How to Ensure Accurate Corporate Tax Filing in Singapore

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The most important attraction for Singapore-based companies remains the city-state’squasi-territorial tax system, which means that tax is imposed on all income accrued in orderived from Singapore, as well as on all foreign-sourced income remitted to the country,with certain qualifying exemptions (dividends, branch profits, service income).

There is neither any capital gains tax in Singapore nor is there any withholding tax ondividends. There is also no one-tier corporate tax system, capital duty, capitalacquisitions tax, inheritance or estate tax, or even net worth/wealth tax in the city-state.

Importantly, advance rulings on taxation are possible too.

Moreover, there are no significant restrictions on foreign exchange transactions andcapital movements in Singapore, which means that funds may flow freely into and fromSingapore. While the government imposes certain restrictions on the lending ofSingapore Dollars (SGD) to non-resident financial institutions, these restrictions do notapply to the lending of SGD to individuals and non-financial institutions, includingcorporate treasury centres.

Common filing mistakes to avoid while making PIC claims

• Understatement of income e.g. omission of particular receipts or invoices issued ortransactions settled in cash; importantly, accounts of business transactions must bekept for five years from the relevant YA

• Duplicate claims for cash payout and 400% enhanced deduction/ allowance on thesame dollar of expenditure under the Productivity and Innovation Credit (PIC)Scheme;

• Claiming 500% instead of 400% enhanced deduction/ allowance on the qualifyingexpenditure under the PIC Scheme;

• Businesses can claim PIC only on the market value of qualifying PIC expenditure; inthe past, IRAS has noted that some businesses have claimed PIC on inflated values,particularly in the area of training costs, mobile application and website development

Calculating taxable income in Singapore

For Singapore tax purposes, taxable income refers to:• gains or profits from any trade or business;• income from investment such as dividends, interest and rental;• royalties, premiums and any other profits from property; and• other gains that are revenue in nature.

Generally, deductible business expenses are those ‘wholly and exclusively incurred inthe production of income’. In other words, they must satisfy all these conditions:• expenses are solely incurred in the production of income• expenses are not a contingent liability, i.e. it does not depend on an event that may• or may not occur in the future• expenses are revenue, and not capital, in nature• expenses are not prohibited from deduction under the Income Tax Act

Meanwhile, non-deductible business expenses include personal expenses such astravel or entertainment not related to the running of the business, and capitalexpenses such as expenses incurred to incorporate a company and purchase offixed assets.

Calculating taxable income at concessionary and prevailing corporate tax rates

A company may receive different streams of income taxable at different tax rates, i.e.the prevailing corporate tax rate and concessionary tax rates. Common mistakes toavoid here include:

• incorrect classification of non-qualifying income under the concessionary tax ratecategory

• incorrect identification of direct and common expenses

• adoption of inappropriate bases in the allocation of common expenses and capitalallowances

Foreign Sourced Income and Avoidance of Double Taxation

For Singapore tax resident companies, who also do their business overseas, it’s quite common nowadays to have their foreign sourced income remitted to Singapore. Since the city-state follows a progressive tax framework based on territorial policy, this foreign sourced income is also taxed.

Though, as detailed in Sections 13 (7A) to 13 (11) of the Income Tax Act (ITA) of Singapore, companies can benefit from the foreign sourced income exemption scheme (FSIE), which is applicable to foreign-sourced dividend, foreign branch profits, and foreign-sourced service income.

Sometimes, foreign income of a Singapore tax resident company may be subject to taxation twice – once overseas, and then a second time when the income is remitted into Singapore.

For such cases, IRAS has a foreign tax credit (FTC) scheme, which allows the company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.

Two types of credit or relief can be claimed

1. Double Tax Relief (DTR) – a credit relief provided under Singapore’s Avoidance of Double Tax Agreements (DTAs);

2. Unilateral Tax Credit (UTC) – granted on all foreign-sourced income received in Singapore by Singapore tax residents from jurisdictions that do not have DTAs with Singapore

The government, in 2011, also introduced a Foreign Tax Credit (FTC) pooling system to give businesses greater flexibility in their FTC claims, reduce the taxes payable on foreign income, and to simplify tax compliance.

It must be noted that for Singapore-based companies to enjoy exemptions under the FTC or FSIE, the headline corporate tax rate in the foreign country from which the income is received must be at least 15 percent, and the income must have already been subjected to tax in that particular country.

Mistakes to avoid while claiming tax exemption for foreign-sourced dividends

So the common mistakes to avoid while claiming tax exemption for foreign-sourced dividends include:

• Dividends must meet the “headline tax rate” condition, i.e. the dividends were received from countries less than 15% headline tax rate; and

• Dividends must meet the “subject to tax” condition, e.g. the dividends were distributed from a company which is part of a group and the income of the company was found not to be subject to tax

Errors in Tax Returns

IRAS determines if the error/omission/discrepancy in the tax return was made withoutany intention to evade taxes. If found to be true, the taxpayer may:

• face a penalty up to 200% of the amount of tax undercharged;

• be fined up to $5,000; and/or

• be imprisoned up to three years.

• If the intention was to evade taxes, the taxpayer may face a penalty up to 400% ofthe amount of tax undercharged; be fined up to $50,000; and/or be imprisoned upto five years.

Rikvin can help you file your corporate tax returns accurately

Overwhelmed by the detailed overview of Singapore corporate taxation filing mistakes above? Don’t worry, we are here to help. Rikvin’s reputation as Singapore’s leading corporate services provider and tax agent is unmatched.

In fact, Rikvin has been awarded one of the top 15 e-filing tax agents in Singapore.

Call us at +65 6320 1888 or Email us at Info@rikvin.com for a free consultation.