5 Common Mistakes Your Startup Makes When Filing Tax Returns in Singapore

All corporate entities are required to file tax returns. Singapore companies are given enough time to prepare and submit corporate tax returns, ranging from 11 to 22 months, depending on their accounting period. Failure to comply with these deadlines may result in penalties.

However, apart from meeting the deadline, companies can still get penalties by making mistakes in filing. Here are some of the common mistakes startups make when preparing and submitting their tax returns.

Failing to keep business records

The first common mistake for sole proprietors, individuals, and corporate taxpayers is failing to keep business records. Compiling all the business records is crucial to file tax returns accurately because they work as supporting documents to substantiate the filed tax return claims made by the company.

So long as you have a permanent company in Singapore, the claims need to be based on actual amounts spent on purchases and other expenses backed up by receipts and invoices with unique serial numbers. Failure to maintain business records can increase the risk of reporting inaccurate tax returns during the filing season.

Excluding invoices

Another common mistake is to exclude invoices, thereby understating the taxable income of the business.

According to IRAS, all Singapore companies must keep an accurate record of their accounts and financial statements with the guidance of accounting services. More specifically, the records must include numbered receipts and invoices pertaining to the company's rendered products and services.

Disregarding these details will be seen as an offence. As a result, the company will receive a penalty.

Filing expenses incorrectly

By failing to keep business records and excluding invoices, corporate taxpayers risk filing expenses incorrectly. This means, rather than providing an accurate actual amount based on valid supporting documents such as serially-numbered invoices and receipts; they only provide estimates, which affect their tax return claims.

For this reason, it's vital for companies to hire accounting outsourcing services from accounting firms in Singapore to ensure that business documents are properly maintained, and expenses are accurately filed.

Claiming tax deductions for non-deductible expenses

When documenting expenses, companies must distinguish between official business and employees' expenses. Often, companies will make the mistake of claiming deductions on taxes for non-deductible expenses, which may include unofficial activities like club memberships, vacation trips, or out-of-town gatherings.

To avoid this mistake, deductible expenses are categorized into three distinct types:

1. Statutory expenses: This includes any expenses made for the purpose of statutory compliance.

2. Direct and indirect expenses: Direct expenses refer to real estate, insurance, or company management expenses. On the other hand, indirect expenses cover Director's fees, retirement contributions, office rentals, employee salary, etc., that are obtained in the country.

3. Regulatory expenses: This covers any expense relating to bank charges, company secretarial fees, and Singapore accounting services. Knowing this information can help businesses distinguish the expenses necessary for tax deductions and which aren’t.

Providing compensation for family members

Startup stakeholders should also avoid providing unjustified remuneration to their relatives (i.e., spouses, children, parents, or siblings) who are not employed in the company. According to the Tax Act, this is considered a disallowable expense that cannot be deducted from the company’s income because they were not incurred exclusively and completely to generate profit.

As such, companies are required to compensate related parties that have contributed to the company’s income due to their skills and quality of service. Otherwise, compensation is not allowed.

Conclusion

Corporations big and small are susceptible to making these mistakes when filing tax returns. However, by seeking professional help, they can minimize their risk of making these mistakes and incurring penalties. In fact, hiring accounting professionals is an efficient solution to solve tax-related concerns without the hassle so entrepreneurs can focus on advancing their companies.