IRAS takes a comprehensive approach towards tax compliance by companies by conducting both risk-based and random audits across all industries to ensure good coverage across the corporate base. To do so, IRAS uses data analytics and other tools to profile companies according to their compliance risk.

Compliance Programmes

Upcoming Areas of Focus for Compliance

Focus areas of IRAS' upcoming compliance programmes include the following:

1. Withholding Tax

Withholding tax (“WHT”) is applicable when a person (known as the payer) makes payments subject to WHT in Singapore (e.g. interest, royalty, technical service fee, management fees & director’s fees) to a non-resident person (known as the payee). The payer must withhold a percentage of the payment and pay the amount withheld to IRAS as WHT. The rate of WHT varies depending on the type of payment and the country of residence of the payee.

It is important for companies to comply with Singapore's WHT requirements to avoid late payment penalty. Companies that have failed to comply with WHT requirements are encouraged to make a voluntary disclosure to IRAS before they are uncovered in an audit in order to benefit from reduced penalties.

Ongoing Areas of Focus for Compliance

IRAS continues to focus compliance efforts on these areas:

1. Timely Filing of Corporate Income Tax Returns (Form C-S/ Form C-S (Lite)/ Form C)

About 87% of corporate taxpayers filed their Corporate Income Tax Returns for the Year of Assessment 2022 on time. Companies have between 11 months (for companies with financial years ending in Dec) and 22 months (for companies with financial years ending in Jan) 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 Corporate Income Tax Returns promptly to ensure timely finalisation of their tax and financial matters. Under the law, failure to file the Corporate Income Tax Return on time is an offence. IRAS will not hesitate to take strong deterrent measures against taxpayers who do not file their tax returns on time, in particular, errant directors who operate multiple companies.

2. Claiming of Private or Non-Deductible Expenses

For expenses to be tax deductible, the expenses must be wholly and exclusively incurred in the production of income, meaning to say, these expenses must be expended solely for business purposes and must not include any non-business element, such as family meals, vacation/ overseas holiday expenses and domestic groceries.

Through our review, we note that many family-owned companies were managed by family members and the remuneration paid to the directors as well as their family members such as their children, did not commensurate with the actual services performed.

IRAS regularly audits companies to ensure that their expenses have been claimed correctly and there has been no under-declaration of taxes. IRAS will not hesitate to impose penalties on non-compliant companies. Taxpayers should review their claims to ensure that they are compliant with tax laws.

3. Classification of Income and Expenses for Income Taxable at Concessionary and Prevailing Corporate Income Tax Rates

A company may receive different streams of income taxable at different tax rates i.e. the prevailing Corporate Income Tax rate and concessionary tax rates.

Through our reviews, we have observed that some companies have made the following errors:

  • Incorrect classification of non-qualifying income under the concessionary tax rate category
  • Incorrect identification of direct and common expenses
  • 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 they have filed their Corporate Income Tax Returns correctly and provide guidance to improve their controls.

4. 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 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. Learn about the tax treatment for common scenarios of income recognition by 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 1947.

The objective of the compliance reviews on construction companies is to ascertain that income and expenses have been correctly reported for tax purposes.

5. Companies Exempted from Filing Corporate Income Tax Returns

IRAS exempts companies from the requirement to file Corporate Income Tax Returns if:

  • The company has filed Form C-S/ Form C-S (Lite)/ Form C as a dormant company for 2 consecutive Years of Assessment; or
  • The company has applied for waiver to file Form C-S/ Form C-S (Lite)/ Form C on grounds that it is dormant and has no immediate intention to recommence business.

Companies that are exempted but subsequently recommence business must file a Corporate Income Tax Return for the relevant year in which they recommence their business. They must inform IRAS and request for a Corporate Income Tax Return. IRAS regularly reviews companies that have been granted exemption from filing Corporate Income Tax Returns to ensure that they have remained dormant. Companies found to have recommenced business but failed to meet their filing obligations may be liable to penalties. Companies that are sourcing for business are regarded as having recommenced their business and are required to file a Corporate Income Tax Return for the relevant year.

6. Taxability of Income/ Gains from Sale of Properties

Taxpayers may purchase property and derive gains upon the sale of such property. Whether such gains are taxable as revenue receipts or exempt as capital gains depends on whether the taxpayer is considered to have engaged in the trade of buying and selling of properties or derive gains which are of an income nature. The frequency of transactions, length of time the properties were held and the manner they were financed are some indicators of whether the taxpayer intended to trade in properties. IRAS regularly examines taxpayers who have engaged in such transactions to evaluate if they have filed their tax returns correctly.

7. Digital Economy

IRAS aims to achieve a broad and even audit coverage across all segments of the taxpayer base. In the year 2023, we have focused our attention on taxpayers whose business model revolves around the digital economy such as content creators and social media influencers.

Our audit reviews are on-going, and we expect to continue with our compliance efforts for this sector in the coming years. Through our reviews, we observed the following common errors being committed by taxpayers:

  • Omission/ understatement of income including sponsorship & gifts received.
  • Incorrect claim for expenses, such as personal entertainment & travelling for non-business purposes.
  • Failure to keep proper records on the actual income received and/or expenses incurred.

We advise taxpayers to review their tax matters to ensure that they are in order. Where discrepancies/ errors are found, taxpayers should make a voluntary disclosure to IRAS before they are uncovered in an audit in order to benefit from reduced penalties.

8. Deductibility of Interest Expenses and Borrowing Costs

Interest expenses and qualifying borrowing costs incurred on loans or borrowings specifically taken up to finance income-producing assets are deductible against the income produced. Where the loans or borrowings were obtained for non-income producing purposes, such expenses and costs are not tax deductible. In cases where the company is unable to identify and track the use of an interest-bearing loan to specific assets financed by the loan, the total asset method is to be applied to allocate the common interest expenses and qualifying borrowing costs to the non-income producing assets and no deduction is to be claimed on the allocated expenses and costs. IRAS regularly examines the tax returns of taxpayers who incur interest expenses and borrowing costs to ensure that tax deductions have been correctly claimed on such expenses.

Playing Your Part in Ensuring Everyone Pays Their Fair Share of Taxes

Voluntarily Disclose Past Mistakes

IRAS believes that the majority of taxpayers are voluntarily compliant. We understand that some taxpayers could have committed errors due to their negligence or lack of understanding of their tax obligations.

We encourage taxpayers who have made errors or filed incorrect returns to come forward voluntarily as soon as they have uncovered the error to disclose these errors or omissions and get their tax obligations right.

By doing so, they may qualify for penalty reduction under our Voluntary Disclosure Programme. Learn more about the common tax filing mistakes to avoid and the Voluntary Disclosure Programme through our e-Learning video.

Report Non-Compliant Activities

We encourage members of the community to report suspected tax evasion or other forms of non-compliance such as those described above. If you suspect a person or business is engaging in certain transactions in order to evade their tax obligations, or you know of someone who is not complying with their tax obligations, let us know by emailing [email protected]. Your information will be kept confidential.

Keep Proper Business Records

When you make purchases as a consumer, you should request for a written contract, tax invoice or obtain a receipt on payment. This helps to ensure that you have the necessary records and accounts of business transactions to comply with your tax obligations.

Learn more about record keeping requirements.

Fulfil Your Filing Obligations Promptly

To make compliance easy for taxpayers, IRAS has various service channels to educate taxpayers of their obligations: