Tax exemption scheme for new start-up companies

What is the tax exemption scheme for new start-up companies
What are the qualifying conditions 

• From Year of Assessment (YA) 2005 to YA 2008
  
• With effect from YA 2009
  
  

• Transitional measure
  
• Claims yet to be submitted under the old conditions (YA 2005 to YA 2008)

What is the tax exemption scheme for new start-up companies

Under this scheme, a newly incorporated company that satisfies the qualifying conditions can claim for full tax exemption on the first $100,000 of normal chargeable income* (excluding Singapore franked dividends) for each of its first three consecutive YAs.

Starting from YA 2008, a further 50% exemption is given on the next $200,000 of the normal chargeable income* (excluding Singapore franked dividends) for each of the first three consecutive YAs.

The exempt amount for each YA is summarised as follows:

If your company does not meet the qualifying conditions under this scheme, your company will be given the partial tax exemption. For details on the partial tax exemption, please refer to Tax Rates and Tax Exemption Schemes.

Qualifying conditions

From Year of Assessment (YA) 2005 to YA 2008

To qualify for the tax exemption for new start-up companies, your company must:

• be incorporated in Singapore (other than a company limited by guarantee);

• be a tax resident* in Singapore for that YA; and

• have its total share capital beneficially held, directly or indirectly, by no more than 20 individuals throughout the basis period relating to that YA.
  
  

With effect from YA 2009

To qualify for the tax exemption for new start-up companies, your company must:

a) be incorporated in Singapore (other than a company limited by guarantee**);

b) be a tax resident* in Singapore for that YA; and

c) have no more than 20 shareholders throughout the basis period for that YA where:

i) all of the shareholders are individuals beneficially and directly holding the shares in their own names; OR

ii) at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.

With effect from YA 2010

To qualify for the tax exemption for new start-up companies, your company must:

a) be incorporated in Singapore (including a company limited by guarantee**);

b) be a tax resident* in Singapore for that YA; and

c) have no more than 20 shareholders throughout the basis period for that YA where:

i) all of the shareholders are individuals beneficially and directly holding the shares in their own names; OR

ii) at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.

Administrative concessions

Transitional measure

As an administrative concession, a company that had enjoyed the tax exemption scheme for new start-up companies prior to YA 2009 will continue to qualify for the exemption for the remaining tenure of the scheme if the previous set of conditions (i.e. for YA 2005 to 2008) are still met.  This is a transitional measure to ensure a smooth transition to the new conditions (for YA 2009 onwards).

For example:

Your company was incorporated on 1 Jul 2006, its first financial year end is 30 Jun and it is the wholly owned subsidiary of another company that has no more than 20 individual shareholders.  Having satisfied the previous set of conditions, your company will enjoy the tax exemption for YA 2008, which is the company’s first YA.

Assuming there is no change in the shareholding, under the new set of conditions which comes into effect from YA 2009 onwards, your company will not qualify for the scheme in YA 2009 and YA 2010 as it is not directly held by individual shareholders and it does not have at least one individual shareholder holding at least 10% of it issued ordinary shares during the relevant basis periods.

Nevertheless, as an administrative concession and as long as your company continues to meet the previous set of conditions, it will continue to enjoy the tax exemption scheme for new start-up companies for the next two YAs (i.e. YA 2009 and YA 2010).

For new companies whose first YA is 2009, the new set of conditions will apply.

Claims yet to be submitted under the old conditions

Claim for tax exemption under the scheme for new start-up companies must be made at the point when the Estimated Chargeable Income (ECI) and/ or the Income Tax Return (Form C) are filed.  Companies which qualify for the exemption under the old set of conditions but have not made their claim when filing ECI or Form C, must make their claim in writing to IRAS by the following dates:

If you need to revise your company’s tax computation as a result of the claim for tax exemption (e.g. deferring capital allowance claim, revising Group Relief claim, please forward a copy of the revised tax computation together with your claim to facilitate our review.

How to determine your first Year of Assessment

The first YA refers to the YA relating to the basis period during which the company was incorporated.

From the fourth YA onwards, your company will be given partial tax exemption instead of the exempt amount for new start-up companies.

To illustrate, if your company was incorporated on 1 Jul 2009 and your financial year end and the period covered in your first set of accounts are as follows:

For details on how to prepare your tax computation, please refer to Preparing tax computation.

What if your company incurs losses or has no income in any of the first three YAs

If during any of the first three YAs, your company incurs losses or it has no income (e.g. business has not commenced), your chargeable income and tax payable will be nil. In this case, since there is no chargeable income, your company cannot enjoy the benefit given under the tax exemption scheme for new start-up companies for that particular YA. However, that particular YA will still be included in determining the first three consecutive YAs.

For example:

Your company's first three YAs are YA 2009, YA 2010 and YA 2011. It has not commenced trading and has no income in YA 2009 and YA 2010. In this case, your company can only claim for tax exemption for new start-up companies in YA 2011 (assuming your company satisfies all the qualifying conditions and there is chargeable income in YA 2011). YA 2011 is considered your third YA although this is your first claim for tax exemption for new start-up companies. You cannot claim for tax exemption for new start-up companies in YA 2012, which is considered your fourth YA. However, you will be given partial tax exemption in YA 2012.

How to claim for tax exemption for new start-up companies

Income Tax Return (Form C)

When filing Form C, you must complete Part IV on page one of the Form C as follows:

• Fill in "1" in the first box to indicate "Yes" so as to confirm that your company satisfies all the qualifying conditions; and
• Fill in your company's first YA in YYYY format in the relevant boxes.

For more details on the filing and completion of Form C, refer to Filing Income Tax Form (Form C).

Estimated Chargeable Income (ECI)

For e-Filing

• Select “Yes” under “The company qualifies for full tax exemption”;
• Select “Yes” at the pop up message “Exemption Declaration Message”; and
• Enter the first YA upon incorporation in YYYY format.
  

For paper filing 

You must complete Section A of the ECI Form as follows:

• Fill in "1" in the first box to indicate "Yes" so as to confirm that your company satisfies all the qualifying conditions; and
• Fill in your company's first YA in YYYY format

For more details on filing ECI, refer to Filing Estimated Chargeable Income (ECI).

Abuse of tax exemption scheme for new start-up companies

IRAS has observed a number of cases where shell companies have been used to take advantage of the tax exemption scheme for new start-ups and not for genuine commercial reasons.

Please refer to Abuse of Tax Exemption Scheme for New Companies for more details.

FAQs