Starting and running a small business in Singapore comes with various financial responsibilities, including understanding and calculating your taxes. As a small business owner, it is crucial to have a clear understanding of the tax obligations and how to calculate them accurately.
In this guide, we will walk you through the process of calculating corporate taxes for small business owners in Singapore, providing you with the knowledge and tools to stay compliant with the law.
Is Your Small Business Defined as A Company?
But before we begin, for income tax purposes, make sure your small business is defined as a company:
- A business entity incorporated or registered under the Companies Act 1967 or any law in force in Singapore. It usually has the words 'Pte Ltd' or 'Ltd' as part of its name
- A foreign company registered in Singapore, such as a branch of a foreign company
- A foreign company incorporated or registered outside Singapore
A sole proprietorship or partnership business is not considered a company. If you are a sole proprietor business owner, you are subject to income tax on the profits earned by your business. Unlike other business structures, you must treat your business earnings as personal income and report them accordingly during the tax filing season.
If you are wondering how to calculate income tax as a sole proprietor in Singapore, check our blog here.
Now let’s get to it!
What is the Singapore Business Tax?
Singapore imposes a business tax, also known as Corporate Tax, at a flat rate of 17% on the chargeable income of both resident and non-resident companies. A company's chargeable income, which is its taxable revenues minus allowable expenses plus other allowances, determines its tax liability. Additionally, a company must pay tax on its income from the preceding financial year.
Basic Corporate Income Tax Calculator
The Basic Corporate Income Tax Calculator (BTC), an Excel workbook, assists companies in preparing their tax computations and schedules for Corporate Income Tax Returns. It contains explanatory notes and validation checks to help taxpayers navigate their tax computations and avoid common errors.
Calculating the Taxable Income of Your Business
Calculating the taxable income of your business requires careful consideration of various factors.
A tax computation is a detailed statement that modifies the accounting profit to determine the income subject to taxation. This process involves various tax adjustments, which may include non-deductible expenses, non-taxable receipts, additional deductions, and capital allowances.
Annually, your company should prepare its tax computation in preparation for completing its Form C-S, Form C-S (Lite), or Form C. The requirements for submission vary based on the form:
When filing Form C, your company must submit its audited or unaudited financial statements, the tax computation, and supporting schedules alongside the form.
For Form C-S or Form C-S (Lite), although it's not necessary to file the financial statements, tax computation, and supporting schedules, these documents should be readily available for submission if requested by the Inland Revenue Authority of Singapore (IRAS).
Here's a step-by-step guide to help you through the process. Generally, you can start by making the following adjustments to your company’s net profit/loss:
Furthermore, you must include in your tax computation the chargeable income and either the tax payable or the unutilised losses carried forward, as applicable.
Filing Your Business Tax
To complete your business tax returns, you will need to submit two filings to the Inland Revenue Authority of Singapore (IRAS):
- Estimated Chargeable Income (ECI): ECI is your company's taxable income after deducting tax-allowable expenses. It is mandatory and must be filed within 3 months of your company's financial year-end.
- Form C-S: This form requires the declaration of actual company income for the year of assessment. Form C-S, a simplified version, does not require these additional documents. The deadline for submitting this form, whether by paper or electronically, is typically November 30th.
Penalties for Late Filing of Business Tax
Timely compliance is a cornerstone of Singapore's tax system. Late filing can consequently result in penalties and interest charges, impacting your business's financial health. Thus, it is imperative to stay informed about filing deadlines and engage with professional accounting services to ensure seamless and punctual submissions. So, let's explore the potential repercussions of late filing and how to avoid them.
Late filing of tax returns in Singapore can lead to various penalties, emphasizing the importance of adhering to deadlines. This is why the Inland Revenue Authority of Singapore (IRAS) imposes late filing penalties to encourage businesses to submit accurate and timely tax returns. The penalties are calculated based on the number of months the return is overdue and the annual revenue of the company.
To avoid penalties, businesses must be vigilant about key filing dates. The annual filing deadline for income tax returns is typically November 30th, and Goods and Services Tax (GST) returns are due on the last day of the calendar quarter. Engaging with professional accountants and leveraging digital accounting solutions can streamline the filing process, reducing the risk of late submissions.
Besides penalties, late filing can have broader implications for small businesses, including reputational damage and strained relationships with suppliers, customers, and business partners. Small business owners should prioritize establishing robust internal processes for tax compliance, including regular reviews of financial records and proactive communication with tax authorities.
Save More with Grof
In conclusion, mastering the intricacies of Singapore's tax landscape is essential for small business owners. As you navigate the complexities, consider enlisting the support of reliable accounting services. At Grof, we offer tailored solutions to streamline your accounting processes and maximise tax savings. Visit us to explore how our expertise can benefit your business.
In essence, understanding the Singapore taxation framework, qualifying as a small business, managing taxable and non-taxable income, leveraging tax redemption, avoiding late filing penalties, and seeking professional guidance are pivotal steps towards financial success. By prioritising timely filing, optimising your tax strategy, and staying informed about regulatory changes, you can ensure a smooth and compliant journey in the dynamic world of small business taxation.
