Singapore is one of the best places to start a business. The latest 2019 Global Competitive Report released by the World Economic Forum ranked Singapore first overall for its financial market development, highly-qualified workforce, and infrastructure.
There are also a number of grants and incentives to help entrepreneurs and small and medium enterprises (SMEs) thrive in a competitive economic landscape.
However, companies operating in Singapore need to adhere to the requirements of the Companies Act, the primary legislation governing business conduct in the country. The Companies Act requires SMEs to record relevant financial information to verify revenues, expenses, assets, and liabilities. Failure to comply with these requirements can result in penalties and fines that can be devastating to young SMEs.
We understand that compliance is tricky business. That’s why we’re here to provide you with a rundown of an SMEs typical compliance requirements to make sure your business is always in tip-top shape:
Determine your company’s Financial Year-End
Before anything, you must first determine your company’s Financial Year End (FYE) because this will serve as the deadline for subsequent corporate filings and tax submissions, which will be discussed later on in this article.
Your FYE doesn’t need to coincide with December 31st. It can fall on any day within the year and is dependent on a number of factors, including:
- The date of your company’s incorporation
- Eligibility for tax exemptions
- Whether your business carries out seasonal activities
- Whether your business is a subsidiary company
A good rule of thumb is to set your FYE on the last day of the 11th month after your incorporation date to make sure you maximise tax exemptions, if any.
Once you’ve determined your FYE, you will be able to determine the dates for recurring annual requirements, namely:
- Filing Estimated Chargeable Income (ECI)
- Holding Annual General Meetings (AGM)
- Filing Annual Returns
- The basis period for assessing corporate tax
Besides these requirements, your company also has to take into consideration the Goods and Services Tax (GST) and Central Provident Fund (CPF).
Estimated Chargeable Income
In Singapore, there are two types of income: taxable and non-taxable. Taxable income includes any profit from any trade or business, income from investments, or royalties, premiums, and other profits. But Singapore offers SMEs certain perks and exemptions, like 0% capital gains tax on the disposal of fixed assets—so any income derived from this is considered non-taxable.
Your Estimated Chargeable Income (ECI) is the total taxable income for your company for that financial year, based on your income minus tax-allowable expenses and other deductions. You need to file your ECI within three months from the FYE to the Inland Revenue Authority of Singapore (IRAS) unless you meet the following exemptions:
- Your annual revenue is not more than S$5 million for the financial year; and
- ECI is “NIL” for the financial year
Your company’s ECI is “NIL” if your business is dormant or you’ve made no profits for that financial year.
Note that filing your ECI on time gives you the option to pay corporate taxes in instalments. If you fail to file on time, the IRAS can issue an estimated Notice of Assessment (NOA) based on your company’s past year’s income or any information available to the IRAS, which you must pay within one month of the notice.
Annual General Meeting (AGM)
Annual General Meetings (AGM) are a way for your company to present financial statements to shareholders and address any concerns regarding the financial health of your business. It’s compulsory for all companies to hold an AGM within 18 months after the company’s incorporation. Afterwards, companies must hold an AGM at least once every 15 months.
Companies must also consider their FYE to determine a date. An AGM is conducted within four months after FYE for Listed companies, and six months after FYE for non-listed companies.
If your company is unable to hold an AGM within the timeframe, you can apply for an extension of time (EOT) with the Accounting and Corporate Regulatory Authority (ACRA) before the due date. During the AGM, the meeting minutes must be recorded in writing and signed by the chairman. Afterwards, your company has to file for annual returns.
Founders or directors of companies that do not hold the required AGMs may be imposed composition fines by ACRA.
Filing Annual Returns
All Singapore-incorporated companies are also obliged to submit an annual return to ACRA via its online portal. The annual return contains pertinent company information, including company details, shares, financial statements, and the date of AGM, if applicable.
Unless you own a sole proprietorship, partnership, or limited partnership, you are required to file financial statements with ACRA.
You can only file your annual return after an AGM has been held, and within a certain time frame of your FYE:
Corporate Income Taxes
The corporate income tax in Singapore is 17%, and income earned by all companies are taxed the following financial year. So your income earned in 2020 will be taxed in 2021. Your company is required to submit two corporate income tax forms to the IRAS every year.
SMEs can benefit from the Partial Tax Exemption Scheme for New Start-Up Companies if they are within the first three Year of Assessment. After this period, companies will still enjoy partial tax exemption at slightly lower rates.
Partial tax exemption scheme
Up till Year of Assessment 2019, companies can enjoy 75% exemption from Tax for the first S$10,000 chargeable income. The next S$290,000 gets 50% exemption from Tax; totalling up to S$300,000 chargeable income with S$152,500 amount exempted from Tax.
