Tax Incentives for Startups In Singapore

Understanding how a tax system works in a country can help an entrepreneur in determining the location for his operations. Other than being hailed with a strong physical infrastructure for entrepreneurs, the other most under-appreciated feature is the tax incentives for startups in Singapore. In this blog entry, we give some tips for entrepreneurs on how tax incentives work for startups in Singapore.

For the entrepreneurs in Singapore, start-ups are not required to pay tax on the first S$100,000 of chargeable income (excluding Singapore franked dividends) for any of the first three years of tax assessment falling within year of assessment 2005 to 2009. The criteria for the start-ups are of the following:

• 1. The company is incorporated in Singapore, i.e. you register your company in Singapore.
• 2. You are a tax resident of Singapore in the year of assessment (till 2009 based on the sources).
• 3. The company has no more than 20 shareholders throughout the basis period for the year of assessment.
• 4. The shareholders of the company are individuals throughout the basis period for the year of assessment.

The reason for this tax incentive is to assist start-ups preserve their cash flow and profits.

There are some issues which one might need to know (from the references) :

1. Singapore franked dividends are dividends paid out of the profits of a company on which tax has already been paid in Singapore.

2. The first Year of Assessment of a qualifying company is the Year of Assessment relating to the basis period during which the company is incorporated.

(From IRAS):

E.g. Company A is incorporated in Singapore on 15 April 2003. The accounting year-end of the company is 30 June. The first Year of Assessment of Company A is YA2004 (basis period 15 April 2003 to 30 June 2003).

If Company A meets the qualifying criteria for YA2005 (i.e. second Year of Assessment), Company A would enjoy full tax exemption of up to S$100,000 on its normal chargeable income (excluding Singapore franked dividends) for YA2005.

Similarly, if Company A meets the qualifying criteria for YA2006 (i.e. third Year of Assessment), Company A would enjoy full tax exemption of up to S$100,000 on its normal chargeable income (excluding Singapore franked dividends) for YA2006.

Related Links:
[1] Tax Incentives for Startups, Enterprise One.
[2] Corporate Tax, IRAS.
[3] Full Tax Exemptions for new companies, IRAS.

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