Tips For Corporate Tax Filing in YA2021

Singapore’s corporate tax filing season 2021 is here! Included in this article are also a list of common mistakes made by companies during the filing of tax returns, as well as other useful information.

What is taxable income?

Income is considered taxable on two conditions, i.e. when the income is:

• accrued in or derived from Singapore; or
• received in Singapore from outside Singapore

Income that is taxable are:

• gains or profits from any trade or business;
• royalties, premiums and any other profits from property;
• income from investment such as dividends, interest and rental; and
• other gains that are revenue in nature.

Deductible and non-deductible expenses

Deductible expenses help to reduce the amount of taxable income.

Business expenses that are deductible must be ‘wholly and exclusively’ incurred in the production of income. ‘Business expense’ constitutes costs paid to run the business such as salary and advertising.

To qualify as a business expense, the expense must be:

• revenue in nature, not capital
• solely incurred in the production of income
• not prohibited from deduction under the Income Tax Act
• not a contingent liability, i.e. it does not depend on an event that may or may not occur in the future

Non-deductible business expenses constitute any expense which does not fulfil the criteria above. For example, staff’s personal expenses not related to business operations, and capital expenses such as those incurred for incorporating a company.

The exceptions are renovation and refurbishment costs which can be claimed at a maximum of S$300,000 over 3 successive years only.

More examples: deductible and non-deductible business expenses

What is Singapore’s corporate tax rate?

With effect from YA 2010, it is a flat rate of 17% on chargeable income for both local or foreign companies. The effective rate is usually lower after deductions for rebates, allowances and tax exemptions offered by the Singapore government.

More information here: corporate tax system in Singapore and how to reduce tax reduction

How do I submit my company tax in Singapore?

1. Authorise an employee to act on its behalf for corporate tax matters.
2. Set up a CorpPass account for the company. (IRAS step-by-step guide)
3. Fill in the correct e-filing forms (Form C-S, Form C, Form ECI) through myTax Portal. Downloadable forms are no longer available on the IRAS website.

Important: Single filing deadline from 2021

e-Filing of Form C-S and Form C is compulsory for all companies from YA2020. The extended filing deadline of 15 December 2020 is only for YA2020. Filing deadline for YA2021 is 30 November 2021.

Filing for dormant companies

A company is considered dormant if it has not commenced business or has ceased business activities and has no income for the entire financial year/period. Dormant companies are still required to e-file their Corporate Income Tax Return using respective forms for Dormant Company via digital service at mytax.iras.gov.sg and only those who are within the first year of incorporation or have been granted a waiver are exempt from doing so.

Filing for active companies

If the company has income or commenced business and closed its first set of financial statements in the year of incorporation (e.g. first financial period from 15 Jul 2021 to 31 Dec 2021), it is required to e-file their Corporate Income Tax Return for YA 2022 (basis period from 15 Jul 2021 to 31 Dec 2021) by 30 Nov 2022.

If the company has income or commenced business but does not close its first set of accounts in the year of incorporation (e.g. first financial period from 15 Jul 2021 to 31 Dec 2022), it is required to e-file their Corporate Income Tax Return for YA 2022 (basis period from 15 Jul 2021 to 31 Dec 2021); and YA 2023 (basis period from 1 Jan 2022 to 31 Dec 2022) by 30 Nov 2023.

Corporate tax filing requirements

Business entities must submit two corporate income tax returns to IRAS each year. They are:

1. Estimated Chargeable Income (ECI)
2. Corporate Income Tax Returns

Either Form C-S or Form C must be filed, depending on the size of the company. Only dormant companies for which IRAS has waived the requirement to file are exempt.

Corporate tax filing deadlines

ECI must be submitted within 3 months from a company’s financial year end except for (a) companies that fulfil the conditions under the Administrative Concession and (b) certain entities that are not required to file ECI.

The due date for submitting corporate income tax returns for both Form C-S and Form C for YA 2021 is 30 November 2021 via e-filing.

What is Estimated Chargeable Income?

ECI is an estimate of the company’s taxable income (after deducting tax-allowable expenses) for a Year of Assessment (YA). The estimate is therefore the gross amount of income or revenue before deductions and other items.

About the ECI Form

The company’s revenue must be declared in the ECI Form. Revenue pertains to a company’s main source of income, excluding items like gain on disposal of fixed assets.

If there are no audited financial statements, the company’s management accounts can be referred to for the purpose of declaring the revenue amount. Usually, IRAS will send a notification to companies to file the ECI in the last month of its financial year.

If that does not happen, companies should still file the ECI within three months from its financial year end. Submitting on time offers companies the option to pay corporate taxes by instalments.

