CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

TOPIC 5
Taxation of
Companies / Businesses
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Outline
• Determining Taxable Liability
- Unabsorbed CA/ Tax Losses/ Donations
- Group Relief; Loss Carry-Back & Carry-
forward
• Basic Format of tax computation for
trading company
• Dividends & Distribution of Corporate
Profits
- Types of Corporate Tax Systems
- One-Tier Corporate Tax System
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Unabsorbed Capital Allowances (UCA)

• Arise when there is insufficient income or trading
losses to fully utilise the CAs

• What can companies do with UCA?

Carry Forward Carry Back Group Relief

♥Forever♥ ~1 yr max~
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Unabsorbed Capital Allowances (UCA)

• Carry forward (indefinitely) or carry back of UCAs
(one YA only) are subject to 2 conditions:

- Company continues to carry on the same trade;

business continuity test; and

- There is no substantial change in the company’s

shareholders and their shareholdings at the
relevant dates - shareholding test

Company needs to keep track of the YAs to which

the CAs relate
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Unabsorbed Capital Allowances (UCA)

• Shareholding Test

Broadly, this test is satisfied if ≥ 50% of the total no.

of the issued shares of the company are held by or
on behalf of the same shareholders on the
relevant dates

Relevant dates for c/f:

- Last day of the YA for which the CAs arose; and
- First day of the YA in which the allowances
would be claimed
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Substantial shareholdings test -

How to apply?
• CA arose in FY 2016 (YA2017), to be claimed in
YA 2020
• Relevant dates? 31.12.17 and 1.1.20
Shareholders No. of issued shares, fully paid up
31.12.16 31.12.17 1.1.20
Albert 15 10 5
Bob 45 50
Charles 40 40 40
Darren 55
TOTAL 100 100 100
A&C 50% 45%
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Unabsorbed Trade Losses (UTL) &

Unabsorbed Donations (UD)
• Arise when there is insufficient income from all
sources to fully utilise the trade losses / donations
• 3 Options:-

Carry Forward Carry Back

1 yr max for UTL; Group Relief
♥Forever♥ - UTL
No deal for UD
5yrs - UD
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

UTL & UD
• Carry forward (indefinitely for trade losses, up to 5
YAs for donations) or carry back of trade losses
(one YA only) are subject to only 1 condition:

- There is no substantial change in the company’s

shareholders and their shareholdings at the
relevant dates i.e. shareholding test

Company needs to keep track of the YAs to which

the tax losses relate
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

UTL & UD
• Shareholding Test
Broadly, this test is satisfied if ≥ 50% of the total no.
of the issued shares of the company are held by or
on behalf of the same shareholders on the
relevant dates

Relevant dates for c/f:

- Last day of the year in which the trade losses /
donations were incurred; and
- First day of the YA in which the trade losses /
donations would otherwise be claimed
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Substantial shareholdings test -

How to apply?
• UTL/UD arose in FY 2016 (FY 31 Dec 2016), to be
claimed in YA 2020
• Relevant dates? 31.12.16 and 1.1.20
Shareholders No. of issued shares, fully paid up
31.12.16 31.12.17 1.1.20
Albert 15 10 10
Bob 45 50
Charles 40 40 40
Darren 50
TOTAL 100 100 100
A&C 55% 50%
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Substantial shareholdings test -

How to apply?
• Similar facts except that the taxpayer’s financial
year end is 31 March 2016 instead?
• Relevant dates? 31.12.16 and 1.1.20
Shareholders No. of issued shares, fully paid up
31.12.16 31.12.17 1.1.20
Albert 15 10 10
Bob 45 50
Charles 40 40 40
Darren 50
TOTAL 100 100 100
A&C 55% 50%
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

UCA, UTL & UD

• If the test is not satisfied, the UCA / UTL / UD will be
forfeited unless the test has been waived
• IRAS may grant a waiver on application if it is
satisfied that the substantial change is not to derive
any tax benefit or advantage, e.g., genuine
commercial reasons.
• Where a waiver has been granted, set-off is allowed
but restricted:
• For UCA, deduct only against the income from the same
trade or business (S23(6)).
• For UTL, deduct only against the income from the same trade
or business (S37(16)).
• For UD, deduct against the S.I. for the YA in which such
donation would otherwise be deductible (s.37(16)).
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Losses Carry-Back Relief

