21 Tax Reliefs for Startups in Singapore


The Singapore government has introduced several tax policies and schemes in order to help startup companies save on their tax payments. Let’s take a look at these schemes in detail below.


1. Tax Exemption Scheme for New Startup Companies


This scheme was introduced in YA 2005 with an aim to help new local enterprises and entrepreneurs grow. During the Budget 2018, the scheme was revised in order to provide enhanced support in terms of tax for new businesses. The changes will be effective starting from YA 2020 for an eligible company that raises a claim for tax exemption under this scheme.

Take a look at the tax exemptions that are effective from YA 2020:

  • Tax exemption of 75% on the initial S$100,000 of your normal chargeable income.
  • An extended tax exemption of 50% on the following S$100,000 of your normal chargeable income.

Tax exemptions for prior to YA 2019 (including YA 2019):

  • Complete tax exemption on the initial S$100,000 of your normal chargeable income.
  • An added tax exemption of 50% on the succeeding S$200,000 of your normal chargeable income.

Note: Here, normal chargeable income corresponds to the income on which you will be taxed at the current corporate tax rate.


Tax exemption you’ll qualify for on your initial S$200,000 of your chargeable income (any Year of Assessment of the initial 3 YAs comes in or post YA 2020)
Your chargeable income Amount for which you’re exempted from paying any tax Tax exemption percentage
Initial S$100,000 S$75,000 75%
Consequent S$100,000 S$50,000 50%

S$125,000 (S$75,000 plus S$50,000) is the maximum tax exemption amount you’ll qualify for in each YA.


Tax exemption you’ll be eligible for on your initial S$300,000 of your chargeable income (any Year of Assessment of the starting 3 YAs comes in between YA 2010 and YA 2019)
Your chargeable income Amount for which you’re exempted from paying any tax Tax exemption percentage
At the beginning S$100,000 S$100,000 100%
Subsequent S$200,000 S$100,000 50%

S$200,000 (sum of $100,000 plus $100,000) is the tax exemption amount (maximum) you’ll be eligible for in each YA.

Also note, you will qualify for tax exemption for the initial 3 YAs only. Starting from the 4th Year of Assessment, your company will qualify for partial tax exemption similar to any other eligible company.


2. Partial Tax Exemption (PTE) for Companies


PTE is another tax exemption scheme that was introduced in order to render tax-related benefits to companies. This scheme has been revised and the changes will be effective from Year of Assessment 2020.

PTE you’ll qualify for from YA 2020:
  • An exemption of 75% on the first S$10,000 of your normal chargeable income.
  • An added tax exemption of 50% on the succeeding S$190,000 of your normal chargeable income.
Your normal chargeable income Amount for which you need not pay tax Tax exemption (%)
Initial S$10,000 S$7,500 75%
Following S$190,000 S$95,000 50%

The tax exemption amount (maximum) for each Year of Assessment will be S$102,500 (S$7,500 plus S$95,000).

PTE you’ll qualify for YA 2019 & before:
  • 75% exemption of tax on the initial S$10,000 of your normal chargeable income.
  • An extended exemption of 50% tax on the following S$290,000 of your normal chargeable income.
Your normal chargeable income Amount for which you need not pay tax Tax exemption (%)
Initial S$10,000 S$7,500 75%
Succeeding S$290,000 S$145,000 50%

For each YA, you’ll be eligible for maximum tax exemption of S$152,500 (sum of S$7,500 and S$145,000).



3. Angel Investors Tax Deduction (AITD) Scheme


This scheme is valid from 1 March 2010 to 31 March 2020. This incentive tax scheme is one of the options you can consider when you’re planning to invest in a startup company. In order to qualify for AITD, you need to be an approved angel investor.

To qualify for tax deduction, what you need to do as an angel investor

  • You need to make a qualifying investment worth at least S$100,000 in an eligible startup firm in less than 1 year starting from the date on which you made your initial investment in that company.
  • Hold the investments for 2 years continuously from the date on which you make your final eligible investment.

What are the applicable YAs?

You’ll get tax deduction for a Year of Assessment with respect to the basis period during which the final day of the 2-year term falls.

What will be the tax deduction amount?

For every Year of Assessment, your tax deduction amount will depend on 50% of the eligible investment cost which will be subjected to a cap of S$500,000 of investment-related costs, that is a deduction cap of S$250,000.

The eligible deduction will be counterbalanced versus your taxable income in total. Any unused deduction in any Year of Assessment will not be taken into consideration.



