Although the Inland Revenue Authority of Singapore (IRAS) does its assessments after you file your corporate income tax returns, the math actually begins with you. Tax computation is the name of the procedure, and, according to the Singapore Income Tax Act, companies are required to attach the resultant figures to their corporate tax filing. This is part of what the IRAS ultimately relies on to establish your payable tax bill, plus process the accompanying tax claims.
As such, it’s critically important to familiarize yourself with the whole process of conducting corporate tax computations in Singapore. And no - in case you’re wondering, it’s not that complicated.
Read the article below for a complete breakdown of IRAS tax computations and requirements.
What Are the Requirements to Submit IRAS Tax Computation?
A tax computation, to begin with, is a statement that comprehensively details all the income and expense calculations that you’ve used to establish your company’s chargeable tax. It essentially goes beyond the income and profit figures to include even the applicable tax adjustments in the form of deductions and allowances.
More specifically, you get to provide a breakdown of your company’s net profit, non-taxable receipts, non-deductible expenses, capital allowances, plus losses, and donations. Then with that, you should be able to accurately work out your company’s chargeable income, which is usually submitted as part of the corporate income tax filing.
Now, for the sake of clarity, chargeable income in this case refers to the net taxable amount. You can think of it as the total income amount that the Inland Revenue Authority of Singapore bases its tax charges on. You just need to slap the corporate income tax rate of 17% on the chargeable income, deduct the applicable rebates or exemptions, and you’ll have yourself the company’s total tax amount due.
It’s worth noting, though, that not every taxpayer in Singapore is required to prepare and submit tax computation. This special requirement is only intended for companies that file their corporate tax returns using Form C-S/C.
If you choose to file Form C, for instance, the Inland Revenue Authority of Singapore will expect you to submit a dully-filled Form C, along with the corresponding tax computation, financial statements (audited or unaudited), plus all the relevant supporting schedules.
Companies that qualify for Form C-S, on the other hand, are saved much of the trouble. They get the privilege of filing just the tax form without the attachments.
But, make no mistake about it. Although such companies manage to avoid document attachments as they file their tax returns, the Inland Revenue Authority of Singapore doesn’t let them off easy. They are, instead, required to prepare their tax computation, financial statements, plus supporting schedules, and then hold on to them in case the Inland Revenue Authority of Singapore raises a submission request.
Records and Accounts Keeping
The accuracy of your tax computation substantially depends on your company’s records and accounts-keeping framework. Your accounting books should provide comprehensive in-depth details of all the business transactions that your company conducted in the Year of Assessment (YA).
Well, there are various ways of recording such data. But, all things considered, nothing is as reliable as accounting software. With a proper one, you get to seamlessly capture every single business transaction while complying with the accompanying tax obligations. And since many of the software operations are automated, you should have an easy time with your tax filing and tax computation.
Ok, fair enough. But, where do even start when it comes to choosing appropriate accounting software?
Well, luckily for you, the IRAS understands that the extensive range of options in the market can get pretty overwhelming. So, it saves you the trouble by providing a list of the few accounting software that meet Singapore’s e-tax technical requirements. You can check out the options on the IRAS Accounting Software Register (ASR).
How to Make Tax Adjustments
While it’s common knowledge that corporate tax in Singapore is usually charged on companies’ net profit or loss, the fact of the matter is, your company’s net profit/loss amount isn’t always equivalent to the chargeable income.
The thing is, the net profit/loss figures that you see in your company’s financial statement only form the baseline for tax computation. From that, you’re expected to subtract all the deductible business expenses, unutilized losses, non-taxable income, donations, and capital allowances - and then add stuff like non-deductible business expenses, and taxable income.
Such additions and subtractions are known as tax adjustments. And collectively, they make up the whole tax computation process, whose end-goal is to accurately establish a company’s actual chargeable income.
A single error at this level, therefore, could mean incorrect income tax figures for your company.
Different Types of Tax Adjustments
Some of the principal tax adjustments that you might want to include in your Singapore tax computation include (please note that these should be applied to your company’s net profit/loss):
- Subtract all the donations you’ve directed to approved Institutions of a Public Character (IPCs) in the year of assessment.
- Subtract any unutilized donations that you might have brought forward from previous years of assessment.
- Subtract any unutilized losses that you might have carried forward from previous years of assessment.
- Subtract all the applicable capital allowances that you intend to claim on your business assets in the current year of assessment. Consider even enhanced allowances under the Productivity and Innovation Credit scheme.
- Subtract any unutilized capital allowances that you might have carried forward from previous years of assessment.
- Add your company’s net investment income - including interests, dividends, and rental income (after subtracting the direct expenses that arose from the generation of the investment income).
- Subtract Section 14Q deduction for capital expenditure used on applicable renovation or refurbishment works.
- Add direct expenses that arose from the generation of investment income (to be applied against the respective investment income taxed as non-trade income).
- Add disallowable business expenses.
- Subtract investment income - such as. interests, dividends, and rental income - all of which are to be analyzed separately as non-trade income.
- Subtract non-taxable income.
How to Submit Without Tax Adjustments
Not all tax computations in Singapore are accompanied by tax adjustments. The IRAS allows you to submit yours even without the tax adjustments.
You might, for instance, end up with a nil tax adjustment if:
- There are no utilized losses, capital allowances, or donations to carry forward from previous YAs.
- You’re not claiming any capital allowances on fixed assets.
- All the income stated in your profit/loss statements happens to be taxable.
In that case, your company’s net profit/loss amount will be the chargeable income.
Preparing for the Inland Revenue Authority of Singapore 2021
Because of all the figures and small details involved, tax computation is, understandably, an error-prone process for many companies in Singapore.
Don’t be alarmed, though. Book a free consultation today, and let’s talk about your tax filing needs.