Many will be confused that the company’s taxable income is the same as the net income (after deducting the company’s expenses from its revenue). This is only half right as the calculation of tax requires various adjustments first in order to derive its taxable income for the financial year. Not all income received by the company is considered taxable and not all expenses incurred by the company will be considered as deductible for tax calculation. Therefore, adjustments have to be made to arrive at the taxable income.
A Singapore local company is taxed based on its income accruing in or derived from Singapore and income received in Singapore from overseas in respect of:
*Income from outside of Singapore is received in Singapore if it is:
(a) remitted to, transmitted or brought into Singapore
(b) applied in or towards the satisfaction of any debt incurred in respect of a trade or business carried on in Singapore
(c) applied to purchase any movable property which is brought into Singapore.
Example of non-chargeable income received from capital gains, such as sales of fixed assets, gain 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.
Investment income is considered non-trade income that includes interest income, dividend income, and rental income. Investment income is calculated separately from trade income because excess of expenses over the income received from one source of investment cannot be claimed against the surplus arising from another source of investment. For example, any excess of expenses attributable to rental income cannot be deducted against dividend or interest income.
Net investment income is then calculated using the following steps: (a) deduct all the investment income from chargeable income; (b) deduct the investment related qualified expenses from the investment income for each type of investment income; and (c) add the balance net investment income for each type of investment.
Qualified Business Expenses.
Expenses that are solely incurred for the purpose of business operation are deductible. Examples of deductible expenses include employee salaries, office rent, accounting fees, marketing expenses, and others. Examples of non-deductible expenses include fines, fixed assets write-off, income tax, private and domestic expenses, motor vehicle expenses incurred in respect of private passenger cars (S plate car), etc.
Due to the extensive list of deductible and non-deductible business expenses, it is difficult to include in this article.
The purchase of fixed assets is not deductible for tax purposes as it is capital in nature. Depreciation on fixed assets is also not deductible for tax purposes. However, in place of the depreciation, the company can claim for a deduction for the wear and tear of the fixed asset known as “capital allowance.” Unutilized capital allowances from previous accounting periods as well as from the current account period on fixed assets can be brought forward to deduct the current taxable income.
If your company carries out a trade or business, you can claim capital allowances on expenditure incurred on the provision of “plant and machinery” for use in the trade or business. The exception is where capital allowance for an asset is specifically prohibited under the Income Tax Act (e.g. “S” plate private passenger car).
Capital allowance should not be claimed on the expenditure incurred on equipment (for example, computers) bought solely for donation purpose.
Qualified losses incurred can be deducted against the income in Singapore. Qualified loss means (a) the loss must arise from the carrying out of a business; and (b) it has not been utilized previously. The deduction of losses follows the “preceding year” basis i.e. deduction is allowed in the year(s) subsequent to the year in which the loss incurred. If the losses cannot be fully adjusted in the relevant year of assessment, the remaining portion can be carried forward to the next year of assessment. Losses can be carried forwarded indefinitely subject to certain conditions.
Only donations that are made to approved institutions of a public character can be deducted for the company’s income tax calculation purpose. Unutilised donations for a particular YA arises when allowable donations made during the YA is more than the income for that YA.
Productivity and Innovation Credits (400% Tax deduction).
As announced in Budget 2014, from YAs 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600, 000 (instead of $400, 000 previously) of their expenditure per year in each of the six qualifying activities under the PIC+ scheme.
For example, if a company buys 4 laptops for a total of $4000, the tax deductions will be $16, 000. ($4000 x 400%, and the laptops will be classified as fixed assets).
A local company can enjoy various tax exemption/allowances given by IRAS.
Engage Ace Success today and we will look into various tax benefit that your company may enjoy.
Contact us at 66864882 now!