4. Productivity and Innovation Credit (PIC)


The benefits of this scheme include:

A cash payout:

  • You’ll get 60% cash payout for qualifying expenses you’ve incurred between 2013 YA and 31 July 2016.
  • You’ll qualify for a cash payout conversion rate of 40% for qualifying expenses you’ve incurred either on 1 August 2016 or after 1 August 2016 to YA 2018.

Tax allowances/deductions:

  • Irrevocable option to convert up to S$100,000 worth qualifying expenditure into cash per YA at a conversion rate of 40% (It has been reduced from 60% which was applicable before 1 August 2016).
  • Tax deductions/allowances of 400% on spends of up to S$400,000 in a single year for every qualifying activity (in total there are 6 qualifying activities) between YAs 2011 and 2018.

What are the 6 qualifying activities?

  • Acquisition and Licensing of Intellectual Property Rights
  • Acquisition and Leasing of PIC IT and Automation Equipment
  • Research & Development
  • Employee training
  • Investment in Design Projects
  • Registration of Patents, Trademarks, Designs, & Plant Varieties

Note:

The PIC scheme will expire after 2018 YA. In case your business opts for the cash payout option on qualifying expenses, you must see to that your expenses were incurred before 2018 YA ends. However,the eligibility will not depend on the submission date of the application.



5. Intellectual Property (IP) Licensing Expenditure


When your firm incurs expenditure with respect to Intellectual Property Licensing while licensing intellectual property rights (IPRs) for using it in your business or trade, your tax payable will be deducted under Section 14 or Section 14D of the Income Tax Act (ITA) when intellectual property rights are used for a qualifying project in Research and Development.

Based on the Productivity and Innovation Credit Scheme, any expense you incurred while licensing eligible IPRs for using them in your business or trade will qualify you for PIC-related privileges from 2013 YA to 2018 YA.

MOF (Minister for Finance) made an announcement in Budget 2018 that the 100% tax deduction will be increased to 200% on up to S$100,000 of eligible Intellectual Property licensing expenditure you’ve incurred for each Year of Assessment starting from 2019 YA to 2025 YA. Also, a tax deduction of 100% will continue to be applicable on eligible IP licensing expenditure you’ve incurred in addition to the S$100,000 for each Year of Assessment.


6. Registration Costs for Patents, Trademarks, Designs and Plant Varieties


You’ll qualify for tax deduction under Section 14A on eligible expenditure you’ve incurred on the registration of patents, trademarks, designs and plant varieties for up to 2020 YA.

With an aim to render support to businesses for protecting and registering their Intellectual Property, MOF introduced in Budget 2018 that the tax deduction for eligible Intellectual Property registration costs will be:

  • Prolonged till 2025 YA.
  • 100% tax deduction is increased to 200% on up to S$100,000 of eligible Intellectual Property registration costs that you incurred for every Year of Assessment between 2019 YA and 2025 YA. While the tax deduction of 100% will continue on eligible IP registration costs you incurred in surplus to S$100,000 for every Year of Assessment between 2019 YA and 2025 YA.

7. Wage Credit Scheme (WCS)


Under this scheme, the government co-fundunded 40% wage rises from 2013 to 2015 & 20% of wage rises between 2016 and 2017. It was provided to employees who are Singapore citizens and earned wages of up to S$4,000 on a monthly basis. You could qualify for co-funding only as an “Employer”.

The government announced via Budget 2018, that the Wage Credit Scheme has been prolonged for 3 more years (2018, 2019, & 2020). In 2018, co-funding will remain at 20%. Consequently, in 2019 the ratio for co-funding will decrease to 15%, and in 2020 it will step down to 10%.

How will the wage credit be computed?

Wage credit for each eligible worker can be calculated as follows:

Percentage of Co-Funding × Eligible Wage Increase × Number of months you (as an employer) made CPF contribution

Is this scheme permanent?

No, this scheme is scheduled to end in 2020 and the final payout will be due in March 2021.


8. Business and IPC Partnership Scheme (BIPS)


Under this scheme, as a business owner you’ll qualify for a tax deduction of 250% on eligible expenditure your business incurred when you sent your eligible employees to volunteer and/or provide services to any of the IPCs (Institution of a Public Character) including secondments.

What kind of expenditure will qualify your business for tax deduction?

