By KYN AI Advisory Team — AI implementation specialists, Singapore
The start-up tax exemption lets a qualifying new Singapore company exempt 75% of its first S$100,000 of normal chargeable income and 50% of the next S$100,000, for each of its first three consecutive years of assessment. The maximum exemption is S$125,000 a year. The company must be incorporated in Singapore, be tax resident, have a qualifying shareholding and must not be an investment holding or property development company. This article sets out the conditions, works one example to the dollar and shows where founders lose the benefit by mistake.
What is the start-up tax exemption?
It is a scheme run by IRAS for new companies. IRAS sets out the rules on its page for corporate income tax rates, rebates and exemption schemes. The headline rate of corporate tax is a flat 17% for local and foreign companies. The exemption reduces the income that the 17% applies to.
The scheme applies to the first three consecutive years of assessment (YAs). A year of assessment is the year after the income was earned. Income earned in the financial year ending 31 December 2026 is assessed in YA 2027.
For YA 2020 onwards the amounts are:
- 75% exemption on the first S$100,000 of normal chargeable income;
- 50% exemption on the next S$100,000;
- a maximum exemption of S$125,000 per YA.
Normal chargeable income is chargeable income after deductions, reliefs and loss set-offs, and before the exemption.
Who is eligible?
IRAS lists three conditions for each YA you claim. All three must hold for that YA.
- Business type. The company is not principally engaged in investment holding, and does not undertake property development for sale, investment or both.
- Tax residency. The company is incorporated in Singapore and is a Singapore tax resident for that YA.
- Shareholding. Throughout the basis period, no more than 20 shareholders hold the total share capital directly, and either all of them are individuals, or at least one individual holds 10% or more of the ordinary shares.
Foreign companies and Singapore branches of foreign companies are not eligible.
The shareholding test is where most founders get caught. A startup that issues shares to a corporate investor, or to a nominee holding vehicle, can fail the "individuals" test for a year. Check it each time the cap table changes, not only at incorporation.
How does the exemption work in numbers?
Take a company in its first YA with S$150,000 of normal chargeable income. Assume it qualifies.
| Step | Amount (S$) | |---|---| | Normal chargeable income | 150,000 | | 75% of the first 100,000 exempt | 75,000 | | 50% of the next 50,000 exempt | 25,000 | | Total exempt | 100,000 | | Chargeable income after exemption | 50,000 | | Tax at 17% | 8,500 |
The effective rate on S$150,000 is 5.7%. The same income without any exemption would be taxed at S$25,500.
Now take a company that earns S$250,000. The exemption caps at S$125,000 (75,000 plus 50% of 100,000). Chargeable income after exemption is S$125,000 and tax at 17% is S$21,250.
A company that earns S$60,000 exempts 75% of the first S$60,000, which is S$45,000. It pays tax on S$15,000: S$2,550.
What if you do not qualify?
A company that does not claim the start-up exemption can use the partial tax exemption. IRAS states it is available to all companies that do not claim the start-up scheme. The amounts for YA 2020 onwards are 75% off the first S$10,000 and 50% off the next S$190,000, with a maximum exemption of S$102,500.
Run the same S$150,000 through partial exemption:
| Step | Amount (S$) | |---|---| | Normal chargeable income | 150,000 | | 75% of the first 10,000 exempt | 7,500 | | 50% of the next 140,000 exempt | 70,000 | | Chargeable income after exemption | 72,500 | | Tax at 17% | 12,325 |
The start-up scheme saves S$3,825 on this income. The gap grows with profit up to the S$100,000 to S$200,000 range, then stays fixed because both schemes cap their exemption.
Does the corporate income tax rebate change the result?
For YA 2026, IRAS gives a rebate of 50% of corporate tax payable, capped at S$40,000 less the S$2,000 cash grant where it applies. Companies that paid CPF to at least one local employee (a citizen or PR, excluding shareholder-directors) in calendar year 2025 also receive a S$2,000 cash grant. The rebate comes after the exemption. On the first example, S$8,500 of tax becomes S$4,250 after the rebate.
Rebates change year to year. Check the IRAS page for the YA you are filing, not the year you incorporated.
What are the common ways to lose the benefit?
- Investment holding drift. A company that begins as an operating business but earns most of its income from holding investments can lose eligibility. Review the principal activity each year.
- Cap table changes. A corporate investor or a holding company between founders and the company can break the shareholding test.
- Wrong claim. A company cannot claim both schemes. If it claims the start-up exemption, it does not use partial exemption for that YA.
- Late or missing filing. The company confirms eligibility and claims the exemption when it files its return. Missing the filing date puts the claim at risk.
- Losses. If chargeable income is nil after loss carry-back relief, the exemption has nothing to apply to for that YA. Loss planning and the exemption interact, so model both before filing.
How do you keep the numbers right through the year?
The exemption is simple. The inputs are not. Normal chargeable income depends on a clean ledger, correctly treated expenses and clear foreign currency handling. Three habits help:
- Reconcile the bank to the ledger monthly, so year-end is a review and not a rebuild. See how to automate bank reconciliation in Singapore.
- Capture every receipt with its tax treatment at the time of spend. See how to scan receipts for GST claims in Singapore.
- Keep a live schedule of the tax estimate: income, deductions, exemption and tax, updated each month.
Where KYN fits
KYN builds finance systems that run in your own cloud account. For KYN's own books, bills arrive from Gmail, receivables are chased at 3, 14 and 30 days, and payroll runs on 2026 CPF rules. A finance system can hold a running tax estimate that applies the exemption bands to the year-to-date ledger. It does not file the return. Filings wait for a named person.
Start-up exemption claims depend on dates and shareholdings, so we start by reading your incorporation records and share register, then interview whoever prepares your tax computation. A build that tracks eligibility and the exemption schedule ships in under 90 days. See finance systems and security.
Frequently asked questions
Do I have to apply for the start-up tax exemption?
You claim it when you file your corporate income tax return, where you confirm eligibility. Confirm with your filer that the claim is made for each of the three years.
Does the three-year period restart if I change my business?
No. The scheme covers a company's first three consecutive years of assessment. A change in business does not restart it. A change in shareholding can end eligibility for a given year.
Can a company with losses use the exemption?
The exemption applies to normal chargeable income. If that is nil, there is nothing to exempt in that year. Unabsorbed losses carry forward under separate rules. Take advice before assuming a year of loss uses up one of your three years: the years are consecutive, so an unused year still counts.
Checked 30 October 2026.
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