Corporate Tax Filing Mistakes to Avoid in Singapore

The clock is once again ticking for corporate tax filing season.

By Dec 15, all due corporate income tax returns for Year of Assessment 2018 must be e-filed. The deadline is Nov 30, if filing via paper.

Penalties for Corporate Tax Filing Errors

Inland Revenue Authority of Singapore (IRAS) imposes two categories of penalties under the Income Tax Act for errors in Annual Corporate Tax Filing:

Penalties for “without any intention to evade taxes” include:

  1. face a penalty up to 200% of the amount of tax undercharged;
  2. be fined up to $5,000; and/or
  3. be imprisoned up to three years.

Penalties for “with intention to evade taxes” include:

  1. face a penalty up to 400% of the amount of tax undercharged;
  2. be fined up to $50,000; and/or
  3. be imprisoned up to five years.

The S$217 million in taxes and penalties recovered in 2014 by the Inland Revenue Authority of Singapore (IRAS) revealed the fact that many companies, with or without intent, had improperly compiled and reported their corporate taxes. In response, IRAS highlighted some common mistakes firms had made and should avoid when filing their annual expenses and earnings.

1. Tax Deduction on Renovation and Refurbishment (R&R) Works

Renovation and Refurbishment (R&R) are tax benefits granted to businesses that have incurred expenditure on any R&R, for carrying on a trade, business or profession. The original expenditure cap of $150,000 has been increased to $300,000 from YA 2013 onward, which makes it even more important  to avoid making wrong claims for R&R tax deductions. The following table from IRAS lists qualifying and disallowed items for R&R tax deduction claims:

The following items QUALIFY for Section 14Q deduction provided they do not affect the structure of the business premises:

  • general electrical installation and wiring to supply electricity;
  • general lighting;
  • hot/cold water system (pipes, water tanks etc);
  • gas system;
  • kitchen fittings (sinks, pipes etc);
  • sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
  • doors, gates and roller shutters (manual or automated);
  • fixed partitions (glass or otherwise);
  • wall coverings (such as paint, wall-paper etc.);
  • floorings (marble, tiles, laminated wood, parquet etc.);
  • false ceilings and cornices;
  • ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
  • canopies or awnings (retractable or non-retractable);
  • windows (including the grilles etc.);
  • fitting rooms in retail outlets;
  • hacking work on premises;
  • water meter installed to enable renovation works;
  • hoarding works; and
  • insurance for renovation works qualifying for S14Q deduction.
Deductions are NOT ALLOWED on expenditure relating to:

  • any designer fees or professional fees;
  • any antique;
  • any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation; or
  • any works carried out to a place of residence provided to or to be provided to employees.

Source: Inland Revenue Authority of Singapore

 2. Tax Deduction Claims for Non-deductible Expenses

As highlighted by IRAS, the following items are regarded as non-deductible expenses:

(i) Personal expenses incurred by company directors;

(ii) Private motor car expenses, which are specifically disallowed for tax deduction under the Income Tax Act; and

(iii) Excessive payments to family members or related parties.

Dis-allowable business expenses are expenses that cannot be deducted against business income. They may be disallowed under the Income Tax Act or because, generally, they are not incurred wholly and exclusively to generate business income. Some common examples include, cost of travelling to and from your home, food, household and entertainment expenses for yourself, family members, and friends.

3. Withholding Money Pending Tax Clearance

If an employee submits his or her resignation letter on payday while you have already paid his previous month’s salary, you are required to withhold the employee last month salary for purposes of tax clearance.

Failing to do so will make your company liable for tax payable by the employee thereby exerting unnecessary financial pressure on your company. Concisely, you are required by law to withhold all the money due to the employee from the day that he notifies you of his intention to resign from your company.

One of the surest ways of avoiding these mistakes is by outsourcing these accounting and bookkeeping tasks to an accounting firm that has the necessary skills and understanding of IRAS regulations.