Following the passing of the the Income Tax (Amendment) Bill (“Bill”) in Parliament on 2 October 2018, which covers income tax changes announced in the 2018 Budget Statement as well as tax changes arising from the periodic review of Singapore’s income tax regime.

One of the key changes impacting the Company income tax are the adjustments made to the Start-Up Tax Exemption (“SUTE”) Scheme and Partial Tax Exemption Scheme from YA 2020. The tax exemption under both schemes will be reduced from the first S$300,000 to S$200,000 of normal chargeable income. Exemption under the SUTE Scheme will also be lowered from 100% to 75% for the first S$100,000 of normal chargeable income.

Specifically the impact on SUTE full tax exemption for the first 3 years of newly incorporated companies and partial tax exemption for all other companies will be as follows:

Tax exemption scheme for new start-up companies (where any of the first 3 YAs falls in or after YA 2020)

Chargeable income % exempted from Tax Amount exempted from Tax
First $100,000 @75% =$75,000
Next $100,000 @50% =$50,000
Total $200,000 =$125,000

Compared to the previous SUTE full tax exemption prior to YA2020, a total of $300,000 of chargeable income is exemption from tax of 17% at:

First $100,000 @100% – reduction of % from 100% to 75%

Next $200,000 @ 50% – reduction of amount $100,000

Total chargeable income exempted from tax @ 17% $200,000

The full impact on SUTE will be a reduction of a total of $75,000 ($200k vs $125k) of chargeable income under full tax exemption for the first 3 years following incorporation. Net tax payable will increase by $12,750 per year for the first 3 years after incorporation assuming the company chargeable income > $300,000 for each of the 3 years.

Total tax payable for the first 3 years will increase by a total of $12,750 x 3 = $38,125.

Partial tax exemption for companies (from YA 2020)

Chargeable income % exempted from Tax Amount exempted from Tax
First $10,000 @75% =$7,500
Next $190,000 @50% =$95,000
Total $200,000 =$102,500

Compared to the previous partial tax exemption prior to YA2020, a total of $300,000 of chargeable income is exemption from tax of 17% at:

First $10,000 @75% – no change

Next $290,000 @ 50% – reduction of amount of $100,000

Total chargeable income exempted  from tax @ 17% $152,500

The full impact on partial exemption will be a reduction of a total of $50,000 ($152.5k vs $102.4k) of chargeable income under full tax exemption for the first 3 years following incorporation. Net tax payable will increase by $8,500 per year going forward assuming the company chargeable income > $300,000 every year.

Total tax payable going forward (YA2020 and beyond) will increase by a total of $8,500.

On paper, the impact ($38,125 for 3 years on tax payable) on newly incorporated company for the first 3 years is very significant but in reality, very few new incorporated companies clocked up chargeable income of > $300k for the full 3 years straight after incorporation.

Comparatively, with majority of companies under the partial tax exemption, the increase of tax payable  ($8,500 per year) on profitable companies that hit chargeable income of $300k is what will hit most of the SME. SME owners who are currently enjoying the partial tax exemption in full would be wise to note this higher tax payable going forward.

Despite the change in the full and partial tax exemption, Singapore corporate tax rate remains one of the lowest in the world.

 

Relevant articles on company tax:

What so great about the Tax system in Singapore for Singapore resident companies?

March 20, 2019

Business and tax friendly regime driving Singapore to the top millionaires migration destination in Asia in 2018.

May 8, 2019

Personal vs Company income tax

March 29, 2019