Tax Law - CIT and GST PDF

Tax Law - Cases - **Income Tax:** - *What is chargeable to tax* - ∀ *Comptroller of Income Tax v HY* \[2006\] 2 SLR(R) 405 - ∀ *NP and another v Comptroller of Income Tax* \[2007\] 4 SLR(R) 599 - A*BD Pte Ltd v Comptroller of Income Tax* \[2010\] 3 SLR 609...

Tax Law - Cases - **Income Tax:** - *What is chargeable to tax* - ∀ *Comptroller of Income Tax v HY* \[2006\] 2 SLR(R) 405 - ∀ *NP and another v Comptroller of Income Tax* \[2007\] 4 SLR(R) 599 - A*BD Pte Ltd v Comptroller of Income Tax* \[2010\] 3 SLR 609 - ∀ *Comptroller of Income Tax v BBO* \[2014\] 2 SLR 609 - *Deduction and expenses* - ∀ *Comptroller of Income Tax v IA* \[2006\] 4 SLR(R) 161 - ∀ *JD Ltd v Comptroller of Income Tax* \[2006\] 1 SLR(R) 484 - ∀ *ABD Pte Ltd v Comptroller of Income Tax* \[2010\] 3 SLR 609 - ∀ *BFC v Comptroller of Income Tax* \[2014\] 4 SLR 33 - *Capital Allowance* - ∀ *ZF v Comptroller of Income Tax* \[2011\] 1 SLR 1044 - ∀ *Singapore Cement Manufacturing Co (Pte) Ltd v Comptroller of Income Tax* \[2023\] SGHC 57 - **GST:** - ∀ *Herbalife International Singapore Pte Ltd v Comptroller of Goods and Services Tax* \[2023\] SGHC 54 - **Stamp Duty:** - ∀ *Clifford Development Pte Ltd v Commissioner of Stamp Duties* \[2009\] 3 SLR(R) 363 - **Miscellaneous:** - ∀ *ACC v Comptroller of Income Tax* \[2011\] 1 SLR 1217 - *Zhao Hui Fang v Commissioner of Stamp Duties* \[2017\] 4 SLR 945 - CIT and GST - Tax framework for companies: what is chargeable to tax, expenses, capital allowances - Chargeable income - 17% - s10 ITA -Income derived from Singapore or received in Singapore from outside Singapore - Singapore\'s income is charged to tax r**[egardless of receipt]**. - broad guiding principle is to **[focus on what the taxpayer had done, which earned him the gains of profits in question]**, and then to identify the location where those activities that he had engaged or work he had done in place. And there\'s a reference location. Income v capital - Factors considered in determining capital - Non-chargeable income s10(25) ITA - Foreign Source income non-taxable Dividend from a subsidiary - Deductions s14 ITA - Was the outgoing incurred wholly and exclusively for the production of income? - subject to prohibitions? under s15(1) ITA (e.g. bad debts) - Deductible - capital allowance - plant and machinery - Table for permitted claims 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. - Non-deductible - Capital expenditure is not deductible - Goods and Services Tax - 9% from 1 Jan 2024 scope of s8 GSTA - Requirements - Difference between zero rated supply and GST exemption - Complusory registration if \> 1MIL - Voluntary registration - Two GST regimes applicable to **[imported services]** - Overseas Vendor Registration - Reverse Charge regime Andrew Yip (00:01) Hi everyone, my name is Alan Tan. Welcome to the Text Law Lecture, which forms part of the corporate commercial module of the Part B. Now, I wanted to introduce Text Law in a series of three lectures. Today we will start off with the first lecture, which really deals with the introduction proper income tax and goods and services tax, or GSD in short. This particular lecture, we will cover an introduction to tax framework that affect companies. We\'ll explain how income is subject to tax, expenses, as well as touch on capital allowances. I will also touch on the GST regime. Now in the next lecture, I plan to cover key considerations arising in the mergers and acquisition transaction. and corporate restructuring. We will cover how &A transactions are structured. In general, a share sale or asset sale transaction. We will also talk about other &A options, as well as how sale of specific assets such as intellectual property is treated and treatment of royalties. Now, in the last lecture, I will carry on to talk about key issues arising from copper restructuring, how companies restructure themselves. We will look into the different way copper restructuring is conducted, for example, through the form of a copper amalgamation. We would look at how certain key Corporate actions like corporate borrowings and then how borrowing costs is treated from a tax perspective will cover what is reporting tax and we will also cover stamp duty and how stamp duty arises in corporate transactions and whether exemptions or reliefs are available. So this series of lectures should give you a flavor of tax issues that arises in the corporate and commercial context. These are not meant to be exhaustive. These lectures are meant to give you an introduction to tax issues so that it sensitizes you. If you decide, or in part of your practice, you will be dealing with corporate entities. You get a sense as to what the tax issues generally are. Now, you have been provided with a reading list. The reading list will be helpful. And there\'s different part of the reading list. Of course, the main component will be looking at the relevant legislation. You look at the Income Tax Act. You look at the Equities and Services Tax, Stem Duties Act. These are the main pieces of legislation. Of course, there are subsidiary legislation that\'s relevant as well. In terms of practical component of the reading list, you can refer to the e -tax guide. that is issued by the Inland Revenue Authority of Singapore or IRAS in short, you should be able to find the various e -tax guide on IRAS\' website. Now, do note that the e -tax guide is not law. They are IRAS\' interpretation on how to administer the different kind of taxation law. It\'s helpful. But do note that we still need to go back to legislation. and refer to case law in Singapore in interpreting what the treatment should be. This is clearly put out