1. What is the Start-Up Tax Exemption (SUTE)?
The Start-Up Tax Exemption (SUTE) is a tax relief program designed to help new companies in Singapore by providing partial exemptions on their corporate tax for the first three years of assessment (YA). The goal is to give new businesses the breathing room they need to grow without the immediate burden of corporate taxes.
Under the SUTE, qualifying start-ups receive tax exemptions on their chargeable income for the first three years, with specific exemptions on the first S$100,000 and the next S$100,000 of taxable income.
2. How does the Start-Up Tax Exemption work?
Here’s how the SUTE works:
- For the first S$100,000 of chargeable income:
75% of this amount is exempt from tax.
This means if your taxable income for the year is S$100,000 or less, you could potentially pay no corporate tax at all. - For the next S$100,000 of chargeable income:
50% of this amount is exempt from tax.
For example, if your taxable income is between S$100,001 and S$200,000, only 50% of the amount over S$100,000 will be taxed.
The remaining income (above the first S$200,000) is subject to the regular corporate tax rate of 17%.
3. What are the eligibility criteria for the Start-Up Tax Exemption?
To qualify for the Start-Up Tax Exemption, your company must meet the following conditions:
- Be a tax resident: The company must be tax resident in Singapore. This generally means that the company must be incorporated in Singapore and have its central management and control in Singapore.
- Be a new company: The company must be incorporated in Singapore and be a new start-up. This means the company must not have been incorporated for more than 3 years before the Year of Assessment (YA) in question.
- Shareholding requirements: The company must have no more than 20 shareholders, and the shareholders must be individuals, or one of the individuals must hold at least 10% of the total shareholding in the company.
- Not a related party: The company must not be a subsidiary of another company or part of a group of companies where the main operations are already established.
These criteria help ensure that only genuine start-ups benefit from the tax exemptions.
4. What is the Partial Tax Exemption (PTE)?
After the first three years, businesses can still benefit from tax relief through the Partial Tax Exemption (PTE), which continues to offer tax breaks on a company’s chargeable income.
Under the PTE scheme, businesses receive tax exemptions on the first S$10,000 of chargeable income and a partial exemption on the next S$190,000, which helps reduce the overall tax burden for SMEs.
5. How does the Partial Tax Exemption work?
Here’s how the Partial Tax Exemption works for qualifying companies:
- For the first S$10,000 of chargeable income:
75% of this amount is exempt from tax. - For the next S$190,000 of chargeable income:
50% of this amount is exempt from tax.
The remaining income, which exceeds S$200,000, is taxed at the full corporate tax rate of 17%.
The PTE is designed to provide ongoing support to SMEs, ensuring that smaller businesses continue to benefit from tax relief even after the first few years of operations.
6. What are the eligibility criteria for the Partial Tax Exemption?
The Partial Tax Exemption is available to all Singapore-based companies, including start-ups that have passed the initial three years of exemption under the SUTE. To qualify, your business must:
- Be a tax resident in Singapore: The company must be incorporated in Singapore and managed in Singapore to qualify for tax residency.
- Be an active business: Your company must not be dormant or inactive. If your company has been set up for investment purposes only (such as holding shares or real estate), it may not qualify for the PTE.
Unlike the Start-Up Tax Exemption, there are no shareholding or ownership restrictions under the Partial Tax Exemption, meaning that it applies to all qualifying companies, regardless of their size or shareholder structure.
7. How do these exemptions affect my accounting and tax filings?
Both the Start-Up Tax Exemption and Partial Tax Exemption reduce your company’s chargeable income, which directly impacts the amount of tax you owe. Here’s how they affect your accounting:
- Income Statement: The exemptions reduce your taxable income, meaning your company will report lower tax expenses on your income statement.
- Balance Sheet: As tax is owed or exempted, your liability (tax payable) is reflected on your balance sheet. The tax relief from these exemptions can improve your overall financial position, especially in the early years of operation.
- Cash Flow: The lower tax burden from these exemptions will free up cash flow, giving your company more flexibility to reinvest in growth, operations, or other strategic initiatives.
Remember to account for these exemptions correctly when preparing your financial statements, as they directly affect your tax liability and profitability.
8. How long do these exemptions last?
- The Start-Up Tax Exemption lasts for the first 3 years of assessment (YA) from the year your company is incorporated.
- The Partial Tax Exemption applies thereafter, as long as the company remains tax-resident in Singapore. There is no time limit on how long you can benefit from the PTE once you’ve passed the start-up phase.
This means your company can potentially benefit from tax relief for a significant period of time, which can be a key factor in your financial planning and budgeting.
9. Can an SME apply for both Start-Up Tax Exemption and Partial Tax Exemption?
Yes, your company can benefit from both tax exemptions, but they apply at different stages of your company’s life cycle. Initially, you’ll be eligible for the Start-Up Tax Exemption for the first three years. After that, you’ll transition to the Partial Tax Exemption scheme, which will continue to reduce your tax liability on the chargeable income up to S$200,000.
It’s important to plan your business strategy and finances around these exemptions to make sure you maximize the benefits.
10. How can I ensure my company qualifies for these exemptions?
To qualify for the Start-Up Tax Exemption and Partial Tax Exemption, it’s important to:
- Ensure your business structure and operations comply with the eligibility criteria outlined above.
- Keep accurate records of your company’s financials, as you will need to file your corporate tax returns on time and report the appropriate income and deductions.
- Work with a qualified accountant or tax advisor who can guide you through the process of applying for these exemptions, help you track eligibility, and ensure that you remain compliant with Singapore’s tax laws.
Summary
The Start-Up Tax Exemption and Partial Tax Exemption are powerful tools for reducing your SME’s tax burden and enabling your business to thrive in its early stages and beyond. By understanding the eligibility criteria and ensuring compliance, you can make the most of these tax reliefs, keeping more resources in your business for growth and investment.
If you have any questions or need help with applying for tax exemptions, don’t hesitate to consult with an experienced accountant. At Counto, we’re committed to helping SMEs like yours navigate the complexities of tax and accounting, so you can focus on what matters most—growing your business.