Singapore Corporate Income Tax and GST PDF

Tax Practice I: Introduction to Corporate Income Tax and Goods and Services Tax Allen Tan 1 Contents 1. Corporate income tax a. What is chargeable to tax b. Deductions for expenditure c. Capital allowances 2. Goods and services ta...

Tax Practice I: Introduction to Corporate Income Tax and Goods and Services Tax Allen Tan 1 Contents 1. Corporate income tax a. What is chargeable to tax b. Deductions for expenditure c. Capital allowances 2. Goods and services tax a. Introduction to GST b. Overseas Vendor Registration regime c. Reverse Charge regime 2 Corporate income tax The rate of corporate income tax in Singapore is 17% of chargeable income. This applies to both local and foreign companies. – Chargeable income refers to a company’s taxable income (after deducting tax-allowable expenses) for a YA. Corporate income tax is assessed on a preceding year basis in Singapore. – This means that income earned in financial year 2023 will be taxed in 2024. – In tax terms, 2024 is the year of assessment (“YA”) as it is the year in which the company’s income is assessed to tax. 3 Corporate income tax Section 10(1) of the Income Tax Act 1947 (“ITA”) – Charging Provision Charge of income tax 10. —(1) Income tax is, subject to the provisions of this Act, payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of — a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised; b) gains or profits from any employment; c) [Deleted by Act 29 of 1965] d) dividends, interest or discounts; e) any pension, charge or annuity; f) rents, royalties, premiums and any other profits arising from property; and g) any gains or profits of an income nature not falling within any of the preceding paragraphs. 4 Corporate income tax Income vs capital Generally, Singapore imposes income tax on gains in the nature of income, and not capital gains, as there is no capital gains tax regime in Singapore. The consideration of whether a gain is in the nature of income or capital is a highly fact specific inquiry. For example, a gain which arises in the course of a taxpayer’s trade or business is in the nature of income, where the Singapore courts would typically examine various factors (referred to as the “badges of trade”) to determine whether a trading gain arises (please see NP and another v Comptroller of Income Tax 4 SLR(R) 599). 5 Corporate income tax Accruing or derived from Singapore Singapore-sourced income is charged to tax regardless of receipt. Whether income is Singapore-sourced is a question of fact. The broad guiding principle is to focus on what the taxpayer had done which earned him the gains or profits in question, and then to identify the location where those activities that he had engaged in or the work he had done took place (please see Comptroller of Income Tax v HY 2 SLR(R) 405). 6 Corporate income tax Received or deemed received in Singapore Generally, foreign-sourced income is not taxable in Singapore, unless it is received or deemed received in Singapore. Under section 10(25) of the ITA, foreign-sourced income would be received or deemed received in Singapore if it is: – (a) remitted to, transmitted or brought into, Singapore (e.g., remitted into a Singapore bank account); – (b) applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; and – (c) applied to purchase any movable property which is brought into Singapore. 7 Corporate income tax - deductions Section 14(1) of the ITA – general deduction formula Deductions allowed 14. —(1) For the purpose of ascertaining the income of any person for any period from any source chargeable with tax under this Act (called in this Part the income), there are to be deducted all outgoings and expenses wholly and exclusively incurred during that period by that person in the production of the income … 8 Corporate income tax - deductions Specific deductions Specific deduction examples: – (1) interest and loan-related expenses in lieu of interest or for the reduction of interest (section 14(1)(a), ITA) – (2) rent for premises occupied for the purposes of acquiring income (section 14(1)(b), ITA) – (3) expenses for repair and renewal of tools and equipment, provided that no capital allowance is claimed in respect of the expenditure and the expenses do not relate to the reconstruction or rebuilding of ‘premises, buildings, structures or works of a permanent nature’ (section 14(1)(c), ITA) – (4) bad debts of a trade, business, profession or vocation (section 14(1)(d), ITA) – (5) obligatory contributions by an employer to a pension or provident fund, subject to the contribution rules and ceiling for contributions made to the CPF (section 14(1)(e), ITA) 9 Corporate income tax - deductions When deductions are not allowed Section 15(1) of the ITA disallows the deduction of certain types of expenses under the general deduction formula. These include: Deductions not allowed 15. —(1) Despite the provisions of this Act, for the purpose of ascertaining the income of any person, no deduction is allowed in respect of … b) any disbursements or expenses not being money wholly and exclusively laid out or expended for the purpose of acquiring the income; c) any capital withdrawn or any sum employed or intended to be employed as capital except as provided in section 14(1)(h) … Note that the prohibition under section 15(1) may not apply to specific deductions (see section 14(1)(a) in lecture 3). 