Compulsory e-Filing from YA2018 – Is Your Company Ready?

Every company needs to file a tax return, even if it did not carry on any business activities in the financial year. IRAS would like to remind all companies to file their tax returns by 30 Nov 2016, or by 15 Dec 2016 if they e-File.

As announced in Budget 2016, e-Filing of Corporate Income Tax returns will be compulsory from Year of Assessment (YA) 2018. To give smaller companies more time to transition to e-Filing, compulsory e-Filing will be implemented in phases, outlined as follows:

Companies are encouraged to make the switch now, and start e-Filing this year. When e-Filing becomes compulsory for all companies in YA 2020, physical Corporate Income Tax returns will no longer be accepted.

To be ready to e-File via myTax Portal, company representatives or tax agents must have activated their Singpass 2-Step Verification (Singpass 2FA).

Filing Tips and Reminders

Companies can enjoy tax savings by claiming allowances or deducting expenses. Besides the popular PIC scheme which allows companies to enjoy up to 400% tax deduction on qualifying expenditure, here are some other schemes that many companies have found useful.

Research and Development (R&D)

Tax deductions are granted for R&D activities carried out in Singapore, with the objectives of encouraging a pervasive R&D culture in Singapore and building innovative capabilities of our people and businesses.

As R&D is one of the six qualifying activities under the PIC scheme, companies can enjoy up to 400% of tax deduction or a cash payout for their R&D expenses, if they meet qualifying conditions.

More than 1,500 companies have claimed PIC and tax benefits on R&D expenditure amounting to more than $3 billion from 2013 to 2015. The majority of companies that have benefited from this are Small and Medium Enterprises (SMEs), who make up 76% of claims. Annex A shows an example of a local company that has tapped on our R&D incentives to enjoy tax benefits.

Nevertheless, businesses should note that routine modifications or changes to existing products and processes do not qualify as R&D projects. For example, for a business that makes and sells bread, changing the shape of a bun by modifying the machine, or improving bread texture by changing the composition of its existing ingredients would not qualify for R&D benefits.

Businesses should also maintain proper documentation of their R&D projects to substantiate their claims.

Renovation and Refurbishment (R&R) works

Companies can claim tax deduction on qualifying expenses on R&R works such as general electrical installations, fixed partitions and so on. The deduction is subject to an expenditure cap of $300,000 for every 3-year period, and will be granted on a straight-line basis over three consecutive YAs.

Companies are reminded to note the following when making R&R claims:  

1. Total claims should not exceed the $300,000 expenditure cap for the 3-year period; and

2. Tax deduction cannot be claimed for non-qualifying items, such as designer fees, fine arts, and structural works.      

Double Tax Deduction for Internationalisation (DTDI) Scheme

Companies can claim a 200% tax deduction for qualifying expenses incurred on qualifying market expansion and investment development activities on up to $100,000 without prior approval. The 4 qualifying activities are:

1. Overseas business development trips

2. Overseas trade fairs / missions

3. Approved local trade fairs

4. Overseas investment study trips

Companies should note that claims are capped at expenditure for two employees per trip/mission/fair.

Examples of qualifying expenditure include airfare, accommodation and meals, insurance and freighting of exhibits/stands.

Claims exceeding $100,000 or on non-qualifying activities require approval from IE Singapore or the Singapore Tourism Board.

Companies can find out more about the above schemes on the IRAS website.

Filing Mistakes to Avoid

IRAS would also like to highlight these observations from our ongoing compliance programmes.

Reporting of income from expired vouchers and packages

Many businesses, more commonly in the travel and beauty and wellness industries, market their services as a package to customers. These vouchers or packages are sold in advance with specific validity periods for customers to redeem the products or services.

As IRAS has observed that some businesses did not include the value of expired packages or vouchers for income tax reporting, IRAS would like to remind companies to track the usage of vouchers or packages sold and report income earned on unredeemed vouchers /packages upon expiry.

Refer to Annex B for an illustration of how such income should be reported.

Wrongful Tax Deduction Claims for Non-Deductible Expenses

Expenses incurred for private purposes are not tax-deductible and should be excluded in companies’ tax returns.  Examples include director’s private expenses on vacation, medical expenses and expenses incurred on their private vehicles.

IRAS has made available a checklist to help family owned/managed companies avoid making common mistakes in their claims for tax-deductible expenses on our website.

Double Claim of PIC Benefits

IRAS has observed that there are a number of companies that made claims for tax deductions on PIC-qualifying expenditure in their Form C/Form C-S, despite having already applied for a PIC cash payout.

IRAS would like to highlight that companies cannot claim enhanced tax deduction/allowances for PIC-qualifying expenditures that have been allowed a PIC cash payout. Refer to Annex C for an example of double claiming of PIC benefits.

Inland Revenue Authority of Singapore

----------------------------------------------------------------------------------------------------------------------------------------

ANNEX A

Example of Local Company that Benefitted from R&D Tax Incentives

Versafleet Pte Ltd tapped on R&D tax benefits for its development of a cloud-based automating application, which allows logistics companies to manage their fleet of vehicles more efficiently. Through various experiments, Versafleet developed a novel algorithm using new inputs such as topological information and speed limits to allow for optimal map-matching in real time. New data handling techniques were also developed to reduce memory consumption and runtime.

Mr Shamir Rahim, founder and chief executive of the company, said “As a tech company, we engage in extensive R&D - the benefits provided by the PIC and R&D tax incentives contributed significantly to sustaining our growth. We are indeed grateful for the IRAS officers for taking the time to understand and appreciate our work at VersaFleet.”

ANNEX B

Illustration of Treatment of Income from Expired Vouchers and Packages

Company A sold a travel voucher to a customer for $3,000 in Jan 2015 with an expiry date of 31 Dec 2015. At the point of sale of the voucher, the transaction is not recorded as income nor reported for tax.

Scenario 1: Voucher is redeemed before expiry date

Company A recognises the sale as income for tax purposes upon redemption of the travel voucher and the company’s expenses are offset against the income earned.

Scenario 2: Voucher is not redeemed by 31 Dec 2015

For expired vouchers and packages, Company A will need to record the value as income in its sales figures upon expiry, as the income is realised even though it did not incur any expenses.

In this case, Company A should report an income of the full amount of $3,000 from the sale of the voucher upon expiry.

ANNEX C

Illustration of Double Claim of PIC Benefits

Company A claimed PIC cash payout on the training cost of $15,000 in YA 2016. It also tried to claim a 400% tax deduction on the same training expense against its income in its tax return.

Correct treatment:

The training cost of $15,000 is no longer available as a tax deduction and the business has to add the amount back into its tax computation. It cannot claim a 400% tax deduction on the same training expense.