The Inland Revenue Authority of Singapore (IRAS) recently updated its upcoming and ongoing areas of focus over compliance with corporate tax Singapore.

Upcoming Area of Focus: Withholding Tax

The upcoming area of focus is on the compliance with Withholding Tax (WHT). The audits will focus on the correct application of WHT on payments to non-residents (payees), such as interest, royalties, technical service fees, management fees, and director’s fees. The rate of WHT varies depending on the payment type and the payee’s country of residence.

Companies must comply with Singapore’s WHT requirements to avoid late payment penalties. Companies that have failed to comply with WHT requirements are encouraged to voluntarily disclose errors and omissions to IRAS before they are uncovered in an audit to benefit from reduced penalties.

Ongoing Areas of Focus: Digital economy

One ongoing area of focus is the audit of businesses operating within the digital economy, such as content creators and social media influencers. IRAS has observed common compliance errors, including omitting or understating income from sponsorships and gifts, incorrect claims for non-business-related expenses like personal entertainment and travel, and inadequate record-keeping of actual income and expenses.

IRAS highlighted that all monetary and non-monetary income (including goods and services) from social media activities is taxable. Non-monetary benefits are taxable if they exceed S$100 or are provided on a recurring basis.

Only expenses incurred solely for generating income (e.g., website maintenance) are deductible. Personal expenses, even if partly used for business, are not deductible. Business owners should keep tax invoices issued and received.

It would also be worthwhile to pay particular attention to barter trades, which is a common transactional practice with businesses in digital economy. To maintain proper documentary evidence, businesses should be issuing sales invoices and requesting for supplier invoices at its full selling price (ie. gross value). Goods-and-Services Tax (GST) would then be levied on the basis of these gross values. Barter trade transactions have also been highlighted as an area of non-compliance detected from recent IRAS GST audits.

Other updates in ongoing areas of focus for compliance includes:

• Claiming of Private or Non-Deductible Expenses; and
• Deductibility of Interest Expenses and Borrowing Costs

Generally, expenses must be wholly and exclusively incurred in the production of income, solely for business purposes, for these expenses to be deductible. Hence, expenses incurred for non-business element, such as family meals, vacation/overseas holiday expenses and domestic groceries, or excessive remuneration paid that did not commensurate with actual services provided, would not be deductible. Similarly, interest expenses and borrowing costs incurred on loans or borrowings obtained for non-income producing purposes, are not deductible.

IRAS Voluntary Disclosure Programme (VDP)

IRAS encourages taxpayers to come forward voluntarily, in a timely manner, to correct errors made and is prepared to reduce penalties for voluntary disclosures which meet qualifying conditions. Various voluntary compliance initiatives have also been rolled out as follows:

Tax Governance Framework (TGF): This voluntary initiative encourages companies to adopt good tax governance practices, including compliance with tax laws, establishing a governance structure for managing tax risks, and fostering a transparent relationship with tax authorities.

Tax Risk Management and Control Framework for Corporate Income Tax (CTRM): Targeted at large companies with complex structures, CTRM guides firms in establishing robust internal controls to identify, mitigate, and monitor key corporate income tax risks.

Assisted Compliance Assurance Programme (ACAP): This program provides a holistic framework for businesses to proactively self-manage their Goods and Services Tax (GST) risks, integrating tax risk management into their corporate governance.

Assisted Self-help Kit (ASK): ASK is a comprehensive self-assessment compliance package designed to help businesses review the accuracy of their GST submissions and identify past errors early, qualifying them for IRAS’ Voluntary Disclosure Programme.

Compliance with tax rules can be challenging. The VDP programmes and initiatives reflect IRAS acknowledgement that errors potentially arise from lack of awareness of rules and obligations, which are also constantly being added, revised or expanded. To support your business on compliance matters, business owners should consider outsourcing their bookkeeping services to firms providing tax and accounting services in Singapore.