As an incorporated company in Singapore, you are required to file an Estimated Chargeable Income (ECI) for each Year of Assessment (YA). As a new company or one looking to do business in Singapore, it is important you understand all about your company’s ECI.
As an integral part of corporate tax filings, it’s best to begin by simplifying your understanding of this financial concept.
What is ECI?
At the end of every financial year, businesses are believed to have made an accumulated amount of income. Since taxes must be paid, the ECI determines what aspect of the company’s income will be taxed in a given year.
This taxable income is the total income when all tax-allowable deductions and other expenses have been deducted. Your taxable income refers to your company’s primary income and not other indirect income it may have received during the assessment year. In other words, sales of company property, shares, or dividends will not fall under taxable income when calculating an ECI.
An ECI is mandated by law and enforced by the Inland Revenue Authority of Singapore (IRAS) to give the Singaporean government insight into its nation’s corporate performance.
Who Needs to File ECI?
If you have a company incorporated in Singapore, you are required to file an ECI within three months after the end of your assessment year. More often than not, the IRAS will send a notification to a company as a reminder to begin preparations to file an ECI. This notification is made within the last month of the company’s financial year.
However, where companies fail to receive the notification, they are still under statutory laws to file an ECI by the end of their financial year.
Only companies that meet the requirements for an ECI exemption are not required to file. In other words, all incorporated companies in Singapore must file an ECI unless the company meets the requirements for an ECI waiver or are not, by law, required to file an ECI.
A company is eligible for an ECI waiver if its total income for any Year of Assessment (YA) is SG$5 million or below. Again, total income will not include any secondary income outside the company’s primary source of income.
A company is also eligible for an ECI waiver if it did not have an ECI for that financial year. In this case, this ECI would be the income before deducting any tax exemption the company enjoys.
On the other hand, some companies are specifically exempted from ECI. These companies are mostly foreign entities like universities or charterers/owners with a homegrown shipping agent who has already filed an ECI. It also includes some real estate trusts that enjoy tax treatment under the Singaporean Income Tax Act.
Benefits of ECI
Like with other forms of taxes, several benefits can be gotten. Although it may seem that most SMEs are eligible for an ECI waiver, whenever it becomes mandatory, they can also enjoy the benefits of filing an ECI.
As corporate entities, filing an ECI qualifies companies for a Corporate Income Tax (CIT) rebate. In addition, to encourage companies to file ECI, they are eligible to benefit from a tax rebate as high as 20%. This, of course, is highly dependent on the total taxable income.
To ensure fairness, irrespective of the company’s size and yearly income, the tax refund is capped at SG$10,000. While it may not seem much for larger corporations, it’s a necessary motivator for mid-sized companies.
Flexible Payment Options
As a mandatory obligation for companies in Singapore (unless officially exempted), the IRAS has a reward system to encourage early filings. In other words, when a company submits its financial statement on time, the IRAS offers the company flexible payment options in installments. It also gives an additional benefit when electronic files are sent instead of paper files.
Since companies are instructed to submit within three months after the end of their assessment year, companies that file ECI in the first month are offered ten installment payments for electronic files and five installment payments for paper files.
When filed in the second month (after the end of the financial year), the company is eligible to make eight installment payments for electronic files and four for paper files.
Electronic files can be paid in six installments when the ECI is filed in the third month, while paper files can be paid in three. However, filing after three months can attract penalties.
ECI Filing Process
Deciding to file an ECI may be the first step, but it is also essential to ensure it is done correctly. Here are all the points to note when it comes to the ECI filing process.
According to the IRAS, companies are expected to file their ECI within three months after the end of their financial year. To further encourage submission during this period, incentives are offered for early filings.
Step-by-step filing process
As the Year of Assessment (YA) gradually ends, begin your ECI filing by following these steps.
Step 1: Authorisation and approval
Whoever is filing the ECI has to be given authorisation and approval by the company to help file corporate tax. After authorisation and approval, according to the guidelines in CorpPass, the person will be designated “Approver”.
Step 2: Get the necessary documentation
Have your company’s Unique Entity Number (UEN) close, as well as your CorpPass login details. These are the most important to proceed to the next step. First, however, you should have the necessary accounting records to fill out the forms.
Step 3: File your ECI
Visit the official IRAS website on mytax.iras.gov.sg to begin filing. In addition, there are guides on the website to instruct you on how best to file ECI as a company or tax agent.
Penalties for Non-compliance
To ensure non-compliance with filing ECI, IRAS has laid out penalties for defaulters. The penalties are for late filing and failure to file ECI.
As a penalty, the company will be issued a Notice of Assessment (NOA). This will be an estimate obtained from your previous filed ECI (for older companies) and other available information the IRAS has about your business and industry.
Since the three-month grace period has expired, the company is no longer eligible for installment payment options. When an estimated NOA is issued, the company must pay the accruing amount in a single payment. This payment must be made no later than a month after the notice was given.
Further refusal to pay the NOA will attract enforcement of payment by the appropriate authorities.
After an NOA is issued, the company can file an objection. However, the total amount on the NOA must be paid before the objection is considered. When the objection favours the company and results in a reversal of the NOA, the company will be compensated by refunding the excess payment.