A basis period is the specific accounting period for which a business’s or individual’s profits are assessed for tax purposes. In Singapore, this is typically the financial year ending in the preceding calendar year for a particular Year of Assessment (YA).
How it Works in Singapore
For tax purposes, Singapore uses a preceding year basis. This means the profits you earned in your financial year are taxed in the next calendar year, which is known as the Year of Assessment. The basis period is simply the 12-month period of your company’s financial year.
For example, if your company’s financial year ends on December 31, 2024, the basis period for the Year of Assessment (YA) 2025 is from January 1, 2024, to December 31, 2024.
Here’s another common example:
- Financial Year End: September 30, 2024
- Basis Period: October 1, 2023, to September 30, 2024
- Year of Assessment: YA 2025
The Inland Revenue Authority of Singapore (IRAS) assesses the income from this basis period to determine the corporate tax payable for YA 2025.
Basis Periods for New Companies
When a new company is incorporated, the rules for determining the basis period for the first two Years of Assessment can be slightly different:
- First YA: The basis period starts from the date of incorporation and ends on your chosen financial year-end date.
- Second YA: The basis period is the 12 months of your second financial year.
It’s crucial for new companies to correctly identify these initial basis periods to ensure timely and accurate tax filing.
Changing Your Basis Period
A company might decide to change its financial year end, which in turn changes its basis period. When this happens, you must notify IRAS and provide a valid reason for the change, such as aligning with a new parent company’s financial year. IRAS will need to approve this change, and there may be specific rules regarding the length of the new basis period to ensure no profits escape taxation.