The world of taxes can be very overwhelming for first-timers. However, filing for taxes and the steps to prepare for tax season make up a vital part of a business’s operations and management that improves financial health. In order for small and medium enterprises (SMEs) in Singapore to file for taxes correctly, it is vitally important to start exploring the fundamental concepts of taxation, its key concepts and specific obligations for different corporations, and the rudimentary steps of filing corporate tax returns.

The building blocks of taxes for SMEs in Singapore

General information for beginners

In Singapore, the tax collection and law administration is overseen by the Inland Revenue Authority of Singapore (IRAS), working closely with tax agents to administer taxes and ensure proper compliance. To ensure that Singapore remains an attractive destination for investments, Singapore has adopted a single-tier corporate income tax system since 2003 to remove double taxation for stakeholders. This means that corporate taxes are only levied on chargeable income and will not be imposed on the dividends companies pay to their shareholders. On top of that, Singapore also does not tax capital gains unless the IRAS deems the sales as the company’s profit-generating activity. 

Net income vs taxable income

There is a clear distinction between a company’s revenue, net income and taxable (or chargeable) income. While revenue encompasses all gains and income of a business, net income refers to the company profits after all costs and expenses have been deducted from the total revenue. However, a net income does not necessarily equate to taxable income as it has yet to take into account deductibles, tax exemption schemes, and separately taxed income from other non-trade sources. 

According to the Income Tax Act of Singapore, corporate income tax can be imposed on two types of income in general: (1) Income accrued in or derived from within Singapore; and (2) income received by the company in Singapore from outside of the country, except for a few qualified exemptions also known as Exemptions On Foreign Sourced Income. Other exemptions from taxes outlined by the Singapore Income Tax Act include foreign-sourced dividends, foreign branch profits, and exemptions in specific industries such as shipping income derived by shipping companies.

Tax obligations for SMEs in Singapore

Before further delving into Singapore’s corporate income tax system, it is important to note the essential criteria of a ‘company’ In Singapore. Sole proprietorships and partnerships are not considered a company and are taxed based on personal income. To be considered a company, your local business must be an entity incorporated or registered under Singapore’s Companies Act 1967 or any law in force in Singapore. These companies are usually accompanied by words like Private Limited (Pte Ltd) or Limited (Ltd) in their officially registered name and are separate from the individual who founded them. Additionally, foreign companies that are either (a) registered in Singapore as a branch, or (b) incorporated outside of Singapore, are also obligated to pay corporate taxes.

General information on taxes for SMEs in Singapore

Singapore has a flat headline corporate income tax rate of 17 per cent, the lowest recorded rate since 1997 to attract more investors. However, this may not be the final effective corporate tax rate as it is before calculating the applicable tax exemptions, incentives, reliefs and more. In terms of common tax relief, the IRAS has two common tax relief schemes every SME should be aware of:

1. Tax exemption scheme for new startup companies

This tax exemption scheme applies to newly incorporated companies and applies to the first 3 Years of Assessment (YAs). New startups are exempted from 75 per cent of the corporate tax rate of the first SGD100,000, and a further 50 per cent on the second SGD100,000 chargeable income. Any remainder of the taxable income will then be charged at the flat headline rate of 17 per cent, totalling the relief to up to SGD 125,000 as summarised below. 

Chargeable income (SGD)	Exempt from tax	Exempt income (SGD)
First 100,000	75%	75,000
Next 100,000	50%	50,000
Total		125,000

To qualify for this exemption scheme, your company must fulfil the following criteria:

1. The company is incorporated in Singapore
2. The company is a tax resident in Singapore, which includes the following conditions:
   1. Decision-making, control and management of the company are exercised in Singapore, based on various key factors including the location of the company’s Board of Directors meetings.
   2. If the company has an Executive Director or key management personnel, playing key roles in controlling and managing the company, based in Singapore.
3. The company has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares.
4. This tax exemption scheme does not apply to property development and investment holding companies
5. Partial tax exemption scheme

Meanwhile, companies not qualifying for the new start-up tax exemption can still file for a partial tax exemption. Under the partial tax exemption scheme, businesses can get a 75 per cent exemption on their first SGD10,000, and a further 50 per cent on their next SGD 190,000, capped at SGD102,500 in total as reflected below. Similar to the new start-up exemption scheme, the remainder of the chargeable income will be taxed with a flat 17 per cent headline tax.

