What is a Tax Computation
A tax computation is a statement showing the tax adjustments to the accounting profit to arrive at the income that is chargeable to tax. Tax adjustments include non-deductible expenses, non-taxable receipts, further deductions and capital allowances.
Your company should prepare its tax computation annually before completing its Form C-S/ Form C-S (Lite)/ Form C.
If your company is filing Form C, you must file its audited/ unaudited financial statements, tax computation and supporting schedules together with Form C. If your company is filing Form C-S/ Form C-S (Lite), you do not need to file its financial statements, tax computation and supporting schedules, but these documents should be ready for submission upon IRAS’ request.
Types of Tax Adjustments
Your company's chargeable income may be different from the net profit/ loss shown in its financial statements.
This is because some of your company's expenses may not be deductible for tax purposes. Similarly, some of the income received by your company may not be taxable, or it may be taxed separately as a non-trade income.
You may also claim capital allowances on your company's fixed assets or claim unutilised losses/ capital allowances/ donations brought forward from previous Years of Assessment (YAs).
Generally, you need to make the following adjustments to your company’s net profit/ loss:
- Deduct income which is not taxable
- Deduct investment income (e.g. interest, dividend and rental) which is to be assessed separately as non-trade income
- Add disallowable expenses
- Add direct expenses relating to the investment income (to be allowed against the respective investment income taxed as non-trade income)
- Deduct Section 14N deduction for expenditure incurred on renovation and refurbishment works, where applicable
- Add net investment income such as interest, dividend and rental (after deducting the direct expenses relating to the investment income)
- Deduct unutilised capital allowances brought forward from previous YA(s), where applicable
- Deduct capital allowances for the current YA if you wish to claim capital allowances on fixed assets
- Deduct unutilised losses brought forward from previous YA(s), where applicable
- Deduct unutilised donations brought forward from previous YA(s), where applicable
- Deduct donations made to approved Institutions of a Public Character (IPCs), if any
If your company is filing Form C, you are required to file a tax computation even if there is no adjustment made to your company’s net profit/ loss.
- All the expenses reflected in your profit/ loss statements incurred are deductible for tax purposes
- All the income reflected in your profit/ loss statements are taxable
- You are not claiming capital allowances on fixed assets
- There are no unutilised losses/ capital allowances/ donations brought forward from previous YAs
Your tax computation will show disallowable items added back as ‘Nil’ and the adjusted profit/ loss amount will be the same as the net profit/ loss per your financial statements.
You also need to show the chargeable income and the tax payable or the unutilised losses carried forward in your tax computation, whichever is applicable.
Points to Note When Preparing a Tax Computation
Change in Financial Year End
You are required to notify the Accounting and Corporate Regulatory Authority (ACRA) of a change in financial year end via the Change of Financial Year End digital service at BizFile + . Learn how to inform ACRA of the change in your company’s financial year end at ACRA's website.
If your company’s financial statements cover a period that is more than 12 months as a result of a change in financial year end, you may have to apportion and attribute the adjusted profit/ losses to 2 different Years of Assessment (YAs).
This is done by directly identifying the company's income and expenses to the corresponding basis period for each YA (‘direct identification method’). Time apportionment basis may be used if the company is not able to apply the direct identification method.
Example 1: No Apportionment Required
Where the change is within the same YA (e.g. financial year end changed from 30 Jun 2020 to 31 Dec 2020), you need to prepare only 1 tax computation for YA 2021 based on the accounts from 1 Jul 2019 to 31 Dec 2020.
It is not necessary to apportion the adjusted profit/ losses although the financial statements cover a period of more than 12 months. The YAs and corresponding basis periods are as follows:
|2020||1 Jul 2018 to 30 Jun 2019 (12 months)|
|2021||1 Jul 2019 to 31 Dec 2020 (18 months)|
|2022||1 Jan 2021 - 31 Dec 2021 (12 months)|
Example 2: Apportionment Required
Where the change is across 2 YAs (e.g. financial year end changed from 31 Dec 2019 to 31 Mar 2020), you need to prepare 2 separate tax computations; 1 for YA 2020 and 1 for YA 2021.
The YAs and corresponding basis periods are as follows:
|2020||1 Jan 2019 to 31 Dec 2019 (12 months)|
|2021||1 Jan 2020 to 31 Mar 2020 (3 months)|
|2022||1 Apr 2020 - 31 Mar 2021 (12 months)|
When filing Form C-S/ Form C-S (Lite)/ Form C, your company needs to complete the relevant fields for both YAs (i.e. YAs 2020 and 2021) using the YA 2021 digital service. For Form C, the tax computation, financial statements, detailed profit and loss statement and other supporting documents for both YAs must also be filed.
Singapore Financial Reporting Standard for Small Entities
Eligible entities may prepare their financial statements using the Singapore Financial Reporting Standard for Small Entities (SFRS for SE).
