Corporate tax exemptions and partial-exemption scheme: Frequently asked questions

Corporate tax exemptions and partial-exemption scheme rules reduce the effective tax rate on a Singapore company’s first tranche of chargeable income: the partial tax exemption gives 75 percent relief on the first S$10,000 and 50 percent on the next S$190,000 of normal chargeable income, while a separate, more generous start-up exemption applies to a qualifying new company’s first three years of assessment.

What corporate tax exemptions and the partial-exemption scheme actually are

Singapore taxes company profits at a headline corporate income tax rate of 17 percent, but very few companies pay tax on their full chargeable income at that rate, because two exemption schemes under the Income Tax Act 1947 reduce the taxable base before the rate is applied. The Partial Tax Exemption (PTE) scheme, available to all companies (including companies limited by guarantee) for every year of assessment, exempts 75 percent of the first S$10,000 of normal chargeable income and 50 percent of the next S$190,000, giving a maximum exemption of S$102,500 of income on which no tax is charged. The Start-up Tax Exemption (SUTE) scheme, available only to new companies meeting qualifying conditions, exempts 75 percent of the first S$100,000 and 50 percent of the next S$100,000 of normal chargeable income for each of the company’s first three consecutive years of assessment, after which the company reverts to PTE. Both schemes apply before the various corporate income tax rebates that the government separately announces from time to time in the Budget.

Who this applies to

PTE is available to essentially every Singapore tax resident and non-resident company carrying on a trade or business here, with limited exceptions for companies whose income is taxed at concessionary or other special rates. SUTE is narrower: it is available only to a company incorporated in Singapore, tax resident here for the relevant year of assessment, with no more than 20 shareholders throughout the basis period, all of whom are individuals holding shares directly, or at least one individual shareholder holding at least 10 percent of the issued ordinary shares. Property development and investment holding companies are excluded from SUTE altogether, regardless of shareholding structure, reflecting the policy intent that the exemption should support genuine new operating businesses rather than passive vehicles.

Eligibility and requirements: numbers that matter

  • Corporate income tax rate: 17 percent, applied to chargeable income after exemptions.
  • PTE: 75 percent exemption on the first S$10,000, and 50 percent on the next S$190,000, of normal chargeable income, available to all companies from Year of Assessment 2020 onwards.
  • SUTE: 75 percent exemption on the first S$100,000, and 50 percent on the next S$100,000, of normal chargeable income, for each of a qualifying company’s first three consecutive Years of Assessment.
  • SUTE shareholding condition: no more than 20 shareholders, all individuals, or at least one individual holding at least 10 percent of ordinary shares.
  • SUTE exclusion: property development and investment holding companies do not qualify, regardless of shareholding.
  • Filing deadline for the annual corporate tax return (Form C-S, C-S Lite or C): 30 November each year for the preceding financial year.

Cost and timeline

These exemption thresholds have shifted over time, and it is worth understanding the trajectory to avoid applying outdated figures from older reference material. Before Year of Assessment 2020, PTE exempted 75 percent of the first S$10,000 and 50 percent of the next S$290,000, and SUTE exempted the full first S$100,000 and 50 percent of the next S$200,000. Budget 2018 announced the revision to the current, lower thresholds with effect from Year of Assessment 2020, as broader-based support schemes for capability building were strengthened elsewhere. Businesses relying on older accounting templates, or on advice given before that transition, should specifically check that their computation reflects the current post-2020 figures rather than the pre-2020 ones.

Neither exemption requires a separate application; both are computed automatically as part of the annual Form C-S, C-S Lite or Form C corporate tax filing, so there is no direct government fee. The cost to a business is really the cost of accurate tax computation: engaging an accountant to prepare the corporate tax computation, including correctly applying PTE or SUTE, typically ranges from S$500 to S$2,500 depending on company size and complexity, with most straightforward SMEs at the lower end of that range. IRAS generally processes Form C-S filings and issues a Notice of Assessment within a few months of filing, though this can extend if the return is selected for review or additional information is requested. Estimated Chargeable Income (ECI), filed within three months of the financial year end, should also reflect the applicable exemption so that any instalment payment plan is not overstated.

Step-by-step process

  1. Determine tax residency and company type. Confirm the company is Singapore tax resident (or otherwise eligible) and identify whether it is in its first three Years of Assessment.
  2. Test SUTE eligibility. Check the shareholding structure (headcount and individual ownership) and confirm the company is not a property development or investment holding company.
  3. Compute normal chargeable income after allowable deductions, capital allowances and any loss relief, before exemption.
  4. Apply the relevant exemption, SUTE for a qualifying company’s first three Years of Assessment, or PTE thereafter or from the outset if SUTE conditions are not met.
  5. Apply any corporate income tax rebate announced for the relevant Year of Assessment, which is calculated on the tax payable after exemption.
  6. File Form C-S, C-S Lite or Form C by 30 November, with the exemption schedule embedded in the standard filing template.
  7. Retain supporting workings for at least 5 years in case IRAS reviews the computation.

