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Tax Planning For SMEs

Keeping thorough records from the start is good practice.

Paying taxes is one of the more uncomfortable realities of running a business. The good news is that it's all a matter of how you look at it. Consider taxes as what you give in exchange for the privilege of operating your company in a healthy business setting. Paying them means making a contribution to the continued enhancement and development of that setting. Besides, even in what is generally perceived as the high tax environment in Singapore, taxes don't necessarily have to be painful for your fledgling small enterprise.

The government takes great pains to assist small and medium enterprises, particularly in difficult times. In 1998 and 1999, a 10 percent corporate tax rebate was given to assist firms struggling through tough times. It also granted a 10 percent personal income tax rebate to help sole proprietorships and partnerships.

However, the economy's recent rebound has released the government from this crisis measure. Currently, a five percent tax cut is given to maintain competitiveness in the region, while a 5 percent personal income tax rebate remains.

For its part, the Economic Development Board is committed to the support and promotion of SMEs, and has taken steps to help promising local enterprises become larger business entities. For example, it offers enhanced support in the form of tax incentives and equity partnership investments through their Cluster Development Fund.

Local tax consultants say, however, that there really aren't many tax rebates or incentives that newly established businesses can qualify for. They say most of the government assistance in the way of tax rebates applies only to businesses that have already been in operation for two or three years, and have a track record to show. Since most businesses incur a loss in the first year of operation, taxes aren't an immediate priority.

Still, tax professionals stress that keeping accurate records and thorough books at this early stage prevents any problems that might ensue during tax season, once profit begins to accrue.
Taxes can be computed more efficiently, if proper accounting and taxation documents are available. Among others, this means keeping receipts, bank and credit card statements for the purchase of equipment and supplies.

The American Express Business Card, for example, provides members with a detailed categorisation of the expenditures. In addition, a Quarterly Management Report is issued to all Business Card Members. This provides the monthly breakdown of Cardmember expenditure. Keeping these documents will help busy entrepreneurs during tax reporting.

Get Professional Help

A good certified public accountant (CPA) can help you with the formation of your company. He can set up the books and records and provide you with a roadmap of potential red-flag tax issues concerning your business. A professional tax consultant is also equipped to prepare your returns and monitor your business charges, and suggest tax strategies.

An attorney will help you structure your company and deal with business operations like contracts and Limited Liability Company (LLC) or corporate resolutions. He should be familiar with business planning and the company formation, and should have at least a general understanding of the tax issues that your company faces. Its the exit strategy is so important, he should understand estate planning concepts and how estate taxes could impact you.

When you interview a CPA or attorney, ask them to describe their experience as it relates to your business. How many cases or clients have they handled? Have they represented clients on audits and if so, what were the issues and the results? Your attorney should form new companies on a regular business and should be familiar with the legal issues facing your industry. What types of matters have they handled and how were they resolved? If they do not address your specific concerns or cannot answer your questions to your satisfaction, go elsewhere.

If hiring a consultant is impossible due to the high costs, tax consultants recommend that entrepreneurs read up on compliance. There are a number of tax guides and books available. For direct information, you can visit the Web site of the Inland Revenue Authority of Singapore or study their brochures. It's very important to give yourself access to information and keep abreast of current events.

The government levies personal income tax, company income tax, property tax, estate duty and stamp duty. In the case of sole proprietorships and partnerships, tax reports are the same as that of personal or individual income tax, provided that gross profit does not exceed $500,000.

Since 1994, the IRAS has been using Income Tax Form B for sole proprietors and Form P for partnerships. Both require a straightforward four-line statement including Turnover, Gross Profit/(Loss), Allowable Deductions and Adjusted Profit/(Loss). In addition to this statement, it is best to prepare a certified statement of accounts and accounting records of all business transactions, particularly if your business turnover is less than $500,000.


According to Goh Tianwah's Handbook for Businessmen, allowable deductions include capital allowances claimed and the expenses incurred wholly and exclusively in the earning of profits. Deductions allowed are wages, bonus and CPF contributions, rent charges of the business premises, PUB and telephone bills, travelling expenses incurred in the course of business (not including travel to and from work) as well as upkeep of vehicles.

Assets purchased and their wear and tear, are given capital allowances. Entrepreneurs may calculate capital allowances in three ways: a one year write-off, a three year write-off, and a write-off over the working life of the asset.

Sole proprietorships and partnerships also have the option of deducting cash gifts to charity. Retail businesses that sell goods may also deduct any donations that they make in kind, for example, excess inventory they may have that would be of use to charitable institutions. These gifts to charity may be claimed under the donation section Form B/P.

In addition, if your company takes out a loan, a percentage of the business interest expenses may be deducted. Similarly, some businesses may deduct a portion of their credit card fees and finance charges for business transactions. Be sure to discuss this with a consultant as you prepare your statements as well as any other areas that might apply to your business.

Once the profits begin to roll in, you will then be qualified to apply for tax incentives and rebates. What's more, the measures that you took in terms of records and bookkeeping when your company was in its nascent stages will serve you well as your company begins to grow and thrive.

"This article was contributed by Christopher Lai, Director-Head of Business Development, Small
Business Services, CSG, American Express International Inc."

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