Calculating Your Company’s Taxable Income

Whether you’re a local or foreign entrepreneur hoping to establish a new business in Singapore, understanding how much you’ll pay in income tax can be illuminating. The amount of taxable income you generate will be a key concern once the company is up and running, so even being able to get a rough idea of how much you’ll be liable to pay each year is valuable.

This guide is intended to give business owners and entrepreneurs some general guidelines on calculating their taxable income as a Singapore company. For the specifics of how corporate income is taxed in Singapore, please refer to our guide on company income tax. To estimate your taxes and contrast them with those of other countries, use our online tax calculator.

It’s important to note that in general a company’s net income will not be the same as its taxable income. Calculating a company’s taxable income always begins with the net profit or loss recorded in the business’ accounts, after which a number of adjustments are made to give the taxable income for the given accounting year. These adjustments are made to reflect the fact that many of the expenses incurred by the operation of the business are not deductible for tax purposes, and a portion of the income received may not be taxable or may be required to be taxed separately as non-trade source income.

Overview of adjustments to taxable income

Companies in Singapore are taxed on income derived from or accrued in Singapore as well as income received in Singapore from outside the country (subject to exemptions and tax reliefs).

The Inland Revenue Authority of Singapore (IRAS) considers income to include:

  • Profits or gains from any business or trade
  • Income gained from investment – paid in forms such as interest and rent
  • Premiums, royalties and any other profits resulting from the ownership of property
  • Other gains of an income nature

To calculate a company’s taxable income, the following adjustments are made to their net profit and loss data:

  • Non-taxable income is deducted: Types of income excluded from taxation are deducted from the company’s chargeable income. Examples include but are not limited to:
    • Sale of fixed assets
    • Capital gains
    • Gains on foreign exchange resulting from capital transactions
    • Foreign-sourced dividends
    • Tax exempt shipping income derived by a shipping company
    • Pending certain qualifying conditions, service income and branch profits received by a resident company
    • Other forms of income deemed exempt from tax by the Singapore Income Tax Act
  • Net investment income is adjusted: Investment income is defined as non-trade income including income in the form of dividends, interest and rental. This income is assessed separately for income tax calculation to ensure that excesses of expenses over income received from one source of investment cannot be claimed against a surplus arising from another source. For example, an excess of expenses attached to rental income cannot be deducted against interest or dividend income.A company’s net investment income is therefore calculated as a) deduct investment income from chargeable income b) deduct any investment-related qualified expenses from the company’s investment income for each type of income c) add the balance net investment income for each type of investment.
  • Qualified business expenses are deducted: Any expenses that were exclusively and wholly incurred in the production of trade income are considered to be deductible. These deductible expenses include but are not limited to office rent, R&D expenses, services fees, and wages. Non-deductible expenses include write-offs of fixed assets, private and domestic expenses, fines, motor vehicle expenses incurred through the operation of private passenger cars, etc.The total list of deductible and non-deductible expenses is significant and this article is unable to summarise it comprehensively.
  • Capital allowances are deducted: Additional expenditure attracted by the purchase of fixed assets is non-deductible, as this is considered to be capital in nature. Depreciation of the value of fixed assets is also non-deductible. That said, in place of the depreciation a company may make a claim for a deduction on the wear and tear of the fixed asset as a ‘capital allowance’. Capital allowances that go unutilised from past accounting periods as well as those from the present accounting period on fixed assets may be deducted.
  • Unutilised losses are deducted:Any qualified losses can be deducted against taxable income in Singapore. A qualified loss means a) the loss has arisen from the operation of the business and; b) it has not been previously utilised. Deduction of losses is done on a preceding year basis, which means that deduction is permitted in the year or years following the year in which the loss to the business occurred. If losses cannot be fully adjusted in the first year of assessment that they are permitted, any remainder may be carried forward to following year of assessments indefinitely until fully utilised subject to certain conditions.
  • Unutilised donations are deducted: Donations made to be approved institutions of public character may be deducted for income tax calculation purposes.

An example of the adjustment process of a company’s taxable income

Note that this only an example and your unique circumstances may differ:

OPERATION ITEM AMOUNT NOTE
Net Profit as per
Profit and Loss
Statement
X All financial
statements are
required to be
prepared according
to Singapore’s
Financial Reporting
Standards (FRS)
Subtract Foreign income not
subject to tax
X
Non-business
source income
X Such as property
income or interest
earned, etc
Capital gains  X
Special deductions X E.g. qualified
research and
development
expenses
Add Disallowed
expenses
X
Capital expenses X
Depreciation X For the purposes of
taxation companies
may not deduct
depreciation but
rather capital
allowances
Subtract Capital allowances
(current and carried forward)
X
Carried forward losses X
Add Non-business
source income
Such as interest
earned, property
income, etc
Subtract Approved donations X
Investment
allowances
X
Further deductions X Additional, one-off
or industry-specific
deductions
provided through
various government
incentives
Tax exemptions X Full or partial tax
exemptions
applicable to the company




Tax payable @ prevailing corporate tax rate X Current corporate
tax rate in
Singapore is 17%.
Subtract Tax rebates X Any tax rebates
applicable to the
company
Tax deduction at
source
X Any taxes deducted
at source



Net tax payable X
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