Books of account are necessary for any business. It enables it to know its financial status as to whether it is currently making income, or is losing money. This enables the business to make more informed business decisions as it can readily determine the direction that it has to take merely by checking its books.
It also makes it easier for the business to comply with any tax requests that it may receive from the government as it can readily support its claims again by merely having its books ready for checking.
Requirement to keep books
Corporations are required to keep and maintain their own books of accounting documenting income and any profits received as well as listing business expenses. All records in the books should be supported by documents like invoices, receipts, vouchers, and the like.
In this day and age, having electronic records is very valuable as this can make record keeping easier. Entering records can be very simple and finding a specific one may be done merely by entering a string of commands through a computer, instead of the previous practice manually poring over heaps of paper and searching through files in order to see a particular record.
Records to verify income and claims for deductions
Listings of income must be recorded in the books and should always be supported by documents noting the flow of income to the company. This can include vouchers, the cash register tape, and the sales book. Rental agreements, bank statements, and credit notes can also be used to support income. Generally, these records and documents should be able to explain all transactions relating to a business’ income.
On the other hand, the documents needed to support claims for deductions mainly include receipts, payment vouchers, sales and tax invoices, and the purchases record book which notes the acquisitions of the company. Like the records and documents on income, the ones relating to expenses must be able to explain all the transactions relevant to it.
Guides on record keeping
The Inland Revenue Authority of Singapore, or the IRAS for short, has guides on record keeping readily available online. There are guides available for both GST-registered business, and non-GST registered business, as well as for non-GST registered small businesses. They contain valuable information on how to keep and maintain records for tax compliance, as well as certain tips on how to make record keeping easier. There are also sections on which records are necessary, and how to list down the records of the business. These guides are a good way to know more about keeping a business’ books of account, both for monitoring the performance of the business and for complying with government tax laws.
The Goods and Services Tax, or GST, is an indirect tax of 7% imposed on the sales of goods and services, as well as for the importation of products to Singapore. All sales of goods and services are subject to GST unless such sale is shown to be zero-rated (with a GST of 0%), or tax-exempt (no GST imposed at all).
A business is required to register for GST when:
- Its taxable turnover for the past 12 months ending Mar, Jun, Sep or Dec (referred to as “quarter”) is more than $1 million, or when
- It is making or intending to make taxable supplies and there is a reasonable expectation that its taxable turnover in the next 12 months to be more than $1 million.
- It prefers to register for GST, even if it does not exceed $1 million in taxable turnover.
The concepts of input tax and output tax are important in GST. Input tax refers to the GST that the business pays on relevant business expenses. On the other hand, the output tax refers to the GST the business charges to its clients in the sale of goods or services. If the output tax is greater than the input tax, the business must pay excess to the IRAS. If, however, the output tax is smaller than the input tax, the excess shall be refunded by the IRAS to it.
The GST is also known as the Value-Added Tax, or VAT, in certain countries.
Financial year end
A business may choose to have its financial year may end in December like a normal calendar year. It is also possible to have your financial year end on any other month other than December, in which case the financial year will be the 12 months immediately before, and including, the year end. It is important to set when the financial year of a business will end. This is because taxes are collected with the allowable deductions only within the confines a financial year. For example, if a business has December as its financial year end, only its income from January to December will be taxable, and generally, only business expenses incurred during the same period may be claimed as valid deductions. Any and all income gained or expense incurred that does not fall within this period will generally be not included.
Annual filing requirements
In filling the annual reports and returns, the procedure bellow is usually followed by corporations
- Preparation of Financial Accounts
The business should prepare its financial accounts following the Financial Reporting Standards. These must have a Statement of Comprehensive Income, a Statement of Financial Position, a Cash Flow Statement, and Statement in Changes in Equity
- Filing of Estimated Chargeable Income (ECI)
The business will then have to declare its revenue amount and its Estimated Chargeable Income, or ECI, for the financial year. This is done through the filing for the ECI form with the IRAS not more than 3 months after the close of the company’s financial year.
- Audit of Financial Accounts
When necessary, the financial accounts of the company shall be subject to further audit.
- Annual General Meeting (AGM)
Every company in Singapore is required to hold and AGM once every calendar year for and the agenda usually include a presentation of its accounts.
ACRA and IRAS requirements
Singaporean companies are required to file an Annual Return with the Accounting and Corporate Regulatory Authority, or ACRA, 1 month after its AGM. This return must contain information on the company’s address, directors, and auditors. The company’s accounts are also attached in this Annual Return.
An annual tax return must also be filed with the IRAS by November 30. Failure to comply with this requirement can be grounds for penalties not only for the company but also as against its directors and officers.