Starting a new business - tax considerations

Are you familiar with the various business structures in Singapore?  That is, partnerships, limited partnerships, limited liability partnerships, private limited companies, and sole proprietorship, etc.  Indeed, tax considerations may be the defining factors for you to decide on your business structure.


To elaborate futher on the 'taxes', you may wish to know:

i) A startup company may qualify for tax exemption scheme for its first three years of assessment on the normal chargeable income which can be summarised as:

First $100,000  of CI @ 75%  = $75,000
Next $100,000 of CI  @ 50% =  $50,000
Total $200,000 of CI                  $125,000

ii) All dividends paid by companies in Singapore will be tax exempt one-tier dividends from 1 January 2008 onwards.  Prior to this, companies under the imputation system have to submit a Section 44A statement to the Inland Revenue Authority of Singapore upon payment of dividends.  A Section 44A account has to be maintained.

Our comments:

To support entrepreneurship and to help our local enterprises grow, the Government has provided a tax exemption scheme for people carrying on a trade, business, profession or vacation.  Unfortunately, people are not aware of this initiative to encourage sole-propretorships and partnership businesses to corporatise.  Although the Comptroller has clarified that he will not exclude anyone from the Start-up tax exemption on the reason that the company is converted from an existing sole-proprietorship or partnership, this position may be challenged.  Please refer to our article on this issue submitted to Law Gazette.

Even after the first three years of assessment period, a company would still enjoy partial tax exemption which is:

First $10,000  of CI  @ 75% =   $7,500
Next $190,000 of CI @ 50% =  $95,000
Total $200,000 of CI                 $102,500

Depending on the level of taxable income of the business, it is more likely than not that corporatisation of a business will yield substantial savings.

We would be pleased to assist in the review of your business structure and whether you should do a conversion based on tax and non-tax considerations (i.e. increase in professional fees, professional liability issues, insurance concerns, etc.).