  • Basic wages.
  • Eligible expenditure that occurred as a result of the services that were rendered to Institutions of a Public Character. However, the expenses incurred should comply with the following conditions:
    • At any given point of time, expenses should not be refunded by the IPCs.
    • The expenditure resulted due to volunteer services only.
    • Should not be regarded as living, family, or personal expenses.
    • Expenses should not be capital in nature.


9. Deductions on Research & Development (R&D) Expenditure


What kind of R&D expenditure qualifies you for tax benefits?

As a taxpayer, when you accept work with respect to R&D directly (in-house R&D), when you outsource R&D related work to a Research & Development service provider (outsourced R&D), or when you take part in an R&D CSA (cost-sharing agreement).

How to know if your project is eligible for R&D tax-related benefits?

Your project should meet the following conditions:

  • Meets the 3 requirements that are outlined in Section 2 of the ITA (Income Tax Act).
  • The 3 requirements being – your project’s aim should be to gain new knowledge, to initiate the creation of new processes and products, or to enhance the processes and products which are already existing.
  • Your project should not be a part of the mentioned excluded activities list.
  • It covers technical risk or novelty.
  • It covers an SIE (systematic, investigative and experimental) study either in the field of technology or science.

The tax deductions for eligible R&D expenditure will also depend on whether R&D was conducted completely in Singapore or overseas. Also, it will vary depending on the Year of Assessment you qualify for R&D tax benefits.


10. Deductions on Statutory and Regulatory Expenses


You’ll qualify for tax deduction on eligible statutory & regulatory expenses you incurred within the basis period with respect to 2014 YA and succeeding YAs. In order to enjoy this tax deduction, you need to comply with certain conditions given below:

You should have incurred these expenses for your business (also includes any business you derived passive income from) & for the reason of:

  • Abiding by any law (written) of Singapore or any other country.
  • Abiding by any standard, code, requirement, rule, or any other document that is presented by any public or government authority or by securities exchange.
  • Evaluating the effect of any law or document that was proposed.
  • Detecting or preventing non-compliance with respect to any proposed document or law.
  • Being compliant with any document or law voluntarily even if the taxpayer is exempted from being compliant with it.

Note:

  • Here, the proposed law refers to any law that is written pertaining to Singapore or any other country’s law.
  • Here, the proposed document refers to any rule, standard, requirement, code, or any kind of a document that is issued by any public authority, securities exchange, or government.

Take a look at a few examples to get more clarity about what kind of expenses will be considered for tax deduction:

  • Annual listing fees.
  • Accounting fees.
  • Secretarial fees.
  • Audit fees (inclusive of audit fees that’s incurred by a firm and under the Companies Act, and qualifies for audit exemption).
  • Income tax service fees like lodging an objection to NOA (Notice of Assessment), tax computation preparation, etc.

11. Deductions on Medical Expenses of Employees


Your medical expenses as an employee will be considered for tax deduction. You’ll qualify for this tax deduction, provided your expenses are capped at 1% of your complete remuneration you’ve accumulated for the year.

However, the cap increases to 2% if the company implements any of the following:

In case your employer imposes one of the following schemes, you’ll qualify for an increased cap of 2%.

  • PMBS (Portable Medical Benefits Scheme).
  • TMIS (Transferable Medical Insurance Scheme).
  • Provides inpatient medical insurance benefits (inpatient) via portable medical shield plans.


12. Deductions on Voluntary Contributions to Employees’ SRS Account


As an employer, you can make a contribution voluntarily to your employee’s SRS (Supplementary Retirement Scheme) account on his or her behalf. These kind of contributions are completely tax-deductible as these are employee costs to the employer. Also, tax deduction will be subject to a yearly SRS contribution cap.



13. Deductions for Topping-Up of Employees' CPF Minimum Sums


As an employer, if you make a cash top-up to your employee’s CPF Minimum Sum on his or her behalf, you will qualify for tax deduction that is equivalent to the amount you used for making a top up.


14. Deductions on Voluntary Cash Contributions to Medisave Account of Self-Employed Persons


A cash contribution that is voluntary in nature and is made by a qualifying firm to the CPF Medisave account of a Self Employed Person (SEP) will be considered for tax deduction. A cap of S$1,500 will be applicable on the tax deduction that is obtainable by a firm. S$1,500 cap is applicable per year and for each SEP.

Starting from 1 January 2018, the cap has been increased to S$2,730 with an aim to encourage firms to increase their contributions to Medisave Account of SEPs.


