Accounting

A Friendly Guide : Corporate Income Taxes

There’s tons of niceties involved in a company’s financial year. Keeping up with all the legislative nuances can sometimes be frustratingly time consuming, worse; you end up at odds with compliance. As your company grows, a major milestone  you can’t afford getting wrong are corporate income taxes.

Simply put, companies are taxed on the income earned in the preceding financial year. For instance, this means that income earned in the financial year 2018 will be taxed in 2019. In tax terms, 2019 will then be considered as the Year of Assessment (YA).

The corporate tax process requires two main submissions: Estimated Chargeable Income (ECI) and Form C. Here’s what they’re all about.

Estimated Chargeable Income (ECI)

The Inland Revenue Authority of Singapore (IRAS) requires an estimate of a company’s taxable income for a Year of Assessment (YA).

Income accrued or received in Singapore will be considered taxable. As a rough guide, taxable income includes

  • Gains or profits from any trade or business
  • Income from investments such as dividends, interest and rental
  • Royalties, premiums and any other profits from property
  • Gains that are revenue in nature.

Beyond providing taxable income, the ECI report should also declare the company's revenue (gains on disposal of fixed assets are not considered).

If your company's audited Financial Statements aren’t available, the management accounts can also be used for the purpose of declaring the revenue amount. Don’t worry if the revenue amount based on the audited financial statements are different from that declared in the ECI; if there are no changes in your ECI, you won’t need to revise the revenue figure.

Do I need to file for ECI?

All companies must file Estimated Corporate Income Tax returns (ECI) within three months from the end of their financial year except for exempted companies which their annual revenue doesn’t exceed $5 million for the financial year AND if their ECI is NIL for the Year of Assessment.

Corporate Income Taxes 01-02

Calculating my ECI

Here’s where it gets a little technical bit but bear with us. Just follow these 3 simple equations and you’ve got your ECI amount.

  • Adjusted Profit before Capital Allowance
    = Net Profit (Before Tax) - Separate Source Income + Disallowable Expenses
  • ​Adjusted Profit after Capital Allowance
    = Adjusted Profit before Capital Allowance - Capital Allowance
  • ECI amount
    = Adjusted Profit after Capital Allowance + Net Separate Source Income (After Tax)

The ECI should be the amount before deducting the exempt amount under the partial tax exemption scheme or the tax exemption scheme for new start-up companies.

When do I file my ECI​​

All companies are required to file ECI within three months from the end of their financial year. Here’s a rough calendar of ECI submissions.

Corporate Income Taxes 02-01

If you haven't saved the date into your calendar, IRAS will drop a reminder a month before the actual deadline, but we recommend getting your books ready before then. Moreover, companies are incentivised to filing on time as they get the added benefit of paying their taxes in instalments.

How do I file my ECI

After all your documents are ready, you’ll need to submit  your documents electronically. In the vein of digitisation, IRAS will be making E-Filing compulsory by YA 2020 as they move away from traditional paper based mediums.

Form C/ C-S

While the ECI is an estimate of your projected income, you’ll still have to declare your company's actual income. And unlike the ECI, companies are still required to file even if they are making losses. With that in mind, you’ll need to choose between two types of Income Tax forms

  •  Form C-S
  • Form C

Generally speaking, Form C-S are easier to file than Form C as it is shortened to just three pages, however, it’s usually only applicable for small companies. Here’s all you need to qualify for Form C-S:

  • The company must be incorporated in Singapore;
  • The company must have an annual revenue of $5 million or below;
  • The company only derives income taxable at the prevailing corporate tax rate of 17%; and 
  • The company is not claiming any of the following in the YA:
    a. Carry-back of Current Year Capital Allowances/ Losses
    b. Group Relief
    c. Investment Allowance
    d. Foreign Tax Credit and Tax Deducted at Source

If you meet all these criteria, congrats! You’ll just need

  • Declaration Statement of company’s eligibility for Form C-S
  • Information on tax adjustments
  • Information from financial accounts

However, if your company doesn’t meet all these criteria, you’ll have to file Form C, which is slightly more tricky as you’ll need your companies

  • Financial Statement
  • Tax Computation
  • Supporting Schedules

Difference in amount between ECI and Income reported in Form C-S/ C

If the chargeable income reported in Form C-S/ C is less than the chargeable income estimated in ECI, the excess tax paid earlier will be refunded automatically.

If the chargeable income reported in Form C-S/ C is more than the chargeable income estimated in ECI, the additional tax must be paid within one month from the date of the Notice of Assessment.

TIP: Try to make your ECI as accurate as possible as significant underestimations of your ECI will raise questions from IRAS.

When do I file Form C-S or Form C

  • Form C-S and Form C are submitted near the end of the year
  • E-File: 15th December
  • Paper File: 30th November (no longer available after YA 2020)

Failure to File Form C-S/ C

Remember how we cautioned against going at odds with compliance?  Here’s what happens.

If the company does not file its Form C-S/ C by the due date, IRAS may issue a Notice of Assessment (NOA) based on their estimation of the company's income. Moreover, the tax based on this assessment will then have to be paid within one month from the NOA’s issuance. 

Hopefully we’ve helped to remove some of the confusion behind corporate taxes. If you’re looking for more details, feel free to contact us on how we might be able to help your company to be in compliance for tax filing.

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