Singapore has a very attractive corporate tax rate at a flat rate of only 17%. It is one of the factors which makes the city-state one of the best places to operate a business. This tax rate can be further reduced with various government grants and incentives.
Even so, local authorities still encounter incidents of tax evasion or late payment. Sometimes the delay of tax submissions is caused by the corporate tax filing exercise which can often be a time-consuming and complicated process.
Part of tax compliance involves proper documentation and timely submission in order for businesses to enjoy the benefits of tax incentives that are applicable to them. The bigger a company is, and the better the business is, the more tax-related documentation needs to be done.
Documentation can be a time-consuming task or a monumental challenge for companies that are resource-strapped or time-strapped. That is why it makes sense to outsource this task to a corporate tax service provider.
Reason #1: Tax penalties and cross-border implications
Professionals at a corporate service provider can lighten the load of businesses by helping them avoid tax penalties. Multinational corporations, in particular, also have to take into account Country-by-Country Reporting (CbCR) which can have huge outcomes in terms of tax costs or savings.
Late Payment Penalty
A company has one month from the date of the Notice of Assessment (NOA) to pay the assessed tax. The payment must reach the Inland Revenue Authority of Singapore (IRAS) before the due date even if the company has filed an objection and is awaiting the outcome.
If IRAS does not receive the payment before the due date, a 5% late payment penalty will be imposed. Any tax that remains unpaid for 60 days after this will be imposed an additional penalty of 1% per month up to a maximum of 12% of the unpaid tax.
However, if the assessment is subsequently revised after an appeal, any excess payment will be refunded to the company.
Further Enforcement for Non-Payment
If the tax continues to remain unpaid, further actions for IRAS to recover the taxes may include:
- Appointing agents like the company’s bank, tenant or lawyer to pay the money to IRAS; and/or
- Taking legal action.
The additional 1% penalty on the overdue tax for each completed month remains in force concurrently with these enforcement actions. At this point, affected firms will experience a great inconvenience to their business. In some cases, they may not be able to access their bank accounts until the full payment for tax has been received.
Implications for MNCs
The Country-by-Country Reporting (CbCR), a part of the BEPS (base erosion and profit shifting) Project, requires multinational companies to prepare a report setting out key data for all countries in which they operate, such as revenue, pretax profits, taxes paid and employee numbers.
This report will then be distributed to tax authorities in all the countries in which the MNC operates. The CbCR has major implications for Singapore firms that have ventured abroad. They would need to do more tax planning.
Questions such as this will need to be addressed: did the company earn more revenue in China and did they hire more employees there, yet paid most of its taxes in another country?
MNCs can benefit from some assistance to avoid defaulting on tax by not paying enough or to avoid being doubly taxed on the same pot of income.
Reason #2: Expedites data collection
During the financial year end, in-house accounting and finance staff have a limited amount of time to collate all the documentation and prepare reports for annual returns and tax submissions. On top of that, they must compile all financial data for the year and plan budgets for the next year.
As IRAS deadlines do not budge for anyone, they may not have enough time to collect all the data that is necessary to cover all bases and enable maximum Singapore tax savings. Their first priority is to compile the essentials before closing the books.
As such, outsourcing tax preparation to an external party can free up in-house finance departments to find the data necessary for paperwork submissions. The external party can do the hard work of data compilation, organisation and sorting throughout the financial year.
In addition to that, it can offer advisory services on how the firm can achieve tax savings by highlighting any necessary schemes that are available.
Reason #3: Ensures tax compliance
Singapore’s tax laws are constantly updated to meet industry trends and national objectives. Within a single year up to eight tax adjustments can occur.
Keeping up with and staying abreast of these tax legislation can be challenging for in-house accounting and finance staff, who have to stay on top of other financial duties and obligations.
Given their specific specialisation in tax services, corporate service providers can be relied on for updated knowledge about corporate tax adjustments. These firms have clients in similar and other industries. Thus, they would also have expertise on how new tax directives impact clients from different industries and advise accordingly.
Reason #4: Protect tax data
Data security has become even more pertinent with an increasing amount of data and work being switched to digital formats. To cite an example, 1.5 million patients’ personal information were leaked in the SingHealth hack in July 2018.
Since corporate tax returns must be filed correctly, financial data security is essential. Breaches may occur if a business entity does not have good protection systems in place.
