- Timely Filing of Corporate Income Tax Returns
Currently, about 84% of corporate taxpayers file their tax returns on time. Companies have between 11 months (for companies with financial years ending in December) and 22 months (for companies with financial years ending in January) to prepare and file their returns. This is a reasonable period for a company to fulfil its filing obligations.
It is important that companies file their tax returns promptly to ensure timely finalisation of their tax and financial matters. Companies that do not file their Income Tax Returns on time may face penalties.
To learn how to file the Income Tax Returns on time and avoid paying penalties:
a. Read Additional Tips on Filing Form C-S/ C; and/ or
b. Sign up for a Corporate Tax Seminar conducted by IRAS. - Classification of Income and Expenses for Income Taxable at Concessionary and Prevailing Corporate Tax Rates
A company may receive different streams of income taxable at different tax rates, i.e. the prevailing corporate tax rate and concessionary tax rates.
Through our reviews, we have observed that some companies have made the following errors:
a. Incorrect classification of non-qualifying income under the concessionary tax rate category;
b. Incorrect identification of direct and common expenses; and
c. Adoption of inappropriate bases in the allocation of common expenses and capital allowances.
Through our on-going compliance reviews, we aim to understand the measures/ controls put in place by these companies to ensure accuracy of their tax reporting and to help taxpayers get their tax matters right by offering guidance on how to improve their controls. - Group Relief (GR) Claims
Since 2013, IRAS has audited selected companies to ensure that their GR claims made in their Income Tax Returns are correct.
The review of the GR claims focuses on areas such as:
a. Whether the 75% ordinary shareholding requirement has been met;
b. Whether the set-off of loss items transferred/ claimed is in the correct order; and
c. Whether adjustment has been made for different continuous periods.
Through our reviews, we have observed the following compliance risks:
a. Companies failed to meet the 75% ordinary shareholding requirement to be considered part of the same Group; and
b. Companies with different financial year ends should not have transferred or claimed losses from each other.
IRAS will continue to review selected GR claims made by companies to ascertain that the claims are in order. - Tax Exemption for foreign-sourced dividends
Companies may receive foreign-sourced dividends in Singapore and claim tax exemption of these dividends under the foreign-sourced income exemption (FSIE) scheme, subject to certain qualifying conditions.
From our review of such claims, we have observed the following errors committed by companies:
a. The dividends did not meet the “headline tax rate” condition i.e. the dividends were received from foreign jurisdictions with headline tax rates of less than 15% when the dividends were received in Singapore; and
b. The dividends did not meet the “subject to tax” condition e.g. the dividends were distributed from a company which is part of a group and the income of the company was found not to be subject to tax, even though the consolidated audited accounts had shown a positive current year tax for the financial year prior to the year the dividend is received.
IRAS will continue to review claims relating to exemption of foreign-sourced dividends to ensure that the claims for FSIE benefits are in order.
Recognition of income from construction contracts and provisions claimed by construction companies
Income derived from construction contracts is recognised progressively over a period of time - this is commonly known in the industry as the Percentage of Completion ("POC") method of income recognition.
For income tax purposes, IRAS accepts the accounting recognition of income over time as it is consistent with the tax rule of taxing income when it is accrued. The tax treatment for common scenarios of income recognition by construction companies can be found at: Construction Companies.
Construction companies may make provisions for expenses such as defects, damages, warranty and foreseeable losses. Being provisions of expenses, they are not allowable for tax deduction. Deduction is allowable only when the expenses are incurred and not prohibited for deduction under Section 15 of the Income Tax Act.
The objective of the compliance reviews on construction companies is to ascertain that income and expenses have been correctly reported for tax purposes.