Singapore: Corporate Income Tax – Objection and Appeal Process

To expedite the finalization of taxpayer’s corporate income tax matters, the Inland Revenue Authority of Singapore (“IRAS”) has reviewed the Objection and Appeal Process and will be appealing some changes to the administrative procedures with effect from 01 January 2014. 

The Comptroller of Income Tax will extend the deadline to file a Notice of Objection from 1 month to 2 months from the date of income tax assessment issued by IRAS as an administrative concession.

TAX TREATIES 

A Double Taxation Agreement (“DTA”) between Singapore and another jurisdiction is to prevent double taxation of income earned in one jurisdiction by a resident of the other jurisdiction and makes clear the taxing rights between Singapore and treaty countries on incomes arising from cross-border economic activities between the two jurisdictions and provide for reduction or exemption on certain types of income. 

Comprehensive Avoidance of DTA Agreements 

In year 2013, Singapore’s agreement with Belarus, Guernsey, Isle of Man and Jersey for the avoidance of DTA while the protocol signed with Belgium, South Korea, Malta, Portugal and Turkey were all entered into force. 

Limited Treaties 

Singapore and Brazil signed an Agreement for the Avoidance of Double Taxation on profits derived from international air and shipping transport and entered into force on 20 December 2013. 

The Agreement provides for mutual income tax exemption of profits derived from the operation of aircraft and ship in international traffic by air and shipping enterprises of the other country.

Agreements which are signed but not ratified 

In year 2013, Singapore signed agreements with Barbados, Ecuador, Liechtenstein and San Marino while protocol signed with Czech Republic, Kazakhstan and Luxembourg. It will enter into force after its ratification between Singapore and respective countries. 

With the above updates, Singapore has signed DTA with73 countries, limited treaties with 8 countries, Exchange of information agreement with 1 country, DTA or protocol with 10 countries. 

GOODS AND SERVICES TAX (“GST”) 

In Singapore, GST (known as Value Added Tax (VAT) in some countries) is levied at 7% on sales of goods and services consumed unless the sale can be zero-rated or exempted in accordance with provisions of GST Act. GST that the businesses charge and collect is known as output tax, which to be paid to the Comptroller of GST. GST on purchases and expenses is known as input tax to be claimed from the Comptroller of GST. 

GST on Reimbursement and Disbursement of Expenses 

Prior to 31 May 2013, a recovery of expense is considered as a separate supply (i.e. reimbursement) and hence, subject to GST, as long as it does not meet the following conditions for disbursements:

Conditions for disbursements 

a) The other party is responsible for paying the supplier 

b) The other party knows that the goods and services would be provided by that supplier 

c) The other party authorized the business to make payment on their behalf 

d) The other party is the recipient of the goods and services 

e) The payment is separately itemized when the business invoiced the other party 

With effect from 31 May 2013, for any recovery of expenses, the business will first have to establish the recovery is a reimbursement or disbursement. To determine this, the business should look at whether they have acted as a principal or agent in purchasing the goods and services and incurring the expenses in the first place. 

The term “reimbursement” refers to the recovery of an expense that the business incurred as a principal from another party. The recovery of a payment made on behalf of another party is “disbursement”. A disbursement does not constitute a supply and is not subject to GST. A reimbursement, on the other hand, may be subject to GST if it is consideration for a supply of goods or services. 

Indicators on whether the business is a principal or an agent 

a) Contractual liability and assumption of responsibilities 

b) Legal obligations to make payment or payment arrangement 

c) Alternation to the nature and value of supplies 

d) Identities of parties and transactions involved 

e) Ownership of goods (if the recovery relates to goods) 

These indicators will apply to differentiate between a disbursement and reimbursement.

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