Corporate Income Tax Returns

As mentioned earlier, there are two forms for filing corporate income tax returns. They are Form C-S and Form C. These declare the actual income of companies, including losses.

Form C-S

This form is for helping small companies. It consists of a 3-page income tax form which must be submitted along with these documents:

• declaration statement showing the eligibility of the company
• essential tax and financial information

Other documents such as tax adjustments, tax computations and financial accounts, must be ready in case the IRAS requests for them.

Qualifying conditions to file Form C-S

From YA 2017, companies will qualify to file Form C-S if they meet all of the following conditions:

1.   The company must be incorporated in Singapore;
2.   The company must have annual revenue of $5 million or below
3.   The company only derives income taxable at the prevailing corporate tax rate of 17%; and
4.   The company is not claiming any of the following in the YA:

• Carry-back of Current Year Capital Allowances/ Losses
• Group Relief
• Investment Allowance
• Foreign Tax Credit and Tax Deducted at Source

Form C

This form is for companies that are not eligible to file Form C-S. It comprises 7 pages which must be accompanied by:

• financial statements
• tax computations

Qualifying conditions to file Form C

Companies which fulfill the following criteria must use Form C:

• incorporated in Singapore
• has annual revenue of $5 million or less
• income derived taxable at 17%

However, if a company claims the following it will not be eligible to file tax returns:

• Group Relief
• Investment Allowance
• Foreign Tax Credit or Tax Deducted at Source
• Carry Back of Current Year Capital Allowance/Losses

What if there is a difference in the amount declared as ECI and Chargeable Income reported in Form C-S/ C?

• Chargeable income reported in Form C-S/ C is less than the chargeable income estimated in ECI: the excess tax paid will be refunded automatically
• Chargeable income reported in Form C-S/ C is more than the chargeable income estimated in ECI: the additional tax must be paid within 1 month from the date of the Notice of Assessment.

However, IRAS may require the company to provide an explanation if there is a significant difference between the ECI reported earlier and the chargeable income reported in Form C-S/ C.

Key Tax Changes for YA 2021

• Companies are given the option to claim the Renovation & Refurbishment (R&R) deduction in 1 YA (i.e. accelerated R&R deduction) instead of over 3 YAs for qualifying R&R expenditure incurred during the basis period for YA 2021.
• Companies are given an option to accelerate the write-off of plant and machinery (P&M) over 2 years, instead of 3 years or the prescribed working life of the asset, on the cost incurred in acquiring such P&M during the basis period for YA 2021.
• Companies may elect for either the current Carry-Back Relief or enhanced Carry-Back Relief for YA 2021.

Special news for SMEs

Small and medium-sized enterprises (SMEs) will have an easier time filing corporate taxes for YA2020 with a new simplified Corporate Income Tax Return form launched in July 2020.

The simplified version of Form C-S is called Form C-S (Lite). Companies with straightforward tax matters can file taxes by filling out as few as only 6 essential fields, including revenue and net profit or loss.

IRAS digitisation

IRAS has also rolled out additional digital solutions for tax-related processes. For example, the option to pay taxes via PayNow, digitised notices and direct filing from accounting software.

More of its processes are being digitised this year to enhance the efficiency of taxpaying. New options include paying corporate taxes via PayNow QR, which will provide instant settlement and real-time updates of outstanding tax balance.

Another initiative for the future – PayNow Corporate – is an option to receive corporate income tax returns within 7 days from credit arising. It will be available from mid-2021. To use this refund method, companies will need to link their Unique Entity Number to their corporate bank account via Internet banking.

Companies can automate their statutory returns preparation and filing by using dedicated accounting software linked to systems of IRAS and ACRA.

From May 2021, IRAS will phase out paper notices and digitise most of its notices. All companies will need to update their email addresses to receive these e-notifications.

Common mistakes when filing corporate tax returns

• Not following Transfer Pricing guidelines
• Wrongful claims of non-deductible expenses
• Failure to keep proper records and accounts
• Failure to File Tax Returns (Form C-S/C) On Time
• Mistakes in making claims for Capital Allowance (CA) 
• Abuse of Tax Exemption Schemes Intended for Companies
• Understatement of income by omitting particular receipts or invoices issued or transactions settled in cash

Wrap Up

The Singapore government and Inland Revenue Authority of Singapore are constantly making progressive improvements on the corporate tax filing process. Keeping up with the changes may be daunting for some companies which have lean resources. 

In such instances, outsourcing to corporate tax services may take the burden off their shoulders, as corporate service providers are equipped with the right manpower and skills to handle all matters related to corporate taxes.