From the Year of Assessment 2020 onwards, companies can enjoy 75% exemption from Tax for the first S$10,000 chargeable income. The next S$190,000 gets 50% exemption from Tax; totalling up to S$200,000 chargeable income with S$102,500 amount exempted from Tax.
Tax exemption scheme for new start-up companies
For the first three Year of Assessments falling in or before 2020, companies can enjoy 100% exemption from Tax for the first S$100,000 chargeable income. The subsequent S$200,000 gets 50% exemption from Tax. in total, S$300,000 chargeable income gets S$200,000 exemption from Tax.
For the first three Year of Assessments falling in or after 2020, companies get to enjoy 75% exemption from Tax for the first S$100,000 chargeable income. The subsequent S$100,000 gets 50% exemption from Tax. in total, S$200,000 chargeable income gets S$125,000 exemption from Tax.
Other compliance requirements to take note of
Goods and Services Tax (GST)
Goods and Services Tax (GST) is a broad-based sales tax in Singapore that is imposed on almost all supplies of goods and services. There are some exceptions for financial services companies. GST exemptions are given to services such as supplying digital payment tokens, selling and leasing residential assets or importing investment securities. On the other hand, companies that provide international services may be zero-rated. This means that GST will be charged at 0%.
You need to register for GST if your company’s taxable turnover at the end of any calendar year exceeds S$1 million from the sale of taxable goods and services. Conversely, if your business does not exceed S$1 million in taxable turnover, you may choose to register for GST voluntarily. From the effective date of GST registration, it is mandatory to commence charging GST.
There are some things you have to take note of as a GST-registered business:
- You have to submit your GST return to IRAS one month after the end of each prescribed accounting period, which is usually done on a quarterly basis
- The difference between output tax and input tax will be the net GST payable to IRAS or refunded by IRAS
- There is quite a lot to consider when it comes to output tax and input tax in your GST return. For peace of mind, it would be best to engage a professional accountant to assist with the preparation and submission of the returns.
Central Provident Fund (CPF)
Central Provident Fund is a compulsory pension fund scheme for companies and employees to contribute a percentage of their monthly revenue and salary to the fund. This is only applicable to employees that are Singapore citizens or permanent residents earning more than S$50 a month.
As a new employer, you can start contributing CPF by applying using your SingPass or CorpPass and entity’s Unique Entity Number (UEN) to the website as soon as you hire your first employee. Once your application is approved, you will receive your CPF Submission Number (CSN) which is required for any CPF-related transactions.
Additionally, the due date for CPF contributions is on the last day of the calendar month. Employers who fail to pay by the 14th of the following month or the next working day if the 14th falls on a Saturday, Sunday or Public Holiday, will be imposed with late payment interest charged at 1.5% per month.
The struggle with compliance
With such a long list of compliance requirements in Singapore, it’s easy to miss a tight deadline leading to a delay or failure in payment. This will cause your company to incur penalties according to the different compliance.
For example, it’s a criminal offence under the CPF Act to delay or not contribute to CPF. Moreover, if you deducted your employee’s share of CPF contributions from your employee’s wages and failed to submit the CPF contributions to the Board, you may be subjected to up to S$10,000 in court fines and/or up-to seven years of imprisonment.
Many SMEs understand that compliance comes with risks. However, they also lack the expertise and resources to implement preventive measures for these risks.
As accountants, we’re aware of how difficult it is to get started with compliance. There is a need to conduct a compliance risk assessment. There is also the factor of time, financial resources, and the burden of compliance bureaucracy.
Many clients come to us in a panic when they realise their taxes are due very soon. For this very reason, we do offer to catch up accounting services for our clients. To get the best of both worlds, you can approach us as soon as possible to remain compliant and receive the benefits of digitisation that we can provide you with.
Make life easier by investing in professionals
If you are struggling with compliance, investing in a professional can improve your compliance management while minimising risks to your company.
Accounting and financial statements for all Harvest clients are maintained and prepared on Xero which is on Accounting Software Register so you can be sure that it meets IRAS’ principles and technical requirements.
Apart from accounting solutions, Harvest Accounting also offer payroll services for clients. We use a variety of cloud payroll systems such as HReasily to eliminate the need for complex Excel spreadsheets that are typically used in conventional payroll. It also integrates with Xero to provide a central location for data security.
At Harvest Accounting, we have the know-how and experience to help you settle your tax obligations. As a matter of fact, we track all compliance dates and send automated reminders so that you don’t have to worry.
If this helps relieve your struggles in any way, you can get in touch with us here for your accounting needs.