With Singapore boasting one of the most attractive business tax frameworks in Asia and an efficient tax filing system, it's no wonder that many entrepreneurs open their companies in Singapore.
When it comes to tax season, it is crucial for you to understand which part of your business is taxable, so you can stay compliant with the law.
When Is the Income Tax Basis Period?
In Singapore, your business income is evaluated on a 12-month basis of a preceding year, which means that the Year of Assessment basis period typically refers to the financial year ending (FYE) in the year before the Year of Assessment (YA).
This means that the income you earned in the financial year 2020 will be taxed in the YA2021. In other words, for the YA2021 you will have to file the corporate tax return for your business’s financial year that ends anytime between 1 January 2020 to 31 December 2020, with your company’s accounts prepared up to the FYE every year.
Business Tax vs Income Tax
Business tax, or corporate tax, in Singapore is based on the profits of your company and not on revenue, after tax adjustments. Currently, the headline tax rate is at 17%, but can be significantly lowered with tax exemptions and other incentives offered by the Singapore government.
Current Tax Rates
|Types of business tax||Tax rate (%)|
|Tax on business profits||17%|
|Tax rate on dividends distributed to shareholders||0%|
|Tax rate on company’s capital gains||0%|
Tax rate on foreign-sourced income that was already subjected to overseas taxation with qualifying conditions met:
On the other hand, income tax refers to the tax that is chargeable on income of individuals and companies. This article will focus more on business tax, or corporate tax.
How Do I Calculate the Taxable Income of My Business?
Taxable business income is not equivalent to the net income. Taxable income includes:
- Profits or gains from your business or trade
- Premiums, royalties, and any other profits generated from property
- Incomes from your investments including rental property income and interest
- Other sources of revenue
To calculate your business’s taxable income:
- Look at the net profit and loss recorded in your company's accounts.
Subtract non-taxable income.
Subtract the income of non-taxable nature from your chargeable income. This includes the sale of fixed assets, capital gains, gains on capital transactions' foreign exchange, foreign-sourced dividends, service income and branch profits received by the resident company that fulfills qualifying terms, as well as other income with tax exemptions under the Singapore Income Tax Act.
Adjust your net investment income.
There will be various adjustments required before you work out the taxable income for the year of assessment. This is because some of the incurred expenses may not be deductible for tax purposes, and thus require adjustments. In this similar vein, some income received by your business may either be taxed separately as a non-trade source income, or may not be taxable.
Add back non-deductible business expenses.
Common expenses that are not tax deductible include:
- Non-deductible corporate expenses:
- Bad debts
- CPF contributions above statutory rate
- Income tax payments
- Prepaid expenses
- Expenses incurred before business commencement
- Other non-deductible expenses
- Non-deductible corporate expenses:
Subtract unutilized capital allowances first followed by current year capital allowances
Capital allowances are allowed in Singapore. They refer to deductions you can claim for the wear and tear of fixed assets like office equipment, industrial machinery, and signboards.
Capital allowances are typically granted in place of depreciation, which is not tax deductible. On fixed assets that are not used in the current accounting period, and that were not used in the previous accounting period, capital allowances can be deducted.
Subtract unutilised losses.
In Singapore, qualified losses can be deducted from the income. Qualified loss refers to firstly, a loss that comes up from the carrying of a business which has not been previously utilised.
This deduction follows the “preceding year” basis, e.g. deduction is permitted in the year(s) following the year in which the loss was suffered. In the event that the losses cannot be adjusted fully in the year of assessment, the outstanding amount can be brought forward to the following year of assessment. These losses can be brought forward indefinitely, subject to certain conditions
Subtract unutilised donations.
Only those made to approved institutions of a public character can be subtracted for the business’s tax calculation purpose.
How Do I File My Business Tax?
To complete your business tax returns, you will have to submit two filings to the Inland Revenue Authority of Singapore (IRAS).
- Form C or Form C-S: In both forms, you will have to declare actual company income for the year of assessment. For form C filing, you will have to attach your tax computations, detailed profit & loss statement, financial statements, as well as other supporting documents. On the flipside, form C-S is a simplified version that does not require additional documents. This is due by 30 November for both paper and electronic filings.
- Estimated Chargeable Income (ECI): ECI is your company’s taxable income after the deduction of tax-allowable expenses. This is mandatory and is due within 3 months of your company’s financial year-end.
Need Additional Support With Your Business Tax?
Be on the right side of taxes.
Here's a guide on how to avoid penalties from paying your taxes late.
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