If your business is selected for a tax audit in Singapore, it can be a stressful experience. An income tax audit is when the Inland Revenue Authority of Singapore (IRAS) selects your tax returns for closer scrutiny. However, being selected for an audit does not mean that you have been negligent in your filing. Using a risk-based approach, audits can be done randomly across various industries as part of IRAS’ efforts to ensure that businesses are complying with the tax laws and help to improve tax compliance.
The process of being audited by the IRAS typically begins with a letter from the authority notifying you that your business has been selected for an audit. The letter will detail what you may need to prepare in advance.
For example, if your business has claimed capital allowances in the Form C/C-S for the Year of Assessment (YA), you will be requested to conduct a self-review first. This is to check for discrepancies that could result in an inaccurate income tax assessment. In this case, you may get access to your Form C/C-S through the myTax Portal to assist in the review. Depending on your type of organisation, you will want to look out for the following red flags in your capital allowances claim and rectify them accordingly:
Once you have run through your capital allowance claims, you are required to submit a copy of the capital allowances and renovation or refurbishment (if applicable) schedule. If there have been any amendments made, you will also need to attach the revised tax computation for the specific Year of Assessment and the capital allowances and renovation or refurbishment schedule.
Besides reviewing your capital allowances claims for errors, you will also want to avoid these common compliance-related mistakes:
There have been instances of companies found abusing tax exemption schemes, claiming exemptions to which they are not entitled to. This includes scenarios where:
If you are a service provider offering support services to related parties in Singapore or overseas, do your due diligence to comply with the arm’s length principle and charge an appropriate amount with mark up for the support services provided as if the services are provided to non-related parties. You must also maintain contemporaneous transfer pricing documentation to support the pricing.
During the income tax audit, IRAS will – for starters – want to check that your filing of the Form C-S, Form C-S (Lite) or Form C is completed by the specified deadline. If you have various streams of income, it is crucial that they are taxable under the right tax rate. Common mistakes spotted by IRAS include the inaccurate identification of direct and common expenses as well as the wrong classification of non-qualifying income under the concessionary tax rate category.
The tax officials will also be paying attention to the following areas:
When making Group Relief claims, do ensure that you have met the 75% ordinary shareholding requirement to be considered as part of the same Group. Additionally, for companies with different financial year ends, it can be tempting to transfer or claim losses from each other to minimise your tax liability. However, take note that this practice is not allowed in Singapore.
If you are a construction company who have made provisions for expenses such as damages and defects, bear in mind that they are not eligible for tax deduction. The rule of thumb for allowable deductions is that expenses must be incurred and qualified for deduction under Section 15 of the Income Tax Act 194.
Your company may be exempted from filing Corporate Income Tax Returns if you have:
That being said, you must start filing Corporate Income Tax Returns again once you recommence your business. Otherwise, you can be liable to penalties.
If you want assurance that your tax filing is accurate, up-to-date and – most importantly – compliant with the IRAS, you may reach out to an experienced tax services provider like Chartsworth. Whether you’re just starting out in business or you’ve been in operation for years, corporate tax services can give you the peace of mind that comes from knowing your business is prepared for anything. For more information, don’t hesitate to contact our team at Chartsworth today.