As a medical professional, what is the best business structure for your medical practice? How does this influence the relevant tax implications required of your business by the Inland Revenue Authority of Singapore (IRAS)? These are some of the main things you would consider prior to starting a medical practice.
In general, medical professionals earn income through provision of their personal services. The highest marginal personal income tax rate in Singapore is 22% compared to corporate tax rate of 17%. There are instances where illegal steps are taken to minimise tax liabilities, by shifting personal income to corporate income by setting up the medical practice as a company with little commercial substance.
A fine line between tax planning and tax evasion exists in the form of tax avoidance. IRAS recognises this as a means that satisfies the legal form but is not intended by Parliament. As covered in the process of accounting for medical practices, you may run your business as a Sole-proprietor, General Partnership, Limited Liability Partnership or incorporate a company.
However, where the business is structured such that it has little or no bona fide commercial reasons to obtain a tax advantage, the Comptroller of Income Tax may exercise Section 33 of the Income Tax Act, a general anti-avoidance provision, to ensure a fair amount of taxes is paid in accordance with the law.
The following business arrangements can be viewed as a tax avoidance arrangement. This includes:
Companies enjoy tax exemptions on the first $200,000 of normal chargeable income under the New Companies Start-up Tax Exemption Scheme and Partial Tax Exemption Scheme. There are also tax rebates in certain years that are capped per company. You may reap the tax advantages of multiple tax exemptions and tax rebates by splitting the income in one company to multiple companies. If you are operating a clinic while separating other services like sale of medicine and surgery, the income derived from the various business operations will be regarded solely as income earned by a single company. This applies if the multiple companies incorporated:
Do note that if you fall under any one of the above categories and enjoyed undue tax advantages, IRAS will consider this as a form of tax avoidance.
As new businesses are eligible for the start-up tax exemption scheme in Singapore – reducing their tax bills for the first three Year of Assessments (YA) –, some companies may take the chance to re-incorporate the same company. Where there are no changes made to the business, IRAS will regard this as the means to obtain a tax advantage and the start-up tax exemption will be invalid for your newly incorporated company.#BBD0E0 »
Finally, if you are a family-owned medical practice, any transaction made between you and the company must be done at an arm’s length. The attribution of income must be aligned with economic reality, meaning the amount you are paid should be similar to the salary of any other person providing the same services. By using either the Market Salary Benchmarking or Cost Plus Method highlighted by IRAS, this ensures that the correct tax treatment will be applied to both company and employees – regardless of whether you are family members or not.
Besides tax avoidance, some companies may deliberately underpay – or in other words, evade – taxes that are owed which can be punishable by law. Any claims for fictitious or non-existent expenses as well as failure to declare taxable income is recognised as an act of tax evasion. If you have filed an inaccurate tax return with intention to evade tax, you can be charged with the following penalties:
That being said, inaccurate filing of annual tax returns is a common mistake made by many other individuals while filing. If you are aware of errors made in your declaration, you can still refile once within seven days of your previous submission. Yet, do note that negligence is not a justifiable excuse and can still lead to penalties – so be sure to make any corrections promptly to avoid tax irregularities.
Besides wilfully failing to pay income tax, you will need to pay the below should you evade the Goods and Services Tax (GST) under the GST Act:
Read more about your tax obligations as a business in Singapore.
To stay on the safe side, this is why many medical professionals may choose to partner with tax advisory services like Chartsworth to be assured that any tax minimisation activities adopted are permissible in Singapore. By engaging qualified tax service providers, you will also have someone who can handle important tasks like accounting and corporate secretarial services so that you can focus on what matters most: the well-being of your patients.
This is where tax planning comes into place to help you strategically reduce your taxes while following the law. Outsourcing skilled personnel accredited by the Singapore Chartered Tax Professionals (SCTP) can help you stay informed on any tax-saving incentives while fulfilling your compliance requirements.
If you have any company incorporation, tax or accounting concerns, don’t hesitate to get in touch with our dedicated Chartsworth team and discuss your options today.