If one trade is run through several companies or sole proprietorships so that each stays under the S$1 million GST registration threshold, IRAS can treat them as one business. IRAS says that where the purpose or effect of splitting a business is to avoid GST registration, it may disregard the arrangement and register the whole business from the date it should have registered. GST is then due on all past sales from that date, even if no GST was collected from customers. Separate entities with genuine commercial reasons are not automatically caught, but you need evidence to show they really are separate.
This may be your last chance to deal with it before an audit, an investigation or prosecution. If past declarations were deliberately wrong, IRAS treats it as tax evasion, which is a criminal offence. IRAS says a voluntary disclosure that meets all its conditions may be settled by compounding at a reduced penalty instead of prosecution. Once IRAS starts an audit or investigation into the matter, that route closes for it. Ignoring the letter, missing the deadline or making a partial disclosure throws the opportunity away. It has to be handled properly: completely, on time and with professional advice. No adviser can guarantee the outcome, but acting now is the best position you can be in.
What does IRAS mean by splitting a business?
Splitting is running what is in substance one business through two or more entities, so that the turnover of each entity looks smaller than the turnover of the trade as a whole. Typical signs include:
- the same owners, directors or family members behind each entity
- a shared address, warehouse, kitchen, vehicles or staff
- the same suppliers and customers, with sales moved between entities as each nears S$1 million
- new entities set up as an older one approaches the threshold
- one set of management accounts or one bank account used to run all of them
IRAS’s position is set out in the FAQ on its GST registration page. If it decides that the purpose or effect of splitting is to avoid registration, it may disregard the arrangement, register the entire business from the date it became liable, and require GST to be accounted for on all past transactions from that date.
How the S$1 million test is applied to each type of entity
Before considering avoidance, it helps to know how IRAS adds up turnover in ordinary cases. The rules differ by business structure:
| Structure | How turnover is counted |
|---|---|
| Sole proprietor | All your sole proprietorships are combined, together with income from any trade or profession you carry on personally (for example as a commission agent or freelancer), whether or not each business is registered with ACRA. Once registered, all of them are registered under your name. |
| Partnerships | All partnerships with exactly the same partners are combined. A partnership with a different mix of partners is counted separately. |
| Company | Each company is assessed on its own turnover, plus that of any sole proprietorship it owns. |
So two companies owned by the same person are normally assessed separately. That is precisely why the anti-avoidance rule matters: the ordinary rules would not combine them, but IRAS can still disregard the arrangement where the split exists to avoid registration.
Is having several companies always a problem?
No. Many owners run separate companies for good reasons: different lines of business, different partners or investors, ring-fencing liability, or a planned sale of one part. The question is whether each entity genuinely operates as a separate business. Evidence that helps includes:
- different activities or customer groups, with contracts in each entity’s own name
- separate premises, or a documented and charged sharing arrangement
- employees employed and paid by the entity they work for, with their own CPF records
- separate bank accounts, books and decision-making
- a commercial reason for the structure recorded when it was set up
Where the facts are mixed, a review should set out both sides honestly. A paper structure that does not match how the business runs day to day will not hold up.
What happens if IRAS treats the businesses as one?
The combined business is registered from the date it first crossed the threshold, which may be several years back. GST must then be accounted for on past sales from that date. Because customers were not charged GST at the time, it often comes out of the owner’s margin, although IRAS allows the business to recover it from customers who agree to pay.
On top of the GST itself, late registration can attract a fine of up to S$10,000 and a penalty of 10% of the GST due, and prosecution is possible. Where income was deliberately spread to avoid tax, IRAS can also treat it as evasion, and it can review the income tax position of each entity and of the individuals behind them. The IRAS case of a tax agent penalised for helping a client stay below the registration threshold shows that advisers involved in such arrangements are also at risk.
Example
Example only, not a client case. A couple runs a frozen food distribution trade. Company A was incorporated in 2021. When its turnover approached S$1 million in 2023, they set up Company B at the same address, moved about half the customers to it and later set up Company C. All three use the same cold room, lorries and drivers, and the drivers are paid from Company A. Each company reports S$600,000 to S$800,000 a year.
On these facts there is a real risk that IRAS would treat the three as one business that should have registered in 2023. A review would rebuild the combined turnover month by month, identify the likely registration date, calculate the GST on sales from that date at the rates that applied, and compare the cost of coming forward now with the risk of an IRAS audit.
What to do if this describes your business
- Map the entities. List every company, partnership and sole proprietorship connected with you or your family in the same or a related trade, with owners, directors, premises and staff.
- Rebuild the combined turnover. Use bank statements, invoices and sales records to work out when the combined trade first exceeded S$1 million under the retrospective or prospective test.
- Assess the facts honestly. Decide, with evidence, whether the entities are genuinely separate or whether the split is likely to be disregarded.
- Quantify the exposure. Calculate the GST from the likely registration date and any income tax effect.
- Come forward if needed. If registration was required, apply and voluntarily disclose the late registration. IRAS says it will generally waive the late notification fine and penalties for a voluntary disclosure, and may allow the backdated GST to be paid in instalments.
- Restructure properly. Either register and run the business as one GST-registered entity, or make the separate entities genuinely separate. Do not create new entities to restart the count.
If you have received an IRAS letter about this, read our guide to the IRAS Voluntary Disclosure Opportunity letter, which explains how the deadline in the letter works. For the mechanics of registering late, see our guide to late GST registration.
Group registration is a different thing
Companies that are already GST-registered and closely connected can apply for group or divisional registration, which lets related entities be treated as one for GST administration. That is a voluntary arrangement for registered businesses, not a way of avoiding registration.
Frequently asked questions
Does owning two companies mean I must combine their turnover?
Not under the ordinary rules. Each company is assessed separately. The risk arises where the companies are really one business divided to stay below the threshold.
Can I recover the backdated GST from my customers?
Yes, if they agree to pay it. IRAS allows either credit notes and new tax invoices, or one tax invoice for the GST amount referencing the original invoices. GST-registered customers can then claim it if they meet the input tax conditions.
How far back can IRAS go?
For GST, the normal time limit is five years from the end of the accounting period, but IRAS states that where there is fraud the limit does not apply.
For more on GST registration and filing, see our GST registration and filing services and the tax and GST hub.
Worried your related businesses should be GST-registered?
If your company, or you as a director or shareholder, runs a trade through several related entities and you are unsure whether IRAS would treat them as one, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will rebuild the combined turnover, assess the position and, if needed, prepare the GST registration and disclosure and handle the correspondence with IRAS. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles tax disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal or tax advice.
Kevin Yeo, Raffles Corporate Services