in the High Court decision of Chow Wei -Fung, where the High Court stated very clearly that the e -tax guide provided by IHRAS was helpful. It\'s not law. And this is also set out in a series of other cases. And I\'m mentioning this to you so that you have a sense as how you actually deal with the subject of taxation. There\'s also textbook that I think is useful that you could make references to. Now, we\'re dead. Let\'s get started. As I said earlier, I plan to cover corporate income tax and goods and services tax in this session. we will first deal with what is chargeable to text. The rate of corporate income tax in Singapore is currently at 17 % of chargeable income. This applies to both local and foreign company. As long as you have income that falls within our tax net, tax is levied at 17%. Some of you may have heard about tax incentive that is granted to companies under different part of our tax legislation. We also have another legislation dealing specifically tax incentive, but we\'re not going to cover it in this course. But do note that there are companies out there where if they meet certain conditions set up by economic agencies such as the Singapore Economic Development Board, they may have tax rate that is below 17%. So for example, if you qualify for a pioneer manufacturing incentive, you could get 0 % tax for up to 15 years, but they are very or stringent criteria, or if you form or set up a headquarters in Singapore, you could benefit from a 5 % or 10 % tax rate under the development and expansion incentive. And these are administered by the EDB, and there are of course other incentives administered by other economic agencies such as Enterprise Singapore, for example. Now, chargeable income refers to a company\'s taxable after you deduct tax allowable expenses for a YA. So what is a YA? A YA refers to a year of assessment, which is the year in which the company\'s income is assessed to tax. So I\'ll give you an example. In Singapore, we assess corporate income tax on a preceding year basis. What that means is that for fiscal year or financial year 2023, if your financial year ends 31st December 2023, you will be taxed in year of assessment 2024. So by 30th November 2024, a company will have to prepare and file its tax return, which will cover the basis period relating to financial year 2023. Now, of course, in today\'s lecture, we are only going to cover corporate income tax. But I will mention that for individual income tax, it is the same. You will be reporting and paying tax on a visiting year basis. Now let\'s go to the next slide and look a bit more into the charging provision. Section 10.1 is the main charging provision in our Income Tax Act. And this is chargeable on income of any person accruing in or derived from Singapore, or in other words, Singapore source income, or received in Singapore from outside Singapore. In other words, foreign source income that is received in Singapore. At this point, I\'ll mention that we have a semi -territorial regime, so only income that arises from\... activities performed in Singapore where the core income generating activities happen here, then that income, when it Singapore source income, it is subject to tax whether it is received in Singapore or not. Whereas if it\'s a foreign source It will only trigger Singapore taxation if that foreign source income is received in Singapore. I will explain the concept of received in the next couple of slides. But let\'s just maybe look at one example. If I\'m a company that hire employees in Singapore, carry on trade or business in Singapore, the income or gain of profits that I get from that activity would generally be Singapore source income. And even if I\'m paid in a bank account outside Singapore, that is subject to Singapore taxation and I have to prepare and file a tax return on that income. Whereas if I\'m a Singapore company and I own a subsidiary, say in Malaysia or in Indonesia, and my subsidiary pay me a dividend and assuming that my Malaysian and Indonesian subsidiaries Resident. in their respective countries, the dividend income should generally be treated as foreign source income, not subject to tax until it is received in Singapore. And that\'s prescribed under Section 1025 of the Income Tax Act, which I will cover in a minute. Now, if we look at Section 10.1, there\'s different limits of relevance here. Section 10.1A deals with gain of profit arising from trade, business, profession, vocation. Let\'s carry on the exercise in Singapore. B deals with gain of profit from employment. That\'s really your employment income. You also have certain incomes such as dividend, interest, royalty, rent. And you have Lim G, 10 -1 -G, which really deals with any gain of profit of an income nature that does not fall within any of the preceding paragraph. What that means is that you could have a gain of profit that does not arise from a trade of business, but it is of an income nature, which means that it is still subject to Singapore taxation, even if it\'s not trading income, if it\'s Singapore sauce. Now, why do we talk about income or capital? Let\'s look at the next slide. The reason for that is because in Singapore, we only tax income and we don\'t tax capital gain. In other words, we don\'t have capital gains tax regime. So a lot of time you would hear that perhaps individual will buy a property and then make a big gain, but they don\'t pay tax on the gain if it\'s capital in nature because we don\'t have capital gains tax regime. Now the consideration of whether again is income or capital is a highly fact -specific inquiry. A lot of time we look at the six pages of trade. One would suggest actually there