Tax Exemption Scheme for New Companies
The tax exemption scheme for new start-up companies and partial tax exemption scheme for companies are tax reliefs available to reduce companies’ tax bills.
8/22/20242 min read
Tax Exemption Scheme for New Start-up Companies
The Tax Exemption scheme for new start-up companies in Singapore effectively reduces the tax payable on a portion of the company's chargeable income, leading to a lower effective tax rate than the standard corporate tax rate of 17%. Here’s a breakdown of how the scheme works and the resulting effective tax rate:
Partial Tax Exemption for New Companies
For qualifying new companies, the PTE scheme offers the following exemptions on chargeable income:
1. 100% Exemption on the First SGD 100,000 of Chargeable Income:
- The first SGD 100,000 of chargeable income is entirely exempt from corporate tax.
2. 50% Exemption on the Next SGD 200,000 of Chargeable Income:
- The next SGD 200,000 of chargeable income is eligible for a 50% exemption.
Calculation of Effective Tax Rate
To illustrate the effective tax rate, consider a company with varying levels of chargeable income:
Scenario 1: Chargeable Income of SGD 100,000
- First SGD 100,000: Fully exempt.
- Tax Payable: SGD 0.
- **Effective Tax Rate:** 0% (since the entire amount is exempt).
Scenario 2: Chargeable Income of SGD 300,000
- First SGD 100,000: Fully exempt.
- Next SGD 200,000: 50% exemption applies, so SGD 100,000 is taxable at the standard 17% rate.
- Tax Payable:
- SGD 100,000 (non-exempt portion) × 17% = SGD 17,000.
- Total Tax Payable: SGD 17,000.
- Effective Tax Rate:
- ( frac{SGD 17,000}{SGD 300,000} ) × 100% = 5.67%.
Scenario 3: Chargeable Income of SGD 400,000
- First SGD 100,000: Fully exempt.
- Next SGD 200,000: 50% exemption applies, so SGD 100,000 is taxable at 17%.
- Remaining SGD 100,000: Fully taxable at 17%.
- Tax Payable:
- SGD 100,000 (non-exempt from second SGD 200,000) × 17% = SGD 17,000.
- SGD 100,000 (fully taxable) × 17% = SGD 17,000.
- Total Tax Payable: SGD 17,000 + SGD 17,000 = SGD 34,000.
- Effective Tax Rate:
- ( frac{SGD 34,000}{SGD 400,000} ) × 100% = 8.5%.
Summary of Effective Tax Rates
- Chargeable Income up to SGD 100,000: Effective tax rate is 0%.
- Chargeable Income of SGD 300,000: Effective tax rate is 5.67%.
- Chargeable Income of SGD 400,000: Effective tax rate is 8.5%.
Important Considerations
- The scheme applies only to the first three consecutive Years of Assessment (YAs) for new start-up companies.
- To qualify, the company must be incorporated in Singapore and be a tax resident in Singapore, among other criteria. Investment holding companies and property developers are excluded from this scheme.
This scheme significantly reduces the tax burden for new companies in their initial years of operation, allowing them to reinvest more profits back into the business.
There are also other considerations depending on the structure of your company. Contact us with us to learn more.
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