Practical checklist for finance teams

Companies approaching the end of their SUTE window should build a simple internal flag into the accounting calendar marking the fourth Year of Assessment, so the transition to PTE is planned rather than discovered at filing time; the swing in exemption value between the two schemes (from a maximum S$125,000 exempted under SUTE to a maximum S$102,500 exempted under PTE) can materially change a growing company’s effective tax rate and cash tax payable in that transition year, and should be factored into budgeting well in advance.

Groups with several related companies should also map out, entity by entity, which company is still within its SUTE window, which has moved to PTE, and which (such as a holding company) is excluded from SUTE altogether, since treating the group as a single unit for exemption purposes is a common source of avoidable error at year-end.

Common mistakes and gotchas

The most common mistake is companies continuing to claim SUTE beyond their first three Years of Assessment, either through a bookkeeping oversight or because a change of accountant loses track of when the start-up window began; IRAS will disallow the excess exemption on review and reassess with penalties for understated tax. A second frequent error is misjudging the SUTE shareholding test at the wrong point in time; because the test applies “throughout the basis period,” a share transfer partway through the year that temporarily breaches the 20-shareholder limit, or removes the qualifying individual shareholder, can disqualify the whole year even if the structure reverts by year end. Investment holding companies are also frequently misclassified; a company that holds property and derives passive rental income, even alongside some limited trading activity, is often treated by IRAS as an investment holding company for this purpose and denied SUTE, a distinction directors sometimes only discover at filing time. Finally, groups with several related companies sometimes assume exemptions can be pooled or shared across entities; each company computes and claims PTE or SUTE separately, and there is no group-level exemption pooling under either scheme.

How this interacts with GST and family office structuring

Corporate tax exemption planning should be reviewed alongside a company’s broader tax posture, including its GST registration position, since a growing company approaching the compulsory GST threshold is often simultaneously exiting its SUTE window and moving onto PTE, and both changes affect cash flow forecasting for the same financial year; see our related guide on Singapore corporate tax filing: CIT rebate, exemptions and the 30 November deadline. Family offices structuring under the 13O/13U/13D schemes should note that fund vehicles are generally taxed under separate concessionary regimes rather than PTE or SUTE, so the two frameworks should not be conflated when advising a group with both an operating company and a fund vehicle. Companies scaling headcount during this same growth phase should also review their Employment Pass pipeline in parallel; our partner site’s guide on DP to EP and DP to LOC conversion routes is a useful cross-reference for founders converting a spouse or dependant’s pass as the business formalises.

FAQs

Can a company claim both SUTE and PTE in the same Year of Assessment?
No. A qualifying new company claims SUTE for its first three consecutive Years of Assessment only, and automatically moves to PTE from the fourth Year of Assessment onwards.

Does an investment holding company qualify for the start-up exemption?
No. Property development and investment holding companies are excluded from SUTE regardless of their shareholding structure, though they may still claim the standard PTE.

What happens if my shareholding structure changes during the basis period?
Because the SUTE shareholding test applies throughout the basis period, a temporary breach, such as a new corporate shareholder exceeding the 20-shareholder limit or removing the qualifying individual shareholder, can disqualify the company from SUTE for that Year of Assessment.

Is the exemption applied before or after the corporate income tax rebate?
The exemption is applied first to reduce chargeable income and compute tax payable; any corporate income tax rebate announced for that Year of Assessment is then applied to the resulting tax payable.

Do I need to apply separately for PTE or SUTE?
No. Both exemptions are computed automatically within the standard Form C-S, C-S Lite or Form C corporate tax filing; there is no separate application process.

Related guides

For the annual filing mechanics that sit alongside these exemptions, see our companion piece, Form C, C-S and C-S Lite filing: Frequently asked questions. The partial tax exemption scheme is set out in section 43 of the Income Tax Act 1947, and the start-up tax exemption scheme is set out in section 43(6) of the Income Tax Act 1947; both should be read alongside the current IRAS guidance on corporate income tax rate, rebates and tax exemption schemes, which is updated more frequently than the underlying statute. For authoritative detail, refer to IRAS, the Ministry of Finance, and ACRA.

Need help with this? Call, SMS or WhatsApp +65 8501 7133, or email [email protected]. Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.