Taxes are the best part of doing business in Singapore. Sounds crazy? Well, Singapore is a low-tax environment, and the Inland Revenue Authority of Singapore (IRAS) has set up straightforward reporting systems that many consider to be miracles of efficiency.
For example, you can use many forms of Over The Counter (OTC) accounting software to prepare your financial data, and IRAS is okay with that! These forms are a godsend to smaller companies and help avoid the need to hire an entire accounting firm.
Here are the five main things that IRAS wants to know about your company’s finances.
All companies operating in Singapore need to file a Corporate Income Tax Return for the YA. This is always filed on 30th November (for hard copy), or on 15th December (if you’re filing it online). And yes, you have to file this even if you made a loss.
A quick note for non-accountants: the YA refers to the previous year, as you don’t know what this year’s total taxable income will be yet. So the tax return for YA 2019, for example, would show your company’s earnings for the whole of the year 2018.
Most SMEs in Singapore will be using form C-S. This is for companies earning less than $5 million for the YA, and are not claiming certain tax benefits such as group relief or foreign tax credit. If you do need to claim such benefits, do consult a corporate secretarial service for guidance.
Bigger companies, making more than $5 million a year, have to fill the more complex form C. But by that time, you’ll probably have your own dedicated accountant to deal with it.
The form C-S consists of a declaration that your company is eligible to use the form, any tax adjustments, and the breakdown of your earnings*. And that’s it! The entire form is only three pages long (and even if you make a mistake filling in the fields, the system will prompt you to correct it).
*IRAS will accept the use of any accounting software on this list.
Just in case IRAS decides to check, you need to keep supporting documents such as:
- Records of sales transactions
- Business expenses
- Purchase records
- Accounting records and schedules (this includes your stock list by the way)
- Bank statements
Here’s the full list of things to keep in case IRAS checks.
These records need to be maintained for five years, so it’s a bad idea to rely on the old “stapling receipts inside books” methods. Not only could you be subject to fines if you can’t produce the records, but you may also be unable to claim certain tax deductions.
There are many convenient systems that can maintain your records digitally for you. Spenmo, for instance, tracks your business expenses in real-time, and automatically integrates with your accounting software (no need to waste hours re-entering all the transactions into the ledgers). Uploading receipts to the cloud also removes the risk of, say, a year’s records being lost when someone spills coffee on a ring binder.
Is there something you think your company shouldn’t be taxed for? Let IRAS know about it. As a guideline, deductible expenses (i.e. you can subtract them from your taxes) are any costs “wholly and exclusively incurred in the production of income”. Many types of company spending can be deducted so long as you prove they contributed to your growth.
That means, for example, you can claim for office rental, or for the research and development of a new product, but you can’t make a claim for year-end Christmas bash. Importantly, do remember to let IRAS know about any debts that your customers or clients default on, as these may be tax-deductible.
If you’re not sure, it’s best to call IRAS and check. No point paying more than you need to, especially if the costs are recurring every year.
Remember that you need to keep the supporting documents of the expenses for five years, even after a successful claim.
This is done through the form IR8A, by 1st March every year. You need to report on the income of all full-time and part-time employees. In addition, you need to report:
- The income of company directors
- All board members who are receiving fees
- The income of pensioners and employees who have left, but received income the previous year
This applies even if the employees are not currently residing in Singapore; but you don’t need to report any overseas employees’ income that isn’t related to your business (e.g. if you have a director residing in Canada, and she also receives income from a Canadian business, this doesn’t have to be reported - only her income from your Singapore-registered business has to be reported).
Remember to report any extra contributions you’ve made to an employee’s CPF, if you want to claim tax deductions for it.
IRAS has a Voluntary Disclosure Programme (VDP). Under the VDP, IRAS won’t impose a penalty on you for most mistakes in your reporting, if you inform them of the error within one year. You just need to contact them, follow their instructions, and pay any differences—for instance, paying back an excessive claim for tax exemptions or deductions.
If you voluntarily come clean about a mistake, but it took you more than a year to do it, there are at least reduced penalties. Examples include five per cent of any income tax undercharged (for each year you didn’t inform IRAS), or five per cent of the Goods and Services Tax undercharged.
In any case, the penalties are still lower than what you’ll end up paying if IRAS catches you hiding reporting errors. One sole proprietor was fined over $400,000 in April this year for under-declaring GST, and that’s not the kind of situation you want your company to land in. Such a major fine can spell the end of a small business.
Let IRAS know ASAP if you’ve made a mistake; they won’t bite.
The best way to keep accurate records is to have an automated system, working in real-time.** **
Systems like Spenmo aren’t just about saving you hours of work (although that’s definitely a benefit). By having transactions updated immediately, rather than poring over receipts at the end of the week, month, etc., you’re less likely to make mistakes.
That means less risk of being fined, and less risk of missing out on all the little tax deductions that seriously add up. You can even approve or deny employee transactions on a Spenmo card, preventing employee spending abuse. Interested in saving your company a fortune over the long run? Contact Spenmo today for a free consultation.