will apply on the first SGD 100,000 of the company’s taxable income.
- Second-year – during the second year of operation, or the second year of assessment, the business will receive a partial exemption of 50% on taxable income of between SGD 100,000 and SGD 30,000, with the rest of the income being taxed at another 50% of the normal tax rate.
- The third year – for qualifying companies, the tax rate will be the normal 17%, but on taxable incomes of between SGD 300,000 and SGD 2,000,000.
From the above, companies making less than SGD 100,000 in their first year of assessment will not have to worry about paying any taxes. This is a great relief for a plethora of small and medium-sized enterprises, where, if it were in other countries, they would literally cease operations due to high taxes.
You will also be interested to know that in addition to tax exemptions for new companies, there is also income tax audit exemption for businesses with a corporate shareholder number of less than 20 and an annual income of below SGD 5,000,000. These are just but the many incentives that have elevated Singapore to global economic stardom and a great attraction for a plethora of small and medium-sized enterprises.