What is ECI filing?
In Singapore, businesses' taxable income is required to be filed directly with the Inland Revenue Authority of Singapore (IRAS). Business owners may file their tax return directly on an online portal known as myTax Portal. Alternatively, the filing process and associated tax computation can be outsourced to tax agents who will provide assistance with issues pertaining to corporate income tax.
Estimated Chargeable Income ("ECI"), as its name suggests, is an estimated figure of a company's tax liability. The concept of e-filing ECI encourages early tax planning and timely payment of taxes. Companies e-filing ECI early also get to enjoy installment payment arrangements.
ECI is an estimate of your company's taxable profits (after deducting tax-allowable expenses) for a Year of Assessment (YA). All Singapore-registered companies will be required to prepare the tax computation unless otherwise they are exempted. The ECI is usually prepared based on audited accounts (if available) or management accounts.
What is the difference between form C and ECI?
Corporate tax filing, known as form C filing, is a mandatory filing requirement for all companies. To smoothen the tax filing process, there are simplified income tax return forms such as form C-S and form C-S (lite). Either way, all form C and their variations have the same annual return filing deadline—30 November of each year. It is important to ensure that companies adhere to these submission deadlines to avoid late payment penalties. For more information on Form C filing, you may refer to this article.
It is crucial for a firm to submit an accurate tax calculation based on proper accounting records. The corporate tax payable submitted via the myTax Portal will be regarded as final, and usually, an additional notice of assessment will be issued shortly after. Inaccurate income records or incorrect submissions may lead to further investigation and queries by the corporate tax division of IRAS.
ECI, on the other hand, is usually based on management accounts. The financial statements, such as balance sheets and income statements used in the ECI, are usually unaudited as some companies may require more time. The ECI is an estimated figure, while Form C reports the company's actual tax liability. The tax computation under form C may differ from that of the ECI, and the additional tax liabilities will be paid to IRAS upon an additional notice of assessment. One can understand that ECI is an estimate while form C is the final tax submission that will require accurate tax computation.
Who is Required to File ECI in Singapore?
So, who is required to file an ECI in Singapore? All Singapore-registered companies are required to file an ECI within three months of the end of their financial year.
There are, however, certain exceptions:
Companies with an annual revenue of S$5 million or below qualify for an ECI filing waiver, provided they did not have any ECI for that financial year. (NIL ECI)
Companies without ECI for a financial year are eligible for an ECI waiver, provided the income is calculated before deducting any tax exemptions.
Special circumstances companies might be exempt from ECI filing. These include:
Foreign ship owners or charterers whose local shipping agent has submitted/ will submit the Shipping Return, Foreign universities, Designated unit trusts and approved CPF unit trusts, Real estate investment trusts that have been granted the tax treatment and cases specifically granted the waiver to furnish ECI by IRAS.
When to File ECI
Companies are expected to file ECI within 3 months from the end of the financial year (FY). IRAS will notify your company to file its ECI in the last month of the financial year. If your company did not receive the notification and does not meet the ECI exemption conditions, it must still file within 3 months from the end of the FY.
Benefits of on-time ECI filing in Singapore
Flexible payment options, including installment plans, are the first benefit for many companies. Considering that cash flow is essential in a tight business environment, IRAS allowed installment plans with the early filing of ECI. Companies that e-file their ECI statements early will enjoy longer installment plans than companies that file on time.
These installment plans are likely to offer the company better tax planning. Installment payments for corporate taxes will enhance cash flow management and financial efficiency.
Late ECI Filing Penalties
If you miss the ECI submission deadline, you will likely receive a Notice of Assessment (NOA). Companies who disagree with the estimated tax assessment may file an objection within two months of receiving the NOA, providing reasons for the late filing and the proposed revised ECI amount. Avoid late filings, as repeated offenders may be subjected to further actions.
Incorrect ECI Filing (ECI vs Form C discrepancy)
Although it is highly encouraged to file your ECI accurately, most audited financial statements are not ready within 3 months of a company's financial year-end. Actual revenue figures or other accounting treatments may result in an adjusted profit. As such, there might be instances where the company's form C filing and ECI amount differ. If the difference is large, IRAS may request reasons behind the discrepancy. It is, therefore, essential to provide a tax calculation as accurately as possible for submission on the IRAS myTax Portal.
How To Calculate Your Company's ECI
Corporate tax compliance is an obligation for all Singapore-incorporated companies. It is, therefore, essential to comply with tax regulations. Companies with complex core business activity, multiple income sources, or different tax brackets may consider engaging corporate tax services from a professional accounting firm to ensure adherence to tax regulations and prevent incorrect calculations of ECI. Professional assistance in filing taxes, though not a legal requirement, not only reduces compliance mistakes but may also facilitate accurate tax planning in the long run.
Like any tax computation, the ECI computation begins with the company's financial statements. However, considering that the ECI deadline is within 3 months of the financial year-end, a company's financial statements may not yet be finalized. Hence, a reasonably accurate management account will be used for computation. Consider all sources of income, such as investment income, dividend income, and rental income. Determine the taxability of each source of income, and when unsure, consult your tax agent or professional tax consultants.
It is crucial that only allowable business expenses are recorded for tax deductions. Capital allowances and CIT Rebates are other areas that companies will have to look into in addition to the deductibility of expenses. For more information on business expenses, you may refer to our previous article.
Conclusion
With many companies adopting the financial year end of 31st December, the ECI deadline would be 31st March. With less than 2 months away, a business entity may consider starting to finalize its accounting records and begin preparation for ECI filing. Business owners may also start to access accounting records and finalise their financial statements. For startup companies, companies with complex business finance, or firms with multiple core business activities, avoid last-minute filing as this may increase the risk of compliance mistakes. Being business-compliant and having good tax planning will go a long way in facilitating business growth.
References
https://www.iras.gov.sg/taxes/corporate-income-tax/estimated-chargeable-income-(eci)-filing
https://www.businessgo.hsbc.com/en/article/guide-to-singapore-estimated-chargeable-income-eci-filing
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DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily represent the views and opinions of any individuals or organizations with which the author may be affiliated, either in a professional or personal capacity, unless explicitly stated.
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