Key Singapore Startup Tax Exemption Schemes

Known for its welcoming business environment, Singapore offers a variety of tax exemption schemes. These schemes are specifically designed to empower aspiring entrepreneurs. These tax exemption schemes aim to ignite the spirit of innovation, attract exciting startups, and propel the growth of local businesses. In this article, we’ll explore the major Singapore Tax Exemption Schemes that can boost your new venture in Singapore.

New Startup Tax Exemption Scheme or SUTE

Singapore’s commitment to nurturing homegrown startups shines through the New Startup Tax Exemption Scheme. It was launched in 2005. The SUTE scheme offers a significant tax break for your company’s initial three Years of Assessment (YAs) following incorporation.

Benefits of SUTE or New Singapore Startup Tax Exemption Scheme

Reduced Tax Burden: The first $100,000 of your income enjoys a whopping 75% exemption, bringing your effective tax rate down to a mere 4.25%. That’s a substantial saving to reinvest in your venture.
Double Boost: On the next $100,000 of income, you get an additional 50% exemption, resulting in an effective tax rate of just 8.5%.

Eligibility Criteria for SUTE

Singaporean Roots: Your company must be incorporated and considered a tax resident in Singapore.
Limited Shareholders: Keep it focused – the total share capital can’t be held by more than 20 individuals, with at least one holding at least 10% of the issued shares.
Focus on Innovation: This scheme isn’t for investment holdings or property development companies.

Partial Tax Exemption Scheme (PTE)

The PTE scheme takes over after your SUTE benefits end (fourth YA onwards) or if you didn’t qualify for SUTE in the first place. It offers continued tax breaks on a portion of your income.

Benefits of Partial Tax Exemption Scheme in Singapore

Reduced Tax Bite: The first $10,000 of your income benefits from a 75% exemption, keeping your effective tax rate at 4.25%.
Sustained Savings: An additional 50% exemption applies to the next $190,000 of income, resulting in an effective tax rate of 8.5%.

Tax Exemption for Foreign Sourced Income

Singapore understands the global nature of businesses. Therefore, they offer tax exemptions for various types of foreign-sourced income, like dividends, branch profits, and service income. However, specific criteria, such as minimum foreign tax rates, need to be met to be eligible for this scheme.

Deductible Expenses in Singapore

Running a business involves various costs, and thankfully, Singapore allows you to deduct many of these expenses from your taxable income. This means you pay less tax. Here’s a breakdown:

Revenue Expenses: These are everyday costs directly related to generating your income. Examples include rent, salaries, utilities, marketing expenses, and supplies. As long as these expenses are incurred after your business officially starts operating, you can deduct them from your taxable income.

Plus, there’s more. You can even claim tax deductions for certain expenses incurred up to one year before your business started generating income. This can be helpful for costs associated with getting your business off the ground, such as setting up your office or website.

Capital Allowances (CA) on Fixed Assets: When you purchase equipment, machinery, or other long-lasting assets (fixed assets) for your business, you can’t deduct the entire cost in one go. Instead, Singapore allows you to claim a deduction each year over a specified period, reflecting the gradual wear and tear of the asset. This is called capital allowances (CA).
Renovation and Refurbishment (R&R) Expenses: Did you renovate your office or refurbish a commercial space for your business? The good news is that you can also claim these expenses as deductions against your taxable income.

Conclusion

In conclusion, Singapore’s tax exemption schemes offer a clear advantage for new companies, fostering a vibrant startup ecosystem. By understanding and leveraging these Singapore Startup Tax Exemption Schemes strategically, you can significantly reduce your tax burden in the crucial initial years of your Singaporean startup journey.