15. Deductions on Motor Vehicle Expenses


A motor vehicle expense you’ve incurred on goods and on a commercial vehicle (van, lorry, and bus) will be considered for tax deduction. A few motor vehicle expense examples include parking charges, maintenance charges, fuel costs, and repairs.

You’ll not qualify for tax deduction if you’ve incurred a motor vehicle expense on an S-plated car, RU-plated car, or a company car (apart from Q-plated cars that were registered prior to 1 April 1998) irrespective of whether you incurred the expense directly or in the form of a reimbursement. Even if you have used these cars for business-related reasons, you will still not qualify for tax deduction.


16. Donations to an Approved Institution of a Public Character (IPC)

It is assumed that when you make a donation it is not considered as a tax-deductible expense because you’ve not incurred it during the production of income. On the contrary, when you make a donation to an approved IPC (Institution of a Public Character) or to the Singapore government in order to help the local community, you will be able to claim for tax deduction. For an approved donation, tax deduction will be approved on the basis of the previous financial year.

Suppose you make an approved donation during FY that ends in 2018, you’ll qualify for tax deduction in the 2019 Year of Assessment.

What are the different types of donations that fall under the “tax-deductible” category?

  • Cash donations
  • Computer donations
  • Shares donations
  • Artefact donations
  • Land and building donations
  • Donations under PATIS (Public Art Tax Incentive Scheme)

17. Corporate Income Tax (CIT) Rebate


In Budget 2018, MOF announced that the Corporate Income Tax Rebate for the 2018 Year of Assessment will be increased to 40% of the corporate tax you’re liable to pay. Also, a cap of S$15,000 will be applicable. Previously, the CIT Rebate was 20% of corporate tax payable with a cap of S$10,000.

Also, the Corporate Income Tax Rebate will be extended to 2019 YA at 20% of the corporate tax you’re liable to pay (a cap of S$10,000 will be applicable).

Take a look at the table below for more clarity:

YA (Year of Assessment) CIT Rebate Capped at
2013 to 2015 30% S$30,000
2016 50% S$20,000
2017 50% S$25,000
2018 40% S$15,000
2019 20% S$10,000

Note: The CIT rebate will not be applicable to any income you’ve received by a non-resident firm which is subject to final withholding tax.


18. Deduction of Expenses Incurred Prior to Commencement of Business


With an aim to render support to businesses in venture development, a business will be regarded to have launched its business operations on the basis period’s first day during which it gets its initial dollar as a proof for business done (supposed date of commencement of business).

From the 2012 Year of Assessment, a business will qualify for tax deduction for any revenue cost that it has incurred prior to 1 year of the conceived date of business commencement.

Between the 2004 Year of Assessment and the 2011 Year of Assessment, your business would have gotten tax deduction for any revenue cost it had incurred starting from the expected date of business commencement.

Note: These tax treatments will not apply to firms that are liable to pay tax in relation with Section 10E of the ITA (Income Tax Act).

How is the actual business commencement date determined?

When your business sets up its organisation for profit-making and began its initial project, it will be considered that you have started the business even if your business hasn’t received its 1st dollar as the receipt for business done. In case, as a business owner you’re in a position to prove this, any revenue expense you incurred from the actual business commencement date will be considered as tax-deductible.


19. Tax Deduction on Borrowing Costs Other Than Expenses


In the Income Tax regulations, there are a few borrowing costs that are pre-defined as “tax-deductible” in order to align the tax handling of “borrowing costs” with interest expenses. A few examples of borrowing costs include guarantee fees, prepayment fees, bank option fees, early redemption fees, and more. For you to be eligible for tax deduction, you need to incur borrowing costs as an alternative for your interest expense or in order to bring down interest costs.


20. Capital Allowances


With a capital allowance, you can claim for tax deduction in the event of wear & tear of allowed fixed assets which include sign boards, office machinery, and industrial equipment. Often, capital allowances are approved as an alternative to depreciation, which is not tax-deductible.


21. Interest Incurred on Loans to Refinance Earlier Loans or Borrowings


Any interest you’re liable to pay on a loan or a borrowing you’ve made with an aim to finance income generating assets will fall under the “tax-deductible” category. In order to qualify for this tax deduction, you need to satisfy the following conditions:

  • You should have incurred the interest expense entirely and solely during the production of income.
  • The interest expense you’ve incurred should be within the basis period for the Year of Assessment.
  • The tax deduction of the interest expense is not otherwise restricted under Section 15 of the ITA (Income Tax Act).

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