Tax Exemption for newly setup company

[Michelle Lai]

Hi,

I got 1 sole proprietor company and was thinking to transfer its business to my pte ltd company .

Question :

-Can Pte Ltd enjoyed the tax exemption for newly setup company ? ( My pte ltd company was setup early of this year but is dormant as at today)

-must I change the ownership of sole proprietor to Pte ltd

-must I terminate the sole proprietor

Overall, my objective is to enjoy the tax exemption thnks

[katbh]

If there is a significant link between the sole prop and the Pte Ltd (eg same directors), you will not be able to claim the tax free threshold for new companies. You can only claim it once. And you DO NOT want to get on the wrong side of the tax laws in Singapore.

[Strong Eagle]

If there is a significant link between the sole prop and the Pte Ltd (eg same directors), you will not be able to claim the tax free threshold for new companies. You can only claim it once. And you DO NOT want to get on the wrong side of the tax laws in Singapore.

I can find NOTHING within the IRAS site nor the corporate statutes that supports your assertion. Perhaps you'd care to leave a citation that supports your statements?

The IRAS website very clearly states that exempted companies include:

A company whose principal activity is that of investment holding; and
A company whose principal activity is that of developing properties for sale, for investment, or for both investment and sale.

There is no mention of conversion of a business from sole proprietorship to a pte ltd. In fact, I suspect the point is to encourage such a move by reducing the potential tax liability a former SP could encounter.

PS: SP's don't have directors. And I don't see how a former SP owner becoming a shareholder and managing director would cause a pte ltd to lose its tax exemption. Again, please provide a citation.

[katbh]

I will take some time to find this for you. I remember reading it in an article in the Law Society Journal but at the moment I do not have a citation for you. The question from OP went unanswered for some time and I was simply trying to give a quick factual (but obviously with out citation) response.
If the management is significantly the same - especially if moving from one Pte Ltd and setting up another - IRAS will not grant the tax threshold exemption. This is to stop tax avoidance. This can also be the case moving from SP to Pte Ltd (if the tax free threshold has already been claimed).
Otherwise we would all set up one company after another, one structure after another and have multiple young companies to simply remain tax free. The threshold can only be claimed once if the business owners, and business activity is substantially the same.
I am not saying it is not done - obviously it is - but you should not assume that the tax free threshold will be available. It is not automatic, it is granted by the IRAS.
I was unaware from the OP that this was an investment or property (Strong Eagle's reference to IRAS website) investment company, but I do not see that the distinction is relevant in any case.
The only matters that that are relevant is that the the sole proprietorship was only a registered business. it is possible to have a sole proprietor company (one director). If it has been a dormant business, it would be prudent to transfer it to a company. it is not actually a transfer but you simply set up a new company (you can use same name or new name) and let the business name lapse. You would then be entitled to tax exemption. BUT not if the previous was a company and you are simply creating a second company to avoid tax.If the SP had traded at all it would be significantly different.

[Strong Eagle]

If the management is significantly the same - especially if moving from one Pte Ltd and setting up another - IRAS will not grant the tax threshold exemption. This is to stop tax avoidance.

Here is the problem, katbh. If a SP never moves from being an SP, there is no additional tax. If a pte ltd were to be additionally taxed, no SP holder would move. Someone moving from SP to pte ltd could simply pay all profits as salary and fees and incur no tax.

Therefore, the exclusion exists to encourage people to fairly report profits. When you think about it, what difference does it make whether the company is brand new or has its roots in a SP?

[Mi Amigo]

This can also be the case moving from SP to Pte Ltd (if the tax free threshold has already been claimed).

Forgive me if I'm missing something here, but surely a SP has no 'tax free threshold' (apart from personal income tax allowances that would also apply to a person drawing a salary from a Pte. Ltd.). In other words, I believe that SPs are treated as individuals from a tax perspective, correct? If so, then in the scenario mapped out by the OP, they would be claiming the 'tax free threshold' for a new Pte. Ltd. for the first time. Hence no multiple claiming of the tax free amount.

[taxico]

...The question from OP went unanswered for some time and I was simply trying to give a quick factual (but obviously with out citation) response...

pppsssst... Michelle Lai is always asking questions like these on the forum.

i think she's lazy. if she's a she, ie.

[taxico]

...There is no mention of conversion of a business from sole proprietorship to a pte ltd...

this is not possible. i know, because i tried. a few times. in all ways i can think of!

the new PLC is a separate entity from the (terminated/soon to be terminated) SP.

you will have to enter an appeal for the PLC to use the same name (with a PLC suffix, of course), or your application cannot proceed.

i've, however, never tried enjoying the tax breaks - taxes ought to be paid and i don't want to be audited. i believe though, based on my experience/accountant/comments above, that the breaks can be "enjoyed."

[livingontheedge]

If you convert your SP into a Pte Ltd, the Pte Ltd Company can still enjoy tax exemption for the first 3 YAs from the date of incorporation as a Pte Ltd.

However, as you mentioned your Company is still dormant and generating no profits, you may want to reconsider exactly when you convert your SP into a Pte Ltd Company. Reason being the Tax Exemption for Start-ups commence from the first 3 YAs from the date of incorporation, regardless you make profits, losses or no profits. In the case of a Company that makes no profits or makes losses in the 1st YA that its qualified for Tax Exemption as a Start-up, and you are unable to utilise the Tax Exemption granted, it will still be counted as 1 YA utilised and you are unable to carry forward any of the Tax Exemption benefits into future years. Further, if you make losses one year, before you can utilise the Tax Exemption in the following year, you must offset your unutilised losses first against the Chargeable Income before applying the Tax Exemption.