Basic Guide for Partnerships

Basic checklist of things to do including keeping proper accounts, preparing statements and filing income tax for partnerships and the partners in a partnership.

1. Know Your Tax Obligations

Generally, sole-proprietors and partners registered with the Accounting and Corporate Regulatory Authority (ACRA) are self-employed.

All self-employed persons must report the income earned from their business operations as business income, not salary. The business income is part of the total personal income which is taxed at individual income tax rates.

The precedent partner is also required to submit the partnership income tax return (Form P) on behalf of the partnership even though the partnership itself does not pay taxes.

2. Decide on the Accounting Period

Partnerships should decide on the accounting period when the partnership is formed or starts to operate. Most businesses, including partnerships, choose accounting periods that end on 31 Dec each year. You may choose an accounting period that ends on any date.

Example 1: Accounting Period that Ends on 31 Dec

Your partnership starts on 1 April 2013 and you choose the accounting period to end on 31 Dec every year. The relevant accounting periods and the respective Years of Assessment (YA) are:

 Accounting PeriodYA
1st Accounting Period01 Apr 2013 to 31 Dec 2013YA 2014
2nd Accounting Period01 Jan 2014 to 31 Dec 2014YA 2015
3rd Accounting Period01 Jan 2015 to 31 Dec 2015YA 2016
4th Accounting Period01 Jan 2016 to 31 Dec 2016YA 2017

Example 2: Accounting Period other than 31 Dec

Your business starts on 1 April 2013 and you choose to end your accounting period on 31 Mar. The relevant accounting periods and the respective YAs are:

 Accounting PeriodYA
1st Accounting Period01 Apr 2013 to 31 Mar 2014YA 2015
2nd Accounting Period01 Apr 2014 to 31 Mar 2015YA 2016
3rd Accounting Period01 Apr 2015 to 31 Mar 2016YA 2017

3. Keep Proper Records and Accounts

You are required to keep full and accurate records and accounts of your partnership transactions from the start. These records and accounts must be supported with invoices, receipts, vouchers, and other documents.

IRAS will not accept estimate and improper records. For details, please refer to Keep Proper Records & Accounts .

4. Prepare Statement of Accounts

At the end of every accounting period, you must prepare the statement of accounts comprising:

  • Trading and Profit and Loss Accounts
  • Balance Sheet

You can download and use the Statement of Accounts for Partnership (35KB) .

5. Prepare a 4-line statement

The precedent partners should prepare the 4-line statement by extracting the relevant figures from the partnership's statement of accounts for filing Form P.

The figures that you need are:

First lineRevenue
Second lineGross Profit
Third lineAllowable Business Expenses
Fourth lineAdjusted Profit

For details, please refer to Calculating and Reporting Business Income .

6. Calculate the Divisible Profit

Precedent partners are required to calculate the divisible profit of the partnership and allocate the profit to the partners.

Divisible profit is the adjusted profit/loss minus partners' salaries, allowances, bonuses, CPF contributions, interest on capital and any other expenses paid on behalf of all the partners.

Illustration: Calculating Divisible Profit

Adjusted Profit/Loss

Less:

  • Partners' salaries
  • Partners' allowances
  • Partners' Bonuses
  • Partners' CPF contributions
  • Partners' share of interest on capital
  • Expenses paid on behalf of partners

Example 3: Dividing Profit Among Partners

ABC partnership is made up of partner A and B. Partners A and B agreed that a yearly salary of $6,000 and $4,800 will be paid to them respectively and the basis of sharing of divisible profit is 60:40.

For the year ended 31 Dec 2016, the partnership made a profit of $24,000 (after deducting partners' salaries). Partner A and B decide to retain the profit in the partnership for business use.

The income for A and B will be as follows:

PartnerABTotal
Basis of Sharing60%40%100%
Salary for year ended 31.12.2016$6,000$4,800$10,800
Balance: Divisible Profit$14,400$9,600$24,000
Total Adjusted Profit$20,400$14,400$34,800

The partnership income allocated to Partner A is $20,400. The partnership income allocated to Partner B is $14,400. The income will be assessed in their names even though the divisible profit of $24,000 was retained in the partnership account .

7. File Annual Return for Partnership (Form P)

While a partnership does not pay tax, it still has to file an annual income tax return (called the Form P) to show all income earned and business expenses deducted by the partnership during the year.

The partnership is required to file the Form P if it has received the paper Form P or invitation to e-file, even if it has not commenced business in the year.

Responsibilities of the Precedent Partner

New! The Form P is usually sent to the precedent partner by January each year for the precedent partner to file on behalf of all the partners.

The precedent partner is required to inform all the partners of their share of income from the partnership to enable them to declare it in their Individual Income Tax Returns.*

 

New! *For Year of Assessment 2017, e-Filing of Form P will be available from 1 Feb 2017. If a partnership e-Files the Form P by 26 Feb 2017, the partnership allocation will be pre-filled in the respective partners' Form B/B1. With this pre-filling initiative, the precedent partner need not separately inform the respective partners of their share of the partnership income and the individual partners can enjoy the convenience of having their tax return pre-filled.  

Obtaining Form P

The Form P is not available for downloading from the website. If you require a copy of the Form P, please call us on the Individual Income Tax Helpline at 1800-356 8300.

See the Explanatory Notes (398KB) for more details on how to complete Form P.

Allocation of Profit and Loss to Partners

After IRAS processes Form P, we will send the 'Allocation of Profit/Loss to Partners' to the precedent partner.

The precedent partner is responsible for informing the other partner(s) of their share of profit or loss. The share of profit and loss to each partner will be taxed under each individual partner's name.

 

New! *For Year of Assessment 2017, e-Filing of Form P will be available from 1 Feb 2017. If a partnership e-Files the Form P by 26 Feb 2017, the partnership allocation will be pre-filled in the respective partners' Form B/B1. With this pre-filling initiative, the precedent partner need not separately inform the respective partners of their share of the partnership income and the individual partners can enjoy the convenience of having their tax return pre-filled.  

Objection to the Allocation of Profit/Loss to Partners

Objections to the allocation of profit/loss must be lodged through the precedent partner. The precedent partner must write to IRAS stating clearly the grounds of objection within 30 days from the date of the allocation notice.

8. Pay Withholding Tax

Withholding tax applies to partnerships. For details, please refer to Section 45 withholding tax apply to partnerships.

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