All companies including companies limited by guarantee can enjoy PTE, unless they have already claimed the Tax Exemption Scheme for New Start-Up Companies. Qualifying companies can enjoy:
- 75% tax exemption on the first $10,000 of normal chargeable income; and
- A further 50% tax exemption on the next $290,000 of normal chargeable income.
|Chargeable Income||% Exempted from Tax|
Amount Exempted from Tax
= $ 7,500
The maximum exemption to be enjoyed is $152,500 ($7,500 + $145,000).
Abuse of the Tax Exemption Scheme
IRAS takes a strong stand against companies set up to abuse this scheme and have not been incorporated for entrepreneurship and genuine commercial reasons. IRAS will not hesitate to take action where such abuses are uncovered.
The abuse of the tax exemption scheme generally takes the following forms:
- Allocating the income of an existing profitable going concern to a few shell companies so that the chargeable income of each shell company is within the threshold for tax exemption; or
- Charging fees/ expenses to an existing profitable going concern by shell companies without any bona fide commercial reasons. The shell companies claim the tax exemption on the income they receive from the profitable going concern, while the latter claims tax deduction on the fees/expenses paid to the shell companies.
These shell companies do not carry out any activities or significant activities and have no or few employees. Their accounts usually show few transactions and low capitalisation (usually at $2). The effect of these forms of arrangement is an overall net reduction of tax for the profitable going concern and the shell companies.
As at 28 Feb 2015, more than 100 companies have been audited to check for possible abuse of the tax exemption scheme for new companies. This resulted in a tax recovery of more than $2 million, with penalties amounting to about $2 million.
Tax evasion/ fraud is a criminal offence punishable under the law and the Court imposes severe penalties for such offences. Businesses or individuals who engage in abusive tax arrangements such as setting up shell companies to take advantage of the tax exemption scheme for new start-ups, or individuals who assist others with abusive tax arrangements should disclose such abuse immediately. IRAS will treat such disclosure as a mitigating factor when considering the penal charges.