Income Tax & GST in brief

Income Tax and GST in brief

All businesses, whether a sole-proprietor, partnership or company, have to pay taxes on profits earned in Singapore.

A partnership does not pay income tax on the income earned by the partnership. Instead, each partner will be taxed on the salary, bonus, CPF and other benefits from the partnership and his share of profit from the partnership. Where the partner is an individual, his share of profit from the partnership will be taxed based on his personal income tax rate.

A sole-proprietor or self-employed person who receives business income has to prepare statement of accounts and report the income in his individual tax return. The business income will be added to all other personal income and the total is subject to personal income tax rates.

For corporate entities, the corporate income tax rules shall apply. (see below)

All businesses will also have to pay Goods and Services Tax ("GST") on purchases of goods and services from GST-registered businesses. The current GST rate is 7%.

Corporate Income Tax

Income of a company (whether tax resident or not) that is accrued in, derived from Singapore or received in Singapore from outside Singapore is subject to corporate income tax. The prevailing corporate tax rate is 17% with a partial tax exemption on normal chargeable income of up to S$300,000 as follows:

The effective tax rate on the first S$300,000 of normal chargeable income is therefore 8.36%. The chargeable income in excess of S$300,000 will be taxable at the corporate tax rate of 17%.

There is tax exemption scheme for new start-up companies. Click here to find out more.

Common filing mistakes made by company

1. Claiming deductions for non-deductible expenses

Examples of non-deductible expenses:-

• Private expenses, such as directors' private expenses on entertainment, vacation and personal purposes, as they are not incurred for the business; and

• Motor vehicle expenses on private-plate cars and business service passenger vehicles, even if they have been incurred for business purposes.

2. Unreasonable claim of remuneration to related parties

For tax deduction purposes, remuneration of related parties' (such as the directors' parents, spouses, children and siblings) working in the company should be based on arm's length basis. It means the compensation of a related party should be comparable to the remuneration of an independent employee performing similar services.

3. Incorrect claim of purchases/ expenses based on estimates

• Claims of purchases/ expenses should be based on actual amount incurred, with supporting receipts and invoices.

• If such claims of purchases/ expenses are estimated, they should have valid basis and proper supporting documents.

• Claims of public transport and entertainment expenses should have complete records and proper receipts.

4. Failure to maintain business records for a period of 5 years (whether or not an assessment has been raised).

For more information on tax exemptions and reliefs, please visit the IRAS websites.

Goods & Services Tax ("GST")

You have to register for GST when your revenue for the past year exceeds S$1 million, or when your revenue for the next 12 months is expected to be more than S$1 million. You are required to file GST returns on a quarterly basis.

Some sole-proprietors mistakenly believe that all their businesses registered under different trading names are separate legal entities. Under the law, all businesses under the same sole-proprietor are considered as one entity. Therefore, you will have to register for GST if the total taxable revenue of all your businesses exceeds S$1 million in a year. Similarly, under the law, all partnerships with the same composition of Partners are also regarded as one entity. They need to aggregate the turnover of all their partnerships with the same composition of partners in determining their GST registration liability.

Some of the common mistakes made in GST filing are as follows:

1. Claiming GST on disallowed expenses such as motor car expenses;

2. Failure to account for GST on provision of accommodation to employees;

3. Failure to account for GST on the supply of labour or manpower to other businesses, as it has mistakenly treated such supply as being equivalent to salary;

4. Failure to charge GST on disposal of business assets (such as motor vehicles, office equipment and retail shops or offices).

For more information on GST, please refer to IRAS websites.

Voluntary Disclosure Programme

The Inland Revenue Authority of Singapore has introduced a Voluntary Disclosure Programme which aims to encourage taxpayers who have made mistakes in their past tax returns due to lack of care or awareness of their tax obligations, to come forward to have their mistakes corrected, with the promise of zero or lower penalties. The voluntary disclosures can apply to errors or omissions made in past personal income tax, corporate income tax, withholding tax and GST filings.

If in doubt, please approach a tax professional for advice and to review your past returns.