Companies Servicing Only Related Parties - Singapore
In Singapore, there's a concept of companies providing services solely to related parties.
It's very common for companies within a group to have a dedicated service company that provides support to other companies in the group. This streamlines operations and allows for specialization.
Using a separate service company can ease the administrative burden for both the service provider and the recipient companies.
Types of service arrangements:
A service company can offer services to its related parties in two main ways:
Arm's length pricing: This means charging a price similar to what an independent third party would be charged for the same service.
Non-arm's length pricing: This refers to situations where the price charged might not reflect market value.
Basis of Assessment for Service Companies
There are generally two main bases of assessment for service companies in Singapore:
1. Normal Trading Company (NTC) Basis: This is the standard method used for most companies. It involves a detailed examination of the company's accounts to determine its taxable income. This requires adjustments like:
Removing non-taxable income
Adding back non-deductible expenses
Claiming capital allowances on qualifying assets
Including tax deductions and credits
This requires a detailed breakdown of income and expenses.
2. Cost Plus Mark-Up (CM) Basis: This is a simplified method offered as an administrative concession for certain service companies. It assumes the company has mostly operating expenses and minimal non-deductible costs. Here's how it works:
Taxable income is calculated as a 5% mark-up on the total expenditure incurred.
No further adjustments are allowed for deductions or credits.
Tax concession for related party service companies:
This is where the Cost Plus Mark-Up (CM) Basis comes in.
The Inland Revenue Authority of Singapore (IRAS) offers a tax concession for companies meeting specific criteria. This concession allows them to compute their taxable income based on a cost-plus 5% mark-up.
Here's how it benefits:
Simplified tax calculations: The CM basis eliminates the need for complex adjustments to the company's accounts.
Reduced compliance costs: Since there's no need to claim additional deductions or credits, the tax filing process becomes simpler.
This simplifies tax calculations but there are conditions:
The services must be considered routine support services as defined by the IRAS (listed in Annex C of the Transfer Pricing Guidelines).
The services must be rendered solely to related companies within the group.
All costs associated with providing the services must be factored into the 5% mark-up calculation.
You forgo claiming potential tax deductions or credits that might be available under the NTC basis.
Choosing the Right Basis
The IRAS (Inland Revenue Authority of Singapore) allows qualified service companies to opt for the CM basis to reduce compliance burden.
If a company doesn't meet these criteria, they must use the NTC basis.
Important to note:
This concession is not mandatory. Companies can choose to be taxed based on arm's length pricing principles.
IRAS has the authority to audit and adjust tax assessments if they believe the pricing isn't reflective of market value.
Additional Points
The CM basis is an administrative practice, not a legal right.
The IRAS reserves the right to restrict its application.
For more information, you can refer to the IRAS website on this topic: Companies Servicing Only Related Parties - IRAS Singapore
How Bestar can Help
Bestar is able to assist you with your group company providing support services within Singapore. Here's how a tax professional from Bestar could help:
Understanding your group structure and services:
Bestar's tax professionals can review your specific situation to determine if your service company qualifies for the Cost Plus Mark-Up (CM) basis in Singapore.
We can assess if the services your company provides fall under the definition of "routine support services" as outlined by the Inland Revenue Authority of Singapore (IRAS).
Optimizing tax calculations:
Even if the CM basis isn't applicable, Bestar can advise on the Normal Trading Company (NTC) basis for filing your service company's taxes.
Their expertise can help ensure you're claiming all the appropriate deductions and credits to minimize your tax liability.
Compliance with Singapore regulations:
Bestar can ensure your service company adheres to Singapore's tax laws and filing requirements.
We can keep you updated on any changes or updates to relevant tax regulations that might impact your situation.
Bestar has a strong understanding of Singapore's tax framework. Inquire about our specific experience with group companies and service providers.
Given Bestar's focus on Singapore, we're a good option to explore for tax advice related to your situation. Contact Bestar and discuss your group structure and the services provided. We can assess your eligibility for the CM basis and advise on the most suitable approach for tax filing.
Here are some additional benefits of consulting Bestar:
Efficiency: Since we're familiar with Singapore's tax system, we can streamline the tax filing process for your service company.
Local Knowledge: Our understanding of the Singaporean business landscape can be valuable when navigating tax regulations.
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