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Deductions such as capital allowances, business expenses and reliefs can be claimed to reduce the overall taxable income, which leads to lower taxes.
What is Taxable Income?
For Singapore tax purposes, taxable income refers to the following:
Deductions such as capital allowances, business expenses and reliefs can be claimed to reduce the overall taxable income, which leads to lower taxes.
When Income is Taxable?
A company is liable to pay tax in Singapore on income that is:
Income Received from Abroad
Income from outside Singapore is considered received in Singapore when it is:
Section 10(25) (IRAS) will be applied to tax foreign income received in Singapore only if the income belongs to an individual who is resident in Singapore or an entity, which is located in Singapore. Hence, non-resident individuals and foreign businesses, which are not operating in or from Singapore, can remit their foreign income to Singapore without being taxed on the income.
As an administrative concession, foreign income, which is applied towards overseas investments without being repatriated to Singapore, will not be treated as having been received in Singapore under section 10(25). In such an instance, the foreign income will not be taxable.
If you are subject to tax on foreign-sourced income, you will continue to be entitled to claim tax reliefs or credits.
What is Non-Taxable Income?
Capital Gains
Capital gains are not taxable. Below are two occasions where income is non-taxable;
What Income types are Exempt from Tax?
There are certain types of income are specifically exempted from tax under the Income Tax Act, subject to conditions;
Non-taxation of Companies' Gains on Disposal of Equity Investments under Section 13Z
Section 13Z (this is new) of the Income Tax Act exempts from tax, the gains derived by a company ("divesting company") from the disposal of ordinary shares in another company which are legally and beneficially owned by the divesting company, if immediately prior to the date of the share disposal:
In other scenarios for share disposals, the tax treatment of the gains or losses arising from share disposals will be determined based on an evaluation of the facts and circumstances of the case under the ‘Badges of Trade’. These can be found at the IRAS website.
What is Section 13Z?
Section 13Z applies to companies' disposal of ordinary shares from 1 June 2012 to 31 May 2017. It is applicable whether the investee company is incorporated in Singapore or elsewhere and listed or non-listed.
Examples where section 13Z does not apply:
Examples of the types of companies covered under Section 26 of the Income Tax Act include:
Business expenses
What counts as deductible or non-deductible business expenses?
Business expenses are expenses you have paid in order to run the business. Some examples are CPF contributions, wages, renovation, web design etc.
Business expenses may be deductible or non-deductible. When deductible, they reduce your taxable income and the amount of tax you need to pay.
| Income | $90,000 |
| Business Expenses | $20,000 |
| - Deductible Business Expenses | $7,000 |
| - Non-Deductible Business Expenses | $13,000 |
| Income Subject to Tax ("Taxable Income") | $90,000 - $7,000 = $83,000 (Income minus deductible expenses) |
Deductible Business Expenses
Generally, deductible business expenses are those 'wholly and exclusively incurred in the production of income'. In order to apply they must meet the following criteria;
Non-Deductible Business Expenses
Non-deductible business expenses are activities you or your employees pay for that do not fulfil the conditions above. This 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.
Examples of Deductible and Non-Deductible Business expenses can be found at the IRAS Website.