are probably more pages of trade prescribed by case law. You really look at, or rather the Singapore Court will typically look at the various factors to determine whether a particular gain is revenue or capital in nature. For example, you will look at the regularity of the transaction, the intent and motive behind that transaction. For example, when I talk about 10.1g earlier, the Singapore case law that suggests that the intention and motive of the taxpayer at the time of them entering into the transaction is important for them to determine, for the court to determine whether the income is revenue or capital in nature. Now, let\'s go to the next slide and look at the concept of accruing or deriving from Singapore. I said earlier that Singapore\'s income is charged to tax regardless of receipt. So whether the income is Singapore\'s source is a question of fact. And the broad guiding principle is to focus on what the taxpayer had done, which earned him the gains of profits in question, and then to identify the location where those activities that he had engaged or work he had done in place. And there\'s a reference location. Foreign source income, I give an example of a dividend payment from the Indonesian or Malaysian subsidiary to a Singapore parent. Now, in general, foreign source income is not taxable in Singapore unless it is received or didn\'t receive in Singapore. I make reference to Securement Plan 25. You can see that foreign source income is only taxable in Singapore if it is brought, for example, the income is brought, for example, into a Singapore bank account. It is used to satisfy a debt incurred in respect of a trade or business carrying on in Singapore, or if used to purchase a movable property that\'s brought into Singapore. So I give you an example. If the front source dividend income that was in my example is used to buy a piece of equipment and that piece of equipment is moved into Singapore, you trigger 1025 Lim C. That triggers taxation. If The foreign source income is used to pay a debt incurred that\'s connected to a trade or business carrying on in Singapore. That triggers receipt even if the actual cash is not brought into Singapore because it triggered Section 1025B. So it\'s important to note how taxation could be triggered, the distinction between Singapore source and foreign source Let\'s go to the next component, which is really on deduction. In assessing how much income is chargeable to tax, we will have to look at what type of accounting expenses that is in your P &L, your profit and loss, that will be allowed as tax deduction. Now, the general principle of deduction is encapsulated in section 14 where all outgoings and expenses wholly and exclusively incurred in the production of income will be allowed deduction. There are also specific deductions that\'s available under different limits of the income tax act. For example, under section 14.1a, interest and loan related expenses in lieu of interest or for the reduction of interest is allowable for deduction. Or bad debts, for example, you can deduct that. But these deductions are also subject to certain prohibition set out in section 15.1 of the Income Tax Act. For example, I mentioned right from the beginning that we don\'t tax capital gains. So capital expenditure in general is not deductible in Singapore. So section 15.1 B and C, you can see that capital expenditure is generally non -deductible. So in determining whether a particular expenditure is deductible in Singapore or not, one will need to look at, first of all, do you meet the deduction has fully and exclusively incurred in production of income? And then you need to identify whether you are prohibited from deduction under section 15 Now let\'s look at capital allowance. Although capital expenditure is generally non -deductible, it is recognized that companies or businesses do incur expenditure in buying capital assets, especially tangible assets that is used in the business that produces taxable income. Capital allowances historically have been focused on industrial building allowance as well as plant or machinery. Industrial building allowances have actually been phased out over time and it\'s been replaced with land intensification allowance a few some years ago now. The real focus in Singapore for capital allowance now is really on plant or machinery. Now capital allowances for plant or machinery, this is actually provided for in part six of the Income Tax Act. dealt with in Section 19 or 19A. Under Section 19, if you claim capital allowances, you look at the prescribed table on the number of years that a particular asset can be tax amortized. You usually have accounting depreciation and then you then need to look at the prescribed table to see what the tax depreciation is or capital allowances that you can claim. Or you can make an election under Section 19A where Capital allowance for plant machinery can be claimed on accelerated basis over three years. In the next lecture, I will be talking about capital allowances as allowable for acquisition of intellectual property, which is provided for under Section 19B of our income tax act. The reason why I wanted to cover that is because it is more and more common now for businesses to buy intellectual properties, which is a very important and sometimes crown jewel for the business. Now, let\'s move on to goods and services tax. The GST rate in Singapore, as we all know, has been increased to 8 % and will further increase to 9 % with effect from 1st January 2024. Section 8.1 of the goods and services tax set out the charging provision. Tax is charged from any supply of goods or services made in Singapore where it is a