• Carry Back 1 YA
Qualifying Deductions (QD) • Up to S$100,000
•Current year unutilised capital allowances; • All businesses
•Current year unutilised trade losses; • Shareholding test
• Same business test
• Make a claim
• election is irrevocable
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

*Budget 2021 - Losses Carry-Back Relief

• Qualifying deductions for YAs 2020 and 2021 may be
carried back up to three immediate preceding YAs, capped
at S$100,000 of qualifying deductions and subject to
conditions
• YA 2020 losses c/b periods - YA 2017, YA 2018 and YA
2019
• YA 2021 losses c/b periods - YA 2018, YA 2019 and YA
2020
• Elect for the current (1 YA c/b) or enhanced carry-back (3
YAs c/b) relief

https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/e-Tax_Guides/etaxguide_Enhanced%20Carry-
back%20Relief%20System%20(Fourth%20Edition).pdf
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Features of the scheme:
• Available to all businesses, i.e. companies,
partners of partnerships (including LLPs), sole
proprietorships and bodies of persons (clubs and
associations, trustees of trusts and executors of
estates).
• Only current year unutilised CAs and trade
losses are allowed for carry-back for one YA
immediately preceding the YA in which the
CAs were granted or the trade losses incurred.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Features of the scheme:
• An aggregate amount of up to $100,000 of
current year unutilised CAs and trade losses
(excluding donations) can be carried-back.
• Excess over this limit can still be carried forward.
• The “shareholding test” and “business continuity
test” will continue to be applied to the loss
carried-back.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Features of the scheme:
• granted on a due claim basis.
• not available to investment dealing (S10E)
companies.
• qualifying deductions of incentive company would
not be allowed against other exempt or non-
exempt income.
• not allowed against specific categories of trade
such as income from finance leases (S10D) and
income from business of rental cars (S10H).
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

General Conditions
• New businesses - Can carry-back unabsorbed
trade losses but not unabsorbed CAs as there
is no business done in prior year
• Order of set-off of CA and trade losses
- Current year unabsorbed CA, if any; and then
Current year unabsorbed trade losses, if any.
- Where qualifying deductions exceed $100,000,
and such deductions arose from more than 1
trade or more than 1 source of income, amount
to be carried back would be apportioned
accordingly
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

YA 2018, a company incurred CAs of $160,000
from the following different businesses:-
X – ($80,000), Y – ($20,000), Z – ($60,000)

The CAs were to be carried back to set off

against YA 2017 X, Y and Z business incomes.

Computation of amount of CA to be carried back from each trade on

a proportionate basis:
Business X: 100,000 x 80,000 / 160,000 = 50,000
Business Y: 100,000 x 20,000 / 160,000 = 12,500 Total = $100,000
Business Z: 100,000 x 60,000 / 160,000 = 37,500
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Specific Conditions

• Shareholding test:
- For Carry-back of unabsorbed CA:
1st day of the YA in which CA arose.
Last day of the YA in which the CA is utilised.
- For Carry-back of unabsorbed trade losses:
1st day of the year in which loss was incurred.
Last day of the YA in which the loss is utilised.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Example:
Carry-back of unabsorbed CA arising in YA 2018:
1st day of the YA in which CA arose – 1 Jan 2018
Last day of the YA in which the CA is utilized – 31 Dec 2017

Carry-back of unabsorbed trade losses in YA 2018:

1st day of the year in which loss was incurred – 1 Jan 2017.
Last day of the YA in which the loss is utilized – 31 Dec 2017
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

CAs / Loss Carry-back System

Specific Conditions
• Quantum of qualifying deductions subject to a tax
adjustment factor where the company is subject to
tax at concessionary rates.
• Carry-back relief is effected after transfer under
group relief
• Carry-back shall not exceed contributed capital of
partner of an LLP
 Group Relief
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Parent
company

Subsidiary Subsidiary
A B

• Singapore incorporated
•Current year unutilised capital allowances; companies;
•Current year unutilised trade losses; and • belong to the same group of
•Current year unutilised donations companies with 75%
shareholding threshold; and
• same financial year end.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Group Relief System

