All you need to know about Startup Tax Exemption Singapore

When you look at doing business in Singapore, you would definitely look for tax benefits.  The government has made these benefits by considering the tax schemes which are offered by the Inland Revenue Authority of Singapore (IRAS). Government support is one of the driving factors for Singapore start-ups to flourish. Hence you require to consider all the above factors before doing business in Singapore.

This article has explained the benefits under Startup tax exemption Singapore. In order to qualify for such benefits, you would have to fulfill the necessary criteria.

Schemes for Startup Tax Exemption Singapore

Many entrepreneurs want to establish their business in Singapore owing to its pro-business environment along with its global ranking for ease of doing business. The following are the benefits offered under Startup Tax Exemption Singapore:

1. Tax Exemption Scheme

Under Startup Tax Exemption Singapore, this was one of the first schemes introduced to boost productivity in the economy. The main motive of this scheme is to increase domestic as well as foreign investment for start-ups in Singapore. Any company which is in its inception phase can benefit from such scheme.

This scheme is for special tax exemption which is provided to start-ups incorporated in Singapore.

Objectives of the Tax Exemption Scheme

The main objectives of the tax exemption scheme are:

• Boost business productivity in Singapore;
• To increase investment in Singapore; and
• To attract more start-ups to invest in Singapore.

Am I eligible for such a scheme under Startup Tax Exemption Singapore?

In order to be eligible for this scheme, your company would have to satisfy the following criteria:

• Your company must be registered in Singapore. Under the Registrar of Companies (ROC) of Singapore, your company must be incorporated.
• Your company must fall under the definition of a start-up.
• You must not carry out any activities related to the investment holding companies.
• You must not carry out any activities related to real estate.

What are the conditions to avail of the Tax Exemption Scheme under Startup Tax Exemption Singapore?

There are specific qualifying conditions that you have to fulfill to secure this exemption:

• Your Company must be registered in Singapore;
• As per the IRAS, your company must be deemed to be a tax resident of Singapore; and
• You must have less than twenty shareholders.

Benefits of the Tax Exemption Scheme

Under Startup Tax Exemption Singapore, the following benefits are available under the tax exemption scheme:

• For the first three financial years SG$ 100,000 would be exempted on the chargeable income. 
• The company would also qualify for an exemption of 50% on SG$ 200,000 chargeable income.
• The above benefits would only be allowed for the first three years from the date of incorporation of the start-up in Singapore.
• The above chargeable income would include any revenue, profits, and income that is taxed at the usual corporate tax rate in Singapore.

2. Productivity and Innovation Credit Scheme (PIC)

As the name goes under Startup Tax Exemption Singapore, the PIC scheme is for any company that is involved in innovation and productivity in Singapore. This scheme is not only introduced for start-ups but also other business structures utilize this scheme.

Objective of the Productivity and Innovation Credit Scheme

The government of Singapore through one finance bill brought out this scheme as the main credit scheme for business owners. The amount of tax deduction would be applicable on the qualifying expense which is eligible to be deducted. As mentioned earlier, this scheme is not restricted to start-ups but also includes other businesses which culminate some form of innovation.

Eligibility Criteria for the PIC scheme

All forms of business are eligible for such a scheme. The following are the types of businesses that are eligible for the PIC scheme:

• Private Limited Companies
• Partnerships
• Limited Liability Partnerships
• Sole Proprietorships
• Branch Offices
• Subsidiary Companies
• Foreign Companies established in Singapore.

Qualifying Activities under PIC Scheme

Under startup tax exemption Singapore, the following activities qualify for the PIC scheme:

• Acquisition and Leasing of Information Technology;
• Specific Training for Employees;
• Specific Licensing such as Intellectual Property Licensing;
• Research and Development Activities;
• Intellectual Property Registration; and
• Specific Design Projects.

Benefits under the PIC scheme

Under startup tax exemption Singapore, the PIC scheme allows the following benefits:

• Any qualifying amount of deduction is allowed up to 400%. 
• A cap of SG$ 400,000 is allowed if any form of expense is spent on qualifying activities.
• Therefore, if a company invests in any qualifying activities, then the above cap would be applicable.

3. PIC+ Scheme

This scheme is different from the PIC scheme. While the PIC scheme is available for all forms of businesses, the PIC+ scheme is only allowed for Small and Medium Enterprises (SMEs). This scheme was brought out in the financial budget in 2014.

Objectives of the PIC+ Scheme

• To create a sense of innovation in SMEs;
• To reduce taxes for SMEs; and
• To promote revenue amongst SMEs.

Eligibility Criteria for the PIC+ Scheme

Under Startup tax exemption Singapore, the following criteria have to be considered:

• Only SMEs which are registered in Singapore would be eligible to qualify under this scheme.
• Business Revenue should not exceed more than SG$ 100 million.
• The number of employees of the business must not be more than 200.

Benefits under PIC+ Scheme

• Under this scheme, SMEs are allowed to convert up to SG$ 100,000 into a pay-out made by the government of Singapore. Such pay-outs in the form of cash are not taxed.
• Only 40% is allowed to be considered as a pay-out under this scheme.
• Suppose a company spends SG$ 90,000, then out of this only SG $ 36,000 would qualify as a cash pay-out.

Charitable Works Deduction

This form of the deduction is also known as the Business and IPC (Institutions of Public Character) Partnership scheme. Any business that takes part in philanthropy and charitable activities would benefit from this scheme.

Objectives of the Charitable Works Deduction

• To promote awareness amongst companies to take part in charity in Singapore; and
• To increase philanthropic works.

Eligibility under the Charitable Works Deduction

The following companies are eligible under this scheme:

• Private Limited Companies
• Partnerships
• Limited Liability Partnerships
• Sole Proprietorships
• Association of Persons
• Body of Individuals.

The above businesses have to be engaged in charitable activities for Institutions of Public Character.

Qualifying Amount of Expenses

• Any form of wages would include basic wages and be directed towards volunteering work for charitable purposes.
• Any other form of expenses for IPC works.
• The amount of cap on this is up to SG$ 250,000 per annum.

Partial Tax Exemption

Under the Startup Tax Exemption Singapore, the partial tax exemption would be applicable for all companies. As it is applicable to all entities this would also cover any start-ups which are incorporated in Singapore. However, if a start-up goes for the Tax Exemption Scheme, then the above partial tax exemption would not be applicable.

Qualifying Amount for Partial Tax Exemption

For Year of Assessment 2020

• Up to 75% of tax exemption is allowed for the first SG $ 10,000; and
• Up to 50% of tax exemption is allowed for the SG $ 190,000.

Which Scheme to go under Startup Tax Exemption Singapore?

There is no specific scheme to utilize under Startup Tax Exemption Singapore. If you are a foreigner and want to incorporate your start-up in Singapore then you can go for the Tax Exemption Scheme. This will allow you to claim exemptions on a qualifying amount of SG$ 100,000 for the first three years. However, if you claim this benefit then you would not be allowed to claim the partial tax exemption. The Tax Exemption Scheme for start-ups cannot be taken if you carry out real estate or investment holding company activities.

If your start-up is carrying out charitable activities then the exemption available under the charitable works deduction can be claimed.

Conclusion

Singapore is one of the prominent locations for start-ups to set up shop. The government has brought out different schemes with benefits that would be applicable to a start-up. At ScaleX, we understand the needs of your start-up. 

If you are interested in obtaining more information on tax exemption schemes, you can contact us and set up a free consultation.