Based on current applicable tax rules and principles, the impact on tax computation is assessed to be minimal for eligible entities which prepare financial statements based on the SFRS for SE, except for the treatment for financial instruments.
Tax adjustments are also required for the tax treatment of property, plant and equipment, research and development costs and borrowing costs.
Learn more about the income tax implications arising from the adoption of the SFRS for Small Entities (PDF, 131KB).
Useful Tools to Prepare Your Tax Computation
Basic Corporate Income Tax Calculator
The Basic Corporate Income Tax Calculator (BTC) is an excel workbook to guide companies in preparing their tax computations and tax schedules when filing their Corporate Income Tax Returns. It includes explanatory notes to guide taxpayers through their tax computations and validation checks against common errors.
|BTC for Companies Filing Form C||BTC for Companies Filing Form C-S/ Form C-S (Lite)|
The BTC is designed for trading companies and the tax schedules within are those commonly used by trading companies, such as the renovation and refurbishment expense and capital allowance schedules.
The BTC should not be used by non-trading companies.
Basic Formats of Tax Computations
You may refer to the following templates for guidance on how to prepare the tax computation for specific industries:
- Basic Format of Tax Computation for an Investment Holding Company (PDF, 145KB)
- Basic Format of Tax Computation for a Shipping Company (XLS, 105KB)
- Basic Format of Tax Computation for a Development and Expansion Incentive (DEI) Company (XLS, 123KB) and Explanatory Notes (PDF, 66KB)
- Basic Format of Tax Computation for a Dormant Company (PDF, 35KB)
Preparing Tax Computations in Functional Currencies other than Singapore Dollars
Companies that prepare their financial statements in non-Singapore Dollars (S$) functional currencies are to prepare their tax computations in the same non-S$ functional currency. However, all amounts declared in the Corporate Income Tax Return must be in S$.
Determining Your Company’s Functional Currency
The functional currency is the currency of the primary economic environment in which a business operates. Your company is required under the Financial Reporting Standards of Singapore (FRS) to determine its functional currency and present its financial statements in that currency.
If your company’s functional currency is not in Singapore Dollars, you have to inform IRAS by logging in to mytax.iras.gov.sg and updating it via the Update Corporate Profile/ Contact Details digital service.
For assistance on updating your company’s functional currency, refer to these guides:
- For Companies: User Guide - Update Corporate Profile/ Contact Details (PDF, 401KB)
- For Tax Agents: User Guide – Update Corporate Profile/ Contact Details (PDF, 439KB)
- FAQs on updating corporate profile or contact details (PDF, 138KB)
Impact on Preparation of Tax Computations
For companies that prepare their financial statements in non-S$ functional currencies, all items in the tax computation up to the chargeable income (after applying the partial tax exemption or tax exemption for new start-up companies) should be in the non-S$ functional currency.
If there is a change in functional currency from S$ to non-S$ (i.e. financial statements and tax computations for previous Years of Assessment (YAs) were prepared in S$), your company needs to apply transitional rules to translate existing S$ balances into the non-S$ functional currency. Learn more about filing tax computations in functional currencies other than S$ (PDF, 206KB) (refer to paragraphs 5.1 to 5.7).
Translation of Specific Items in the Tax Computation
The rules below apply to both existing and newly incorporated companies:
|Items||Translation Method for Tax Computation|
Current year items including:
|The current year items are reflected in the tax computations based on the actual non-S$ functional currency values as shown in the companies' financial statements.|
|Tax written down value (TWDV) of assets transferred under Section 24||
Section 24 election may be made on sale of assets between related parties. The effect of the Section 24 election disregards the sale except for the change in person entitled to the allowances. In other words, the transaction is not considered a sale but a transfer of the assets and its allowances from the seller to the buyer.
If the buyer and seller have different functional currencies, the TWDV of the assets in the seller's functional currency must be translated to the buyer's functional currency, using the exchange rate prevailing at the date of sale.
|Loss items under Group Relief system||
The Group Relief system enables the current year unutilised capital allowances/ trade losses/ donations (‘loss items’) of 1 company to be deducted from the assessable income of another company in the same group.
The loss items are transferred out based on the functional currency of the transferor.
If the functional currencies of the transferor and claimant are different, these items should be translated into the claimant's functional currency at the average rate for the relevant YA.
|Amounts exempted under the partial tax exemption or tax exemption for new start-up companies||Companies can enjoy tax exemption on their chargeable income under the partial tax exemption or tax exemption for new start-up companies. The exempt amounts are granted in S$. These S$ amounts should be translated into the non-S$ functional currency using the average rate for the relevant YA.|
|Tax payable||The tax payable in S$ should be computed by multiplying the companies' chargeable income (after applying the partial tax exemption or tax exemption for new start-up companies) in non-S$ with the Corporate Income Tax rate and the average rate for the relevant YA.|
|Foreign tax credit (FTC)||
FTC is to be allowed based on the lower of the Singapore tax payable on the foreign sourced income (net of allowable deductions) or the foreign tax paid.