What constitute Group?
• same accounting year
And
• at least 75% of the total number of issued ordinary shares
in one company is beneficially held directly or indirectly by
the other;
or
• at least 75% of the total number of issued ordinary shares
in each of the two companies is beneficially held directly
or indirectly by a third Singapore incorporated company.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Group Relief System - Illustrations

(1) Direct (2) Common Parent (3) Indirect

Parent Parent Parent

(Local) (Local) (Local)
90%
Sub. A
75% 75% 75% 75%
(Local)
90% / 81%
Sub. A Sub. A Sub. B
(Local) (Local) (Local) Sub. B
(Local)
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Group Relief System – Further

Illustrations
(4) Indirect (5) Common Parent

Parent Parent
(Local) (Foreign)
100%
Sub A
75% 75%
(Foreign)
100%
Sub B Sub. A Sub. B
(Local) (Local) (Local)
Cannot have a foreign parent co or a foreign co interposed in between the 2 Spore cos
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Group Relief System – Further

Illustrations
(6) Indirect
Same
Companies Rationale
Parent
group?

Parent (L) & Sub A (L) Yes Meet threshold limit of direct shareholding

(Local)
of 75% ordinary shares

Parent (L) & Sub B (L)
100% 100%
Parent (L) & Sub C (L)
[Shareholding = (100%x30%) + (100%x45%)
Yes Meet threshold limit of direct shareholding
of 75% ordinary shares
Yes Meet threshold limit of indirect
shareholding of 75% ordinary shares

Sub. A
i.e. 75%]
Sub. B Sub A (L) & Sub C (L) Yes Both Sub A (L) and Sub C(L) are at least

(Local) (Local) 75% owned, directly or indirectly, by

Parent (L)

Sub B (L) & Sub C (L) Yes Both Sub B (L) and Sub C(L) are at least
75% owned, directly or indirectly, by

30% 45% Parent (L)

Sub A (L) & Sub B (L) Yes Both Sub A (L) and Sub B(L) are at least
Sub. C 75% owned by Parent (L)

(Local)
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Certain non-qualifying losses

• Losses of foreign branches
• Losses from tax exempted trade/activity
• Losses from finance leases, hiring of motor veh
businesses.
• Losses from investment holding and making
companies.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Rules to observe
Specific transfer order:
- Current year unutilised CAs
- Current year unutilised trade losses
- Current year unutilised donations.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Rules to observe
• When the transferor company transfers the
loss items to more than one claimant
company, the loss items must be fully set off
against available income of the first claimant
company before any excess amount can be
set off against income of the second claimant
and so on.

• Once the transferor company and claimant

company specify the priority of the companies
they want to transfer to or claim from, it is
irrevocable.
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Sample Tax Computation – No losses and FTC

Net Profit (Loss) before tax XXX
Less: Non-taxable/exempt income (XX)
Less: Non-trade (separate source) income (XX)

Add: Non-deductible expenses XX

Add: Taxable income not included in P&L XX

Less: Special (14Q)/ further deductions (XX)

XXX
Adjusted Profit [(S10(1)(a)] XXX
Less:
Capital allowances b/f XX
Current Year Capital allowances (XX)
Adjusted Profit after CAs XXX
Add: Non-trade (separate source) income XXX
Statutory income XXX
Less approved donations XXX
Chargeable income XXX
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

Sample Tax Computation – losses and FTC

Adjusted Profit after CAs XXX
Less: Tax Losses from prior years (XXX)
Add: Non-trade (separate source) income XXX
Less: Approved Donations (XXX)
Less: Group Relief Claim (XXX)
Chargeable income (XXX)
Less: Full / Partial tax exemption (XXX)
Net Chargeable Income XXX
Tax payable thereon @ 17% XXX
Less: Foreign Tax Credits (if applicable) (XXX)
XXX
Less: 25% rebate (capped at $15,000) – YA 2020 XXX
Net Tax Payable XXX
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

One-Tier Corporate Tax System

• Corporate tax paid by company is a final tax.

• Dividends received by shareholders are tax-

exempt.

• Unlimited flow-through of exempt dividends.

CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

IN SUMMARY…
• The 3 options available on unutilized trade losses,
capital allowances and donations
- carry forward
- carry back
- group relief
• The conditions / requirements for each options, in
particular the shareholding test (the relevant dates)
• Tax computation format
• One-tier tax system
CHAPTER 5 SIT Internal TAXATION IN SINGAPORE

END