There are tons of legal "niceties" involved when rounding up a company’s financial year. Keeping up with all the legislative changes can be time consuming; yet, should you fail to do so, you may end up being non-compliant. The consequences will be detrimental to your company's growth. So, here's a guide to help you get your Corporate Income Taxes right.
Companies in Singapore are taxed on the income earned in the preceding financial year. For instance, this means that income earned in the financial year 2019 will be taxed in 2020. In tax terms, 2020 will then be considered as the Year of Assessment (YA).
There are two main submissions for annual corporate income tax filing: Estimated Chargeable Income (ECI) and Form C/C-S. 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, management accounts can also be used for the purpose of declaring your company's revenue. Don’t worry if the revenue amount based on the audited financial statements is 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. Exceptions are companies whose annual revenue doesn’t exceed $5 million for the financial year AND their ECI is NIL for the Year of Assessment.
Calculating my ECI
It's a little technical, but we've simplified it. Just apply 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 for ECI submissions.
IRAS will drop a reminder a month before the actual deadline, but we recommend getting your books ready before then. (If we are your corporate secretary, you'll get reminders and be ready well in advance. Here's how we keep you on track.) As a bonus, companies that file on time get the added benefit of paying their taxes in instalments.
How do I file my ECI
When your documents are ready, you’ll need to submit your documents electronically. As part of Singapore's digitalisation efforts, IRAS will make E-Filing compulsory by YA 2020 to move away from traditional paper based mediums.
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 have to file their Form C/C-S even if they are making losses. You’ll need to choose between two types of Income Tax forms:
- Form C-S
- Form C
Form C-S is easier to file than Form C as it is only three pages. However, it’s usually only applicable for small companies. Here is the criteria 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 the criteria, congratulations!
You’ll just need:
- Declaration Statement of company’s eligibility for Form C-S
- Information on tax adjustments
- Information from financial accounts
Should your company not meet all the criteria for Form C-S filing, you’ll have to file Form C.
You’ll need your company's:
- Financial Statement
- Tax Computation
- Supporting Schedules
Difference in amount between ECI and Income reported in Form C/C-S
If the chargeable income reported in Form C/C-S 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/C-S 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: Make your ECI as accurate as possible as significant underestimations of your ECI may result in questions from IRAS.
When do I file Form C/C-S?
- Form C-S and Form C are submitted near the end of the year
- E-Filing Deadline: 15th December
- Paper Filing Deadline: 30th November (no longer available after YA 2020)
What happens if you fail to file Form C/C-S
We mentioned consequences of non-compliance. 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. (Which may be quite hefty.) Moreover, the tax based on this assessment has to be paid within one month from the NOA’s issuance.
Hopefully, this article has given you a better understanding of your corporate taxes. If you need more assistance, contact us and our experienced accountants will help you complete your tax filing in (almost) no time at all.