Singapore tax residents may elect for the FTC pooling system when claiming FTC on income for which they have paid foreign tax if they meet qualifying conditions. FTC under the pooling system is the lower of:
The Singapore tax payable in S$ on the foreign sourced income should be computed by multiplying the relevant amount of the foreign sourced income (reflected in non-S$) by the Corporate Income Tax rate and the average rate for the relevant YA.
The foreign tax paid in S$ should be computed by multiplying the actual amount paid (or reflected) in the functional currency by the average rate for the relevant YA.
|Receipt of S$ dividends and interest||These S$ amounts should be translated into the recipient's functional currency by the average rate for the relevant YA.|
Learn more about the translation methods for tax computations in functional currencies other than S$ (PDF, 206KB) (refer to paragraphs 5.8 to 5.28).
This is computed using the average of the month-end exchange rates for the financial period that constitutes the basis period. The exchange rates supplied by the Monetary Authority of Singapore (MAS) should be used for this purpose. For example, if the basis period of your company for YA 2021 is from 1 Jan 2020 to 31 Dec 2020, the average rate is the average of the month-end exchange rates from 1 Jan 2020 to 31 Dec 2020.
To retrieve the average exchange rate, you should:
- Refer to MAS’ webpage. Click on ‘Statistics’ and ‘Exchange Rates’. Click on ‘Exchange Rates’ again to view the daily, weekly or yearly exchange rate data.
- Select the relevant boxes to get the month-end exchange rate for the relevant financial period. For example, to get the rates S$=US$ for Jan to Dec 2020, the following should be selected:
- Start year: 2020
- End year: 2020
- Start month: Jan
- End month: Dec
- Frequency: Monthly
- S$ per unit of: US Dollar
Impact on Completion of Corporate Income Tax Returns
The Corporate Income Tax Return (Form C-S/ Form C-S (Lite)/ Form C) must be completed in S$. If your company prepares its financial statements and tax computation in non-S$ functional currencies, you are required to translate the relevant non-S$ items into S$ equivalent amounts using the average rate for purposes of completing the Form C-S/ Form C-S (Lite)/ Form C.
How are the expenditure caps under Section 14N (renovation and refurbishment (R&R) works) and Productivity and Innovation Credit (PIC) scheme computed if my company’s functional currency is non-S$?
The total amount allowed on qualifying R&R works incurred should not exceed S$300,000 for every 3 consecutive years. Similarly, the total amount allowed on qualifying PIC expenditure incurred should not exceed the combined expenditure cap for the relevant Years of Assessment (YAs) (e.g. S$1,200,000 for YAs 2016 to 2018).
There are 2 methods that companies can use to compute the R&R and PIC expenditure caps. IRAS accepts any of the 2 methods but it must be applied consistently across all expenditure that are subject to an expenditure cap and across all the YAs. Refer to the following illustrations of the 2 methods to compute the expenditure caps:
Under the Loss Carry-Back Relief system, the maximum amount of current year unutilised capital allowances and trade losses (collectively referred to as ‘qualifying deductions’) that can be carried back to the immediate preceding YA is capped at S$100,000. How do I compute the non-S$ equivalent of the S$100,000 cap if my company’s functional currency is non-S$?
The amount carried back must not exceed S$100,000 in the YA in which the qualifying deductions arose. The company has to convert the S$100,000 into non-S$ equivalent using the average exchange rate of the YA in which the qualifying deductions arose.
A company's functional currency is US Dollars (US$). The company wants to carry back its YA 2021 trade loss to YA 2020. Its tax computations before carrying back the loss are as follows:
Tax Computation YA 2021
Adjusted profit/ (loss) (80,000) 90,000 Chargeable income before partial tax exemption NIL 90,000 Unutilised loss c/f 80,000 NIL Average exchange rate US$1: S$1.3^ US$1: S$1.4^
The maximum amount of YA 2021 loss that the company can carry back to YA 2020 is capped at US$76,923 [S$100,000 / 1.3].
Its tax computations after carrying back the US$76,923 loss are as follows:
Tax Computation YA 2021
Adjusted profit/ (loss) (80,000) 90,000 Less: Loss carried back 76,923 (76,923)* Chargeable income before partial tax exemption NIL 13,077 Unutilised loss c/f 3,077 NIL
Learn more about the Carry-Back Relief system (PDF, 695KB) (refer to paragraph 6.7).
* In this case, the YA 2020 S$ equivalent of the loss carried back is S$107,693 [US$76,923 x 1.4], which is acceptable even though it exceeds the S$100,000 cap.
^ The foreign exchange rate used in this example is for illustrative purpose only and is not reflective of the actual exchange rate. View the list of foreign exchange rates at MAS’ webpage.