Not every Singapore company is eligible for the Start-up Tax Exemption Scheme (SUTE). Some are ineligible because their inherent nature forbids them from being allowed to reap the scheme’s benefits in the way which other businesses might.

Which of the Companies in Singapore are Not Eligible for the Tax Exemptions Granted by the Start-up Tax Exemption Scheme

Start-up Tax Exemption Scheme

The Start-up Tax Exemption scheme is an important tax exemption which was introduced by the government of Singapore after working with the Inland Revenue Authority of Singapore (IRAS), the country’s foremost tax authority. The primary purposes of this tax exemption scheme were to encourage people in Singapore to engage in entrepreneurial activities as well as provide a boost to the country’s economic growth. Eligible businesses may benefit from this scheme during their first three years of operation. The first year of assessment in which a business could benefit from this tax exemption was 2005. The details of this scheme have recently changed; these changes will take effect from the 2020 year of assessment. These are the first changes which have been made ever since the introduction of the Start-up Tax Exemption Scheme.

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Details of Eligibility for the Start-up Tax Exemption Scheme

According to the updated details of the scheme, every eligible company based in Singapore is allowed to receive a tax exemption of 75% on the first S$100,000 of normal chargeable income which it has earned. The next S$100,000 of normal chargeable income earned will allow the company to receive a tax exemption of 50% of this normal chargeable income. Normal chargeable income is defined as all income which is to be taxed according to the existing corporate tax rate in Singapore.

In order for any Singapore-based company to be eligible for the Start-up Tax Exemption Scheme, it must be a tax resident company of Singapore during a particular year of assessment. Therefore, the business in question must also necessarily have been incorporated in Singapore. During the relevant year of assessment, the company may not have more than 20 shareholders who have fulfilled certain criteria regarding the holding of shares of the company. The year of assessment of an eligible company will be that of the basis period as it relates to the dates of the company’s financial year end as well as its closing date for the year’s accounts.

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Companies Which Are Not Eligible for the Start-up Tax Exemption Scheme

Not every company in Singapore is eligible to claim the tax advantages provided by the Start-up Tax Exemption Scheme. Start-ups which were created for the purpose of development of properties for sale, investment, or both are ineligible for this scheme. The same is true of any Singapore-based start-up which has the primary objective of investment holding. Such is the case because of the inherent nature of these types of companies. Real estate companies typically require the incorporation of a new company whenever a new property is developed. Investment holding companies, which own investments including shares and properties for the purposes of long-term investment, are able to earn passive income which may come in the form of interest, dividend, or rental income. For these reasons, such companies are not eligible for these tax exemptions because of the difficult situation which would be caused through their eligibility. However, this does not mean that such companies are permanently ineligible for any tax exemptions which exist in Singapore. Companies which are not eligible for the Start-up Tax Exemption Scheme may nevertheless claim partial tax exemptions.

Except these companies, all other companies are eligible for tax exemptions. For that, there is a criterion for full tax exemptions. In case, the companies do not meet the criteria, then they will be still eligible for partial tax exemptions.

Having taken all of the preceding information into account, you may have developed an interest in starting a company of your own in Singapore. Should such be the case, we at Paul Hype Page & Co will ensure that you begin your journey as a Singapore company owner in the best possible fashion. Our experienced and highly regarded incorporation team will work with you in the establishment of your new Singapore company which in turn will present you with many benefits, whether financial or otherwise.