Corporate Income Tax Planning in Singapore
All businesses will be subject to taxes, in one way or another. Understanding the tax regulations and reliefs available are essential to remain compliant with the relevant laws.
Identifying appropriate opportunities for tax savings accompanied by proper tax planning, the tax that your business bears can be optimised.
Some common tax reliefs available for companies to reduce their tax are:
- Tax exemption scheme for new start-up companies;
- Partial tax exemption for all companies; and
- Deduction of expenses incurred before commencement of business.
The tax exemption for new start-up companies are indeed attractive with the first S$100,000 of chargeable income remaining tax-free for the first 3 years of assessment (“YA”). Of course, there are accompanying conditions such as tax residency and shareholding requirements. Companies should be aware of such requirements and make any necessary arrangements (e.g. hold board meetings in Singapore, having individual shareholders rather than a corporate shareholder, etc) to ensure that the conditions are met for the entire basis period in order to claim the tax exemption for new start-up companies.
Besides, it is best to keep the company’s FYE within 365 days of the calendar date in order to enjoy the zero tax exemption for new start-up companies (full tax exemption on the first $100,000 of normal chargeable income [profits] for its first three consecutive YA; a further 50 percent exemption is given on the next $200,000 of the normal chargeable income — excluding Singapore franked dividends — for each of the first three consecutive YA’s). You can refer to Ongoing Compliance Requirement for the detail illustration.
Below are some pointers which companies may note for tax considerations, depending on its tax position.
For companies in a loss making/ non-tax paying position
- Do note that the utilisation of unabsorbed capital allowances is subject to the same business test and the shareholding test at the relevant dates. In order to preserve its capital allowances and not subject them to the abovementioned tests, claims may be deferred as long as the company is not in a tax-paying position.
- With effect from YA 2012, revenue expenses incurred 1 year before the basis period in which the company earns its first dollar of business receipt are tax deductible.
- There is an option to elect for a carry-back of unabsorbed tax losses of up to S$100,000 to the previous year of assessment (in a tax-paying position for the preceding year) for a tax refund. The same business test and/or shareholding test will apply.
- Group relief is a scheme which enables Singapore entities to deduct unutilised capital allowances/ trade losses/ donations of one company from the assessable income of another company in the same group. There are qualifying conditions to be satisfied in order to be considered as a group.
For companies in a tax-paying position
- Capital allowances may be utilised to reduce the chargeable income. Certain qualifying assets will also allow companies to claim enhanced tax deductions or cash payouts under the Productivity and Innovation Credit (“PIC”) scheme.
- Companies claiming PIC benefits should always consider between the option of claiming the enhanced tax deductions and the cash payout option. Tax savings will depend on the profit level of the company and amount of qualifying PIC expenditure.
- The declaration of director fees may be considered if the arrangement offers potential tax savings. This may be performed through tax planning which involves the comparison of effective tax rates.
- Foreign income earned by a Singapore company may be subject to taxation twice – once in the foreign country, and a second time when the foreign income is remitted into Singapore. Foreign tax credit (FTC) is granted by allowing the Singapore tax resident company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.
- Companies may also consider debt financing over equity financing as interest expenses are tax deductible.
- Review may be conducted on the outstanding debts to write off long overdue debts.
- Companies may re-assess the accounts to identify any omitted accrual expenses.
All business decisions today have tax implications and it is important for a company to manage its income tax requirements efficiently. At 3E Accounting Pte Ltd, we work closely with you to identify tax strategies that work best within your organisation and manage your tax compliance.