This is predominantly so for smaller entities which may not have the financial capacity to invest a lot in security. In-house accountants who have access to data on the move to meet tight deadlines might unintentionally expose sensitive data when using unsecured networks (such as public WiFi connections).
A corporate service provider that deals with large amounts of tax and financial data usually invests in enterprise-level data security and protection systems to ensure that client data is secure. It is obligated to update its clients on the latest data privacy and security issues.
Reason #5: Data accuracy
Accuracy and attention to detail are critical in corporate tax filing. Such thoroughness may not be achievable for smaller firms that have a very small accounting team or that have only one accountant to juggle bookkeeping with other financial tasks.
However, accuracy is a requirement among corporate service providers. It is their bread and butter. They would also possess in-depth knowledge of tax laws thus help to avoid tax omissions, and legal consequences and penalties.
Reason #6: Focus on core business
With the work and worries of all things tax related delegated to a trustworthy corporate service provider, a company can focus on its core activities. Singapore is an especially competitive market, where industry players strive to not only excel locally but also expand regionally. Outsourcing corporate tax filing can provide more time to be used on providing higher-value activities.
Who should use corporate tax services
Companies of any size can benefit from outsourcing their tax work, especially if they do not have a large enough accounts department to juggle the day-to-day commitments concurrently with the year-end rush towards tax submissions.
Both multinational or local corporations with business activities and branches in other countries will also gain time savings, and even cost savings, as the tax professionals at corporate service providers are dedicated to helping clients gain the most tax savings possible.
Here are the six main grants and incentives given by the Singapore government that companies can avail of:
1. Productivity Solutions Grant (PSG)
The PSG came into effect on 1 April 2018, established to encourage the adoption of digital productivity solutions among Singapore firms. It funds up to 70% of the costs for qualifying activities under the following sectors:
- Precision Engineering
The grant supports the use of solutions in the areas of customer management, data analytics, financial management, inventory tracking, equipment and solutions.
The PSG supports smaller Singapore businesses and SMEs by making funding and supports more readily available to them. In the process, it helps them scale up beyond Singapore’s borders.
2. Enterprise Development Grant (EDG)
It aims to support Singapore businesses in three key areas:
- Innovation and productivity
- Core functions and capability
- Market and business development
It focuses on helping larger businesses that are looking to expand within and beyond Singapore’s shores. Qualified Singapore-based SMEs enjoy up to 70% of funding support while non-SME Singapore businesses get up to 50% of funding support.
The new PACT scheme takes the level of collaboration further by supporting collaborations between Singapore businesses of all sizes. This encourages small and medium-size companies to partner up to foster business innovation and growth.
4. Double Tax Deduction for Internationalisation (DTDi)
The DTDi initiative was established to spur Singapore businesses on to international expansion and internationalisation. Singapore businesses carrying out select overseas business activities are entitled to a 200% tax deduction up to S$150,000 on expenses for these activities.
These activities include, but are not limited, to the following:
- Overseas trade fairs
- Market surveys and feasibility studies
- Overseas business development trips
- Investment feasibility and due diligence studies
- Overseas advertising or promotional campaigns
- Expenses of Singaporean staff posted to overseas entities
Such internationalisation activities can be very costly for small businesses which are often lean in operations.
5. Resilience Budget 2020 – Stabilisation and Support Package
Released on the 26th of March in 2020, the Package was to address the impact of Covid-19 on the Singapore economy and population. It was created to help employers address cash flow issues while retaining their employees, and allow the employees to defer income tax payments.
Summarized below are the main measures relevant to businesses:
- Deferment of Income Tax Payments for Companies and Self-Employed Persons
- Enhanced Property Tax Rebate for Non-Residential Properties
- Providing Sector-Specific Support
- Enhanced Financing Support
- Enhanced Wage Credit Scheme
- Enhanced Jobs Support Scheme
Corporate tax services offered by external parties can alleviate a large burden from small businesses to multinational corporations. The service sometimes includes GST computation and submission of monthly GST to IRAS – both of which can be very time-consuming activities.
As all things related to tax is a core business activity for corporate service providers, they are able to focus on this area of work and provide any updates on tax law changes as well as notify their clients of any relevant or matching tax incentives.