Chargeable income (SGD)	Exempt from tax	Exempt income (SGD)
First 10,000	75%	7,500
Next 190,000	50%	95,000
Total		102,500

Filing obligations for SMEs in Singapore

Each year, companies in Singapore need to file two types of tax returns with IRAS, namely the Estimated Chargeable Income (ECI) and Form C-S/ Form C-S (Lite)/ Form C. 

Estimated Chargeable Income (ECI)

The ECI tax return functions as a declaration of an estimate of the company’s taxable income for a YA, due within three months after the end of each company’s financial year. This is except for a few companies that qualify for the ECI filing waiver and those that are specifically not required to file an ECI, which is outlined by IRAS. The notification from IRAS on the ECI filing will be sent out to companies before the end of their respective financial year, which also serves as a reminder to file your company’s tax returns. 

For the newly incorporated companies and startups that have successfully closed their first set of accounts and recorded a taxable income within their year of incorporation, they will need to file the ECI even without notification from IRAS. Otherwise, most other companies will be sent a filing notification and taxed the following year after incorporation as most companies do not close accounts in their first year. To demonstrate, the following is a hypothetical of Company A that has just been incorporated on 15 July 2021 with December as their financial year end in two different scenarios:

Scenario	First Set of Accounts	Due Date to File First ECI
A: Closes its first set of accounts in the year of incorporation	15 Jul 2021 to 31 Dec 2021	File for YA 2022 (basis period from 15 Jul 2021 to 31 Dec 2021)  by 31 Mar 2022
B: Does not close its first set of accounts in the year of incorporation	15 Jul 2021 to 31 Dec 2022	File for 2 YAs (due to the first set of accounts spanning over more than 12 months from the date of incorporation) YA 2022 (basis period from 15 Jul 2021 to 31 Dec 2021); andYA 2023 (basis period from 1 Jan 2022 to 31 Dec 2022) together by 31 Mar 2023

Form C-S/ Form C-S (Lite)/ Form C

Other than that, companies also need to file Form C-S/Form C-S (Lite)/Form C, which serves as a declaration of the company’s actual taxable income for a YA. This tax return is due on 30 November each year. The following are the distinctions between the three types of forms:

• Form C-S is for companies that are incorporated in Singapore with an annual revenue of SGD5 million or below with derived income taxable at the flat headline rate of 17 per cent. Additionally, these companies cannot claim the following:
  • Carry-back of Current Year Capital Allowances/ Losses
  • Group Relief
  • Investment Allowance
  • Foreign Tax Credit and Tax Deducted at Source
• Form C-S (Lite) is specifically for companies that qualify to file Form C-S and have an annual revenue of SGD200,000 or below.
• Form C is for companies not qualified to file Form C-S or Form C-S (Lite). For this form category, financial statements, tax computations and supporting schedules must be filed together with Form C.

Record-keeping requirements for SMEs in Singapore

One essential task to ensure smooth tax filing processes is good record-keeping, allowing better business decisions, increasing awareness of your company’s financial status, and reducing the cost, effort and time required to file Corporate Income Tax Returns accurately. Each company is required to maintain proper records of financial transactions and retain the source documents, records and statements for at least 5 years from the current YA.

Some common tips to establish better record-keeping habits include:

• Use accounting software listed on IRAS’ Accounting Software Register Plus (ASR+) to digitally manage day-to-day business operations and transactions and fulfil tax compliance obligations smoothly.
• Download record-keeping guides such as this checklist from IRAS’ website

New companies can access the IRAS’ New Company Start-Up Kit for an interactive step-by-step e-learning guide on filing taxes specifically for the first time, including more tips on record-keeping, how to register on myTax Portal and how to e-file your company’s taxes. 

To sum up

Comprehending the intricacies of taxation in Singapore is key to ensuring proper business management and legal compliance. This article sums up the fundamentals of corporate taxes for SMEs in Singapore to help companies kickstart their responsible financial planning to maximise their tax returns and the time and cost it takes to manage healthy finances. As Singapore continues to foster an advantageous environment for businesses and investors, staying abreast of taxation developments and seeking professional advice when needed will be pivotal for SMEs to thrive in the ecosystem.