Page 6 - Budget-2018-Highlights-en-flip

CORPORATIONS AND BUSINESSES
Start-up Tax Exemption Scheme
Current
A new company can, subject to conditions, qualify
for, in each of the first three Years of Assessment:
 100% exemption on the first $100,000 of normal
chargeable income; and
 50% exemption on the next $200,000 of normal
chargeable income.
Proposed changes
To strengthen support for firms to build capabilities,
the tax exemption under the SUTE scheme will be
adjusted to:
 75% exemption on the first $100,000 of normal
chargeable income; and
 50% exemption on the next $100,000 of normal
chargeable income.
All other conditions of the scheme remain
unchanged.
Effective date
The change will take effect on or after YA 2020 for
all qualifying companies under the scheme.
If a qualifying company’s first YA is say 2019, the
current SUTE parameters will apply in YA 2019 while
the new parameters will apply in YA 2020 and YA
2021.
4 | RSM
Comments
 The SUTE scheme was introduced to promote
entrepreneurship and help the growth of local
businesses. Whilst the SUTE scheme lowers
costs for smaller firms and start-ups, it does not
directly help firms to develop capabilities.
Moreover, in practice, start-ups may not have
generated sufficient profits in their early years
to realise the full benefit of the scheme. The
intent of the announced changes is to move
away from a broad-based tax scheme.
 With the announced adjustments, start-ups will
have an effective corporate tax rate of 4.25%
for the first $100,000 of their normal chargeable
income from YA 2020 versus zero currently. As
for those with normal chargeable income of
$200,000, the effective tax rate will be 6.38%
from YA 2020 versus 4.25% currently (before
corporate income tax rebate).
 Notwithstanding the announced changes, the
effective corporate income tax rate for start-
ups and smaller firms remains low compared to
the headline tax rate of 17% and in comparison to
corporate income tax rates in selected countries
(see Chart on next page).
 The Government expects profitable companies
to pay some level of tax, albeit at lower rates.