Tax filing isn’t just about handing your numbers to IRAS and hoping for the best. The Singapore tax system is rules-based, and the challenge for SMEs is making sure your claims, deductions, and positions are backed by proper documentation. In my experience, it’s not the complexity of the rules that trips people up — it’s the small details overlooked along the way.
Let’s look at three areas where businesses should pay attention this year.
1. Common Pitfalls in Tax Filing
Even established companies make mistakes in these areas:
- The fundamental rule under Section 14
Only expenses wholly and exclusively incurred in the production of income are deductible. This is the starting point for all tax claims. If an expense has a private element, or is not directly tied to generating income, IRAS may disallow it.
- Foreign-sourced income
Income brought back into Singapore may be taxable unless it qualifies for exemption. A common issue is not keeping evidence that the foreign jurisdiction’s headline tax rate is at least 15% — a requirement for claiming exemption on foreign-sourced dividends.
- Foreign exchange differences
Under Section 34AB, revenue foreign exchange gains or losses are taxable or deductible automatically. That means even unrealised FX differences from year-end revaluation can affect your tax position. Many SMEs don’t track this properly until their auditors highlight it.
- Interest expense
Deductibility depends on the purpose of the borrowing. If a loan is used to acquire non-income-producing assets, the interest won’t qualify. This becomes tricky when funds are pooled in one account — tracing is key.
- Capital allowances
Claims are often understated or overstated. Under-claiming means you miss out on tax savings; over-claiming risks a claw-back. The mistakes usually come from not maintaining an updated fixed asset register, especially for disposals.
- Disposal of equity investments
Gains from selling shares are not automatically capital in nature. If the transactions are frequent, short-term, or tied to your business operations, they may be considered revenue gains and taxable. The line isn’t always clear — if unsure, it’s best to seek professional advice before taking a tax position.
- Transfer pricing
Related-party transactions across borders must be at arm’s length. This isn’t just a “big company issue.” Even SMEs that pay management fees to a related entity overseas may need transfer pricing documentation. Skipping this step leaves you exposed.
2. What’s New: Key Singapore Tax Updates
Recent changes in law and IRAS guidance are important for planning ahead:
- Section 14N renovation and refurbishment deductions
Since 2008, businesses could deduct certain renovation costs. From YA 2025, the “3-year cycle” will be standardised across all taxpayers (instead of each business choosing its own). The updated e-Tax Guide (Aug 2024) also clarifies what counts as qualifying expenditure — for example, professional fees that don’t affect structural integrity can now qualify.
- Foreign asset disposals and Section 10L
From 1 January 2024, a new rule — Section 10L — taxes foreign-sourced disposal gains that are received in Singapore by an entity of a relevant group, if:- the entity does not have adequate economic substance in Singapore; or
- the gains arise from the disposal of foreign intellectual property rights (IPR).
A relevant group exists if the group’s entities are not all incorporated/established in Singapore, or if any group entity has a place of business outside Singapore. By contrast, a standalone Singapore company with only a foreign branch is not a group and outside 10L’s scope.
Meeting the economic substance requirement (e.g. having adequate local headcount, expenditure, and decision-making in Singapore, or compliant outsourcing) can keep such gains outside 10L. But if you fail that test, even capital gains on foreign shares may be taxable when remitted. If a gain is already taxed as trading income under Section 10(1)(a), Section 10L does not apply again.
3. Compliance Beyond Filing
Filing a tax return is the end step. What matters is the groundwork:
- Documentation — Keep records to back up every claim (dividend statements, loan agreements, FX workings).
- Consistency — Tax treatment should align with how items are presented in your accounts.
- Awareness — Updates like the above may look minor, but they can change outcomes materially.
In practice, IRAS expects businesses to self-assess correctly. That means the burden of proof lies with you, not with them.
Closing Thoughts
Tax compliance isn’t about being conservative or aggressive — it’s about being correct. The rules are public, but applying them properly to your business requires care.
If you’re preparing your company’s return and want clarity on these updates, it may help to have a professional review before submission. Sometimes, catching an issue early is the difference between a smooth filing and a costly amendment later. For guidance on maximising your corporate tax benefits in Singapore, contact the Raffles Corporate Services team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services