We constantly get clients coming to us for clarification on this particular question. This is especially so during corporate tax filing season, of which the deadline is on the 30th of November, and personal income tax filing season, of which the deadline is on the 18th of April.
Let us first understand the difference between the company and the individual (i.e. personal).
The company is a separate legal entity. Hence, we need to imagine it as another “person”. In fact, under section 2 of the Interpretation Act, it is stated as such:
“person” and “party” include any company or association or body of persons, corporate or unincorporate.
Hence, the company is distinct from an individual. In this case, most individuals conflate the company with their own person. Hence the reason why when corporate tax filing deadlines are near, they feel that they have to file their personal taxes.
What are Corporate Taxes?
Corporate Taxes are simply the company profits which are being taxed. In a simple equation, this is what company profits entail:
INCOME – EXPENSES = PROFIT OR LOSS
What counts as INCOME?
Revenue (from sales of goods and services), Investment Income (like rental income), etc…
What counts as EXPENSES?
Salary paid to staff, cost of goods, rental expenses, etc…
As you can see, the salary paid to staff is included in the company’s EXPENSES. Hence, if you are a director that is drawing salary from the company, your salary is part of the company’s EXPENSES.
When we deduct EXPENSES from INCOME, we will get either a positive or negative number. If it is positive, the company has made a PROFIT for that financial period. If it is negative, the company has made a loss for that financial period. The financial period varies from company to company. For example, a company may be incorporated on the 15th of June 2021 and their financial period may be 15th of June 2021 to 14th of June 2022. Hence the financial period for this company is 15th of June 2021 to 14th June 2022. The profit or loss for this period will need to be declared to IRAS. This period will need to be declared in YA2023 (Year of Assessment 2023). The YA is the year after the year in which the financial period closed. Hence as the financial period closed in 2022, the corporate tax filing will be done in YA2023 and the deadline is 30th November 2023.
This is what needs to be taxed as Corporate Income. There is confusion if it is termed as Corporate Income Tax but this essentially means Corporate Tax.
What are Personal Income Taxes?
Personal Income Taxes are taxes on a person’s income. That may be salary or trade income. For example, if you are a director of a company and are drawing a salary. That income will be deemed as Personal Income. This is similar if you are doing a trade. For example, property agents’ or private hire drivers’ income are deemed trade income. These are their own personal income and are not attributed to a company. These will have to be declared as Personal Income.
The personal tax is usually assessed as the calendar year. I.e., the annual salary of the person. How much the person makes in a year.
I hope that this clears up the confusion. Currently, we are nearing the corporate tax filing season and hence we will need to file corporate taxes. i.e. the taxes of the company. This is why we are reaching out, as we do every year-end, to all companies to file their corporate taxes.
p.s. I did not touch on the topic of Estimated Chargeable Income (ECI). This is a separate topic.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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