Calculating Taxable Income in Singapore

Understanding the concept of taxable income is very important to avoid making filing mistakes. For Singapore tax purposes, taxable income refers to:

• gains or profits from any trade or business;
• income from an investment such as dividends, interest, and rental;
• royalties, premiums and any other profits from property; and
• other gains that are revenue in nature.

Generally, deductible business expenses are those ‘wholly and exclusively incurred in the production of income’. In other words, they must satisfy all these conditions:

• expenses are solely incurred in the production of income
• expenses are not a contingent liability, i.e. it does not depend on an event that may or may not occur in the future
• expenses are revenue, and not capital, in nature
• expenses are not prohibited from deduction under the Income Tax Act

Meanwhile, non-deductible business expenses includes personal expenses such as travel or entertainment not related to the running of the business, and capital expenses such as expenses incurred to incorporate a company and purchase of fixed assets.

Also, note that with regard to the renovation and refurbishment costs, these can be claimed only over three successive years, with the total capped at $300,000 for every three-year period. 

Consult qualified tax professionals to ensure you have all the details when filing corporate tax returns in Singapore.

Industry-specific tips on calculating corporate tax residency

Investment Holding Companies

Deductible expenses are expenses that are attributed to the investment income. These may be incurred directly, indirectly, or in accordance with statutory and regulatory provisions.

Property Developers

The allowable development costs include land cost, stamp duty, property tax, construction cost, architect fee, differential premium, development charge and financing cost. Marketing and promotional expenses are deductible in the year in which they are incurred.

Moreover, income derived from construction contracts are to be recognised using the percentage of completion method. This means that the revenue and costs associated with a particular YA is determined by the stage of completion at the end of that YA only.

Calculating taxable income at concessionary and prevailing corporate tax rates

A company may receive different streams of income taxable at different tax rates, i.e. the prevailing corporate tax rate and concessionary tax rates. Common mistakes to avoid here include:

• incorrect classification of non-qualifying income under the concessionary tax rate category
• incorrect identification of direct and common expenses
• adoption of inappropriate bases in the allocation of common expenses and capital allowances