Business taxable income
Now that you’ve decided what kind of business you’re going to start, it’s time to settle your accounting and administrative work. One of the most important things you will have to know will be how to calculate your business tax.
This is especially important come tax season, to stay compliant with Singapore’s tax rules. If you aren’t sure about how to get about doing this, read on to find out more.
Business vs income tax
The first thing to know is that business tax is not income tax. In Singapore, your business tax is based on profits and not revenue after-tax adjustments. The current headline tax rate on profits is at 17%, but incentives and other tax exemptions can help to reduce this by a significant amount.
The tax rate on dividends distributed to shareholders and tax rate on the company’s capital gains are currently at 0%. This percentage also applies to foreign-sourced income that has already been subjected to overseas taxation, if it has met certain qualifications.
Income tax basis period
Business income in Singapore is evaluated on a 12-month basis. How this works is that your Year of Assessment (YA) period refers to the financial year ending (FYE) in the year before
For example, the income that you earn in the financial year 2021 will be taxed in YA2022. In other words, for YA2022, you will have to file the corporate tax return for your business’s financial year that ends anytime between 1 January 2021 to 31 December 2021, with your company’s accounts prepared up to the FYE every year.
How to calculate taxable income
Your taxable income includes profits or gains from business and trade, premiums, royalties and profits generated from the property, income from investments including rental property income and interest and other sources of revenue.
Also bear in mind that taxable business income and net income are not the same.
Deduct non-taxable income
Non-taxable income includes capital gains, sales of fixed assets, gains on foreign exchange on capital transactions, exempt shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions, and other income exempted from tax under the provisions of the Singapore Income Tax Act.
Adjust net investment income
Investment income refers to non-trade income. This is assessed separately due to excess expenses that can arise from other sources of investment. There are also several other adjustments that you will have to make before you can calculate your taxable income for the year.
Deduct qualified business expenses
You can deduct expenses that are exclusively incurred in the production of trade income. Deductible expenses include wages, office rent, service fees, R&D expenses and more. On the other hand, fines, fixed assets write-off and private and domestic expenses are examples of non-deductible expenses.
Deduct capital allowances
Capital allowances refer to deductions that you can claim for the wear and tear for fixed assets such as office equipment and signboards. In Singapore, you are allowed capital allowances. They are often granted in replacement of depreciation, which is not tax-deductible.
Only fixed assets that are not used in the current and previous accounting period can be used for capital allowances.
Deduct unutilised losses and donations
Unutilised losses refer to losses that come from the carrying of a business that has not been previously utilised. This deduction is permitted in the years following the year in which the loss was suffered. If the loss cannot be adjusted fully in the year of assessment, the outstanding amount can be brought forward to the following year, indefinitely.
Unutilised donations can only be subtracted if they are made to approved institutions of public character.
How to file business tax
When it comes time to complete your business tax returns, you will have to submit Form C or Form S and your Estimated Chargeable Income (ECI) to the Inland Revenue Authority of Singapore (IRAS).
To find out more about filing with IRAS, check out our article on being compliant with local authorities.
Business tax calculation
Be sure to get your tax situation sorted out as soon as you’ve started your business – you wouldn’t want to get into trouble with the law for tax evasion or fraud. If you need extra help to stay compliant, leave it in the hands of our accounting professionals who will be able to help you from start to finish. Get started with us today!