taxable supply made by a taxable person in the course of the furtherance of any business carrying on by flexible person. Yeah, do note that an art of scope supply simply means that that supply of goods or services is not caught by the GST act, hence it\'s not subject to GST. And that\'s a distinction from what is known as a zero rated supply where you charge GST but at a zero percent rate. For GST to be chargeable, there has to be a supply of goods or services. The supply must be a taxable supply. The supply must be made by a taxable person. And the supply must be made in Singapore and made in the course of the business. Now, it\'s important to note in what situation you will need to register for GST. And there is the concept of compulsory registration where a taxable person is registered or required to be registered for GST if certain criteria are met. For example, total amount of taxable supply of goods or services made in Singapore has exceeded SGD \$1 million in the calendar year, whether on a prospective or retrospective basis. This will also include zero -rated supply. So for example, if a company only makes zero -rated supply where all its taxable supply are on goods that are exported, exportation of goods were entitled the GST rate to zero rather than eight percent. Even that supply would have been taken into account in computing. the threshold for compulsory registration. There\'s also voluntary registration that companies or persons could decide to make. Although do note that once you are voluntary registered, you have to comply fully with the GSP compliance requirement. And you need to be registered for not less than two years. And GSP registration does come with pretty stringent compliance obligation and burden. So it is not something to be regarded by me. And this is important because, for example, in an &A transaction, when your client wants to acquire a company, you will need to check whether the company is GST registered because there are certain compliance obligations that will go into your due diligence in determining what scope to cover. Or for example, it\'s an asset transaction. then need, if you are the buyer, You then need to see whether the seller is GST registered because then they will charge you GST and whether GST is applicable. So it\'s important to understand how GST works. Now briefly, there are also two regimes that are relevant here, which is relating to imported services. In the past, we have always had a reverse charge regime, but it wasn\'t activated until a couple of years ago. And now, will basically have potentially either the overseas vendor registration regime or the reverse charge regime that deals with imported services. Under the OVR or Overseas Fendal Registration Regime, GSC is chargeable on the supply of distantly taxable goods and remote services made by a taxable person in the course of business. carried on by him to a customer who belongs in Singapore. So what\'s a remote services? Remote services is where the services at the time of performance of the service, there is no connection between the place of service being physically performed and the location of the consumer. This is different from on the spot services, for example, hairdressing, you can\'t cut your hair remotely. So that will not be covered. This change was initially meant to capture only digital services, where there\'s a digital content that\'s been provided. But this actually has been extended beyond digital services. Do note that the overseas registration or the overseas supplier is required to register for GST in a calendar year where its global turnover has exceeded one million Singapore dollars and the value of remote services made to non -GST registered customer belonging in Singapore has exceeded 100 ,000. And IRAS has issued e -tax guide, pretty extensive e -tax guide to guide taxpayers on how to determine where the services will where the customer belongs. For example, they look at where the IP address of the customer is or whether the customer uses a Singapore or foreign credit card. Now, it is important to determine in an &A transaction whether, as I said earlier, whether the entity that you\'re going to acquire, for example, is directly registered in Singapore under the full registration or perhaps is registered or the pay -only registration. Although the overseas supplier do actually have an option to also opt for full registration. And the full registration allows the taxpayer to pay input tax credit on the GSD.E incurs. Let\'s look at the reverse charge. The reverse charge regime applies where the supplier who belongs outside Singapore supplies imported services and distantly taxable goods to a person who belongs in Singapore is GST registered but not entitled to a full input tax credit. This is different from the OVR regime which is targeted at non -GST registered Now, with that, have come to the end of Lecture 1. I hope that you have now a good starting point in understanding Hopper text framework as well as GSD framework affecting companies. I will be doing Lecture 2 and expand on some of the concepts that you learn in Lecture Takeaways Corporate income tax in Singapore is currently at 17% of chargeable income. Foreign source income is only taxable in Singapore if it is received in Singapore. Capital expenditure is generally non-deductible in Singapore. The GST rate in Singapore is currently 8% and will increase to 9% in 2024. Companies may be required to register for GST if their total taxable supply exceeds SGD \$1 million in a calendar year. There are different regimes for imported services under GST, including the Overseas Vendor Registration regime and the Reverse Charge regime.