Small Business, Big Savings : Maximising Your Singapore Company’s Tax Benefits

As a part of official measures to lessen the burden on small businesses, qualified “Singapore private companies limited by shares”, a.k.a. Singapore company, can enjoy tax reliefs of Corporate Income Tax, straight-forward expense deduction, and obtain the exemption from the statutory audited account.

Tax Exemption Scheme for Singapore Start-Up Companies

Singapore government has enacted a tailor-made Start-Up Tax Exemption Scheme (“SUTE”) for eligible start-up companies, newly incorporated company, to support and boost local entrepreneurship since Year of Assessment (“YA”) 2005.

The latest update states that starting from YA 2020 onwards, start-up companies can enjoy a 75% tax exemption on the initial SG$100,000 chargeable income and a further 50% tax exemption on the next SG$100,000 in the relevant YA, for the first three concessive YAs. In other words, the new company which has reached its first tax assessment in YA 2020 can savor an exemption of chargeable income up to SG$125,000. And, the company will enjoy the tax-cut of SUTE in following YA 2021 and 2022.

Eligibility of SUTE

As SUTE is designed to encourage local entrepreneurship, it applies to newly incorporated local Singapore companies only. To ensure fair play between taxpayers, this comes with entry requirements to exclude specific business and company structure. In spite of such restrictions, the SUTE-excluded company can still enjoy the Partial Tax Exemption Scheme (“PTE”).

The SUTE excludes the following start-ups:

• Carrying on to development, investment, or sale of properties;
• Working as an investment holding body;

To remain qualified for SUTE in the particular YA, the company should fulfill the following criteria throughout the relevant basis period:

• Not more than 20 shareholders,
• At least one individual shareholder (nature person) holding at least 10% of the company’s shareholder, or none of corporate shareholders.

The rationale of ruling out such companies in above goes here:

• Property developers have been incorporating companies for every new property development, so they potentially exploit the scheme. 
• Investment holding companies earn passive incomes, i.e., interest and dividends, so they make less contribution to the local workforce and society than the company of doing entrepreneurship.
• Companies with complex shareholding structure and anonymous beneficiary are rare and are likely involved in taxation optimization works rather than entrepreneurship.

Partial Tax Exemption for Companies

The scheme of Partial Tax Exemption for Companies (“PTE”) is available to all Singapore companies, except those who have applied for SUTE.

Starting in YA 2020 and onwards, qualifying companies can claim 75% exemption on the first SG$10,000 of chargeable income, and a further 50% exemption on the next SG$190,000 of chargeable income in the particular YA. Therefore, The maximum exemption for each YA is SG$102,500 (SG$7,500 + SG$95,000).

Deductible Expenses

Singapore is a famous business hub, so there are tax benefits to promote entrepreneurship. A wide range of business expenses is deductible against the business income to reduce the tax burden of business taxpayers. The qualified expenses are namely, deductible expenses. Meanwhile, non-ductible expense refers to a business expense that is not eligible for deductibility requirements.

The rule for the qualification of the deductibility is straight-forward, it must fulfill all of the requirements below:

1. The purpose of such expenses is solely for the production of income.
2. The expenses are not a contingent liability, i.e., the transactions to settle such expenses must complete.
3. Expenses are “revenue in nature”, i.e., the spendings on things that do immediate or short-term benefits.
4. Expenses are not on the list of prohibited from reduction under the Income Tax Act.

To conclude, the expenses you have paid to run the business may be deductible or not. Whether a thing you buy under your business name is deductible is a matter of fact. The Inland Revenue Authority of Singapore (“IRAS”) are likely to agree to your claim if you can show a sole, short-term, and direct cause to the production of your business.

IRAS has made a comprehensive A-Z guide of various commonly seen items of business expenses. Links are here:

• Tax Treatment of Business Expenses (A – H)
• Tax Treatment of Business Expenses (I – P)
• Tax Treatment of Business Expenses (Q – R)
• Tax Treatment of Business Expenses (S – Z)

Audit Exemption for “Small Companies”

The Singapore Accounting and Corporate Regulatory Authority (“ACRA”) has introduced the concept of ‘small company’ that is exempted from the annual audit obligation since July 2015. The exemption scheme can reduce the cost of compliance on small companies in Singapore.

Qualified “small companies” are exempted from auditing their financial statements and thus are relieved of the obligation to provide audited accounts to the directors and present the same at the Annual General Meeting (“AGM”). 

Qualification of “Small Company”

The benefit applies to Singapore locally incorporated private company only. When the company fulfills any two of the following requirements in each of the immediate past two financial years (“FYs”), it will qualify as a small company:

• Total revenue not more than SG$10 million;
• Total assets of not more than SG$10 million; or
• The number of employees not more than 50.

As prevention of exploitation, the law has included specific statements for companies which is a part of a group to qualify to the exemption of audit:

• The company must qualify as a small company; and
• The entire group must be a “small group” which means the group has to meet 2 of 3 criteria that set for “small company”

Disqualification of “Small Company”

So long as a qualified small company remains to comply with the small company criteria, its statue of small company will continue. However it will be disqualified, if:

• at any time during the financial year it ceases to be a private company; or,
• it does not meet at least two of the three quantitative criteria for the immediate past two consecutive FYs.

Special arrangement on start-ups

The regulation provides for a newly incorporated company to qualify as a small company if it fulfills two of the three “small company” criteria in its first or second year after its incorporation.

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This is the part 4 of AsiaBC Singapore Company Setup Guide. AsiaBC is company services provider rooted in Hong Kong and branching to Singapore, offering Singapore company registration service to support non-Singapore residents to incorporate and maintain their Singapore limited company without setting foot on Singapore.