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Treating Business Losses in Singapore

Most companies are accelerated towards the aim of making profits. But changes in technology and market and some financial changes lead a huge impact on the bottom-line of the company and, thereby, it leads to huge loss. In this unexpected current economic scenario, getting increased revenue and better cash flow is one of the major challenges for both small and large scale companies. Increasing revenue and having proper control on business losses is the key to minimize the pressure.

It is important for every business owner to be aware of the provisions regarding tax and accounting treatment of losses in the business at the jurisdiction where it belongs to. This point should be noted that carry-forward system to treat losses is now running in many jurisdictions. With this system, tax losses can efficiently be utilized according to the following business profitability. Singapore is the jurisdiction where loss carry-back is allowed with advanced tax regime. With loss carry back, businesses can offset the losses of current period off last paid taxes. In simple words, companies can claim last paid tax back on the situations of suffering current losses according to this provision. For small companies, this is said to be a great relief and all types of entities can get the benefits of this scheme, even sole proprietorships and partnerships.

Treatment of Trade Losses

In Singapore, corporate taxpayers are allowed to offset their business losses against their incomes in same financial year. They can offset their business losses against income of any kind, even from interests, dividends or rent. Unused tax losses are subject to carry forward, if any, indefinitely and they can be offset against any business profits in future.

Conditions to Qualify For

When it comes to carry the business loss forward, a business has to face a shareholding test. In this way, no change will be made in shareholders and shareholdings in related dates.

These related dates can be determined as year’s last date when business was incurred loss and year’s first day when they want to deduct the losses.

In Shareholding test, the percentage of company’s shareholding will be compared which is owned by the shareholders in related dates. No change will be made in shareholdings and the shareholders who hold them, if shares’ percentage is held by those shareholders who have shares only for two related dates, and these dates can be 50% of above.

Group Relief

A company is liable to transfer unused business losses which is incurred by the company in present year to any other company in the relevant group with which it relates to. These losses will be deducted next to assessable revenue of transferee (Claimant Company) for the similar year of income assessment, and these conditions should meet. The company that is transferor of loss is allowed to transfer all of its losses to the transferee as long as they can bear.

A Quick Note to Consider for Newly Incorporated companies

The companies that are newly started should remember that they can take the benefits of tax exemption scheme. Effective from 2005, a new startup company which successfully fulfills the conditions to qualify is allowed to claim for exemption of full tax on ordinary chargeable income on first S$100000 for every 3 Years of Assessment consecutively, according to this scheme. On the subsequent $200000 of ordinary chargeable income, extra exemption of 50% is provided since 2008.

In case a newly incorporated company chooses to carry its trade losses back, the deductions that are qualifying shall be utilized to set them off against the assessable income of the company for the preceding year of assessment. When deduction is done, the company shall not be capable to get the benefit of the scheme of tax exemption as discussed above. On the other side, if company chooses to carry forward those losses which are unabsorbed and use this scheme, they can get the savings with reduced liability of tax.

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