10 Corporate income tax - capital allowances Part 6 of the ITA provides for capital allowances to be made to a taxpayer for depreciating assets. The main class of tangible assets qualifying for capital allowances is plant or machinery. – Capital allowances for machinery or plant are made under sections 19 and 19A where machinery or plant is acquired for the purpose of a trade, profession or business. – Capital allowances can only be claimed on plant or machinery, and not buildings (please see ZF v Comptroller of Income Tax 1 SLR 1044, which differentiates “plant” and “building”). Section 19A provides for allowances for machinery or plant on an accelerated basis (i.e., over three years). Such allowances are made in lieu of the allowances under Section 19. For section 19B writing-down allowances, please refer to lecture 2. 11 GST Rate of GST The current GST rate in Singapore is 8%. The GST rate will increase to 9% with effect from 1 January 2024. 12 GST Section 8(1) of the Goods and Services Tax Act 1993 (“GSTA”) - charging provision Scope of tax 8. —(1) Tax is charged on any supply of goods or services made in Singapore where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by the taxable person. 13 GST For GST to be chargeable: – (1) a supply of goods or services must be made (section 10(2) and Second Schedule, GSTA); – (2) the supply must be a taxable supply – this means that the supply must not be an exempt supply (section 8(2A), GSTA); – (3) the supply must be made by a taxable person – this means that the person making the supply must be registered or required to be registered under the GSTA (section 8(2), GSTA); – (4) the supply must be made in Singapore (sections 13 and 15, GSTA); and – (5) the supply must be made in the course or furtherance of a business. 14 GST Compulsory registration (Paragraph 1(1), First Schedule, GSTA) A taxable person is a person who is registered or is ‘required to be registered’ under the GSTA (section 8(2), GSTA). A business is required to be GST-registered in Singapore if: – a) its total amount of taxable supplies of goods or services made in Singapore has exceeded SGD 1 million in a calendar year (i.e., retrospective basis); or – b) its total amount of taxable supplies of goods or services made in Singapore is reasonably expected to exceed SGD 1 million in the next 12 months (i.e., prospective basis). 15 GST Voluntary registration (Paragraph 8, First Schedule, GSTA) A person who is not liable to be registered may apply for voluntary registration if he makes taxable supplies, or certain exempt supplies in the course or furtherance of a business, or if he is an overseas vendor or a recipient of reverse charge supplies (paragraph 8(1), First Schedule, GSTA). The registration would be for a period of not less than two years (unless the Comptroller allows for a shorter period) (paragraph 8(2), First Schedule, GSTA). 16 GST Briefly, there are two regimes that are relevant to imported services, remote services and distantly taxable goods supplied by an overseas supplier to a customer belonging in Singapore: – Overseas Vendor Registration ("OVR") regime – Reverse Charge regime 17 GST – Overseas Vendor Registration Under the OVR regime, GST is chargeable on a supply of distantly taxable goods and remote services made by a taxable person (which may include an overseas supplier, among others), in the course of furtherance of business carried on by him to a customer who belongs in Singapore (section 8(1A) and Seventh Schedule, GSTA). Definition of “remote services” Remote services includes services where, at the time of performance of services, there is no necessary connection between the place where the services are physically performed, and the location of the customer of the services (paragraph 2A, Seventh Schedule, GSTA). This includes supplies of downloadable digital content, subscription-based media, software programs, professional services, education and examination services, personal services and consultancy and advisory services. 18 GST – Overseas Vendor Registration OVR registration threshold The overseas supplier must register for GST if: – in a calendar year, its global turnover has exceeded SGD 1 million and the value of remote services and distantly taxable goods made to non-GST registered customers belonging in Singapore has exceeded SGD 100,000 (i.e., retrospective basis) and the registration has to be submitted within 30 days after the end of the quarter in which this threshold is reached (paragraphs 1A(1)(a) and (5), First Schedule, GSTA); or – in the next 12 months, it reasonably expects that its global turnover will exceed SGD 1 million and the value of remote services and distantly taxable goods made to non-GST registered customers belonging in Singapore will exceed SGD 100,000 (i.e., prospective basis) and the registration has to be submitted within 30 days from the date of the forecast (paragraphs 1A(1)(b) and (5), First Schedule, GSTA). 19 GST – Reverse Charge The Reverse Charge regime applies where, among others, a supplier who belongs outside Singapore supplies imported services and distantly taxable goods to a person (i.e. a recipient) who (section 14(1), GSTA): – (i) belongs in Singapore; – (ii) is GST-registered or liable to be GST-registered; – (iii) is not receiving goods or services as an individual in his private or personal capacity; and – (iv) is not entitled to full input tax credit. To the extent that the imported services and distantly taxable goods fall within the scope of reverse charge, the recipient will be required to account for GST on the value of its imported services and distantly taxable goods as if it were the supplier (section 14(2), GSTA). However, in the case of a supply of distantly taxable goods, the recipient of the supply need not account for GST on the supply if he has paid GST to the supplier for the supply (section 14(3A), GSTA). 20 Copyright Notice Copyright © 2023, Singapore Institute of Legal Education. All rights reserved. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of this video in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. 21