Accounting in Singapore for Small Businesses

Oct 13, 2014 | Sharon Cheong

Business accounting is an important aspect of managing a startup business or a small company. It involves budgeting cash flow, forecasting growth, adhering to tax regulations, and many other tasks.

Investors and entrepreneurs are keen on establishing their businesses in Singapore because of the ease in establishing and operating a company in the country, as well as attractive personal and corporate tax rates.

Since 2005, newly established start-up companies in Singapore that meet specified requirements are exempted from paying taxes. The tax exemption scheme was created to help the growth of local enterprises and to support entrepreneurship in Singapore.

As of 2008, qualified new startups receive a SGD 200,000 tax exemption for normal chargeable revenue of SGD 300,000.  For establishments that do not qualify in the tax exemption scheme, partial tax exemption is possible. This tax exemption scheme currently does not apply to investment holding companies and property developers incorporated after February 25, 2013.

Tax and Mandatory Contributions

Singapore adheres to a territorial basis of taxation where individuals and companies are taxed on income earned or acquired in Singapore.  Corporate tax rate is fixed at 17%. A single-tier corporate tax system is applicable to businesses, wherein tax paid on a company's profits is not charged to shareholders. In short, dividends are tax-free in Singapore. Personal tax rate for residents is from zero to 20% for earnings above SGD 320,000, while the fixed tax rate for non-residents is 15% of earnings.

Other mandatory contributions of business establishments in Singapore are: Social Security contributions, value added tax or goods and services tax (GST), property tax, and road tax.   Not included in the list are other types of taxes imposed by the IRA to other types of establishments.

Small Business Accounting

The Inland Revenue Authority (IRA) and Accounting and Corporate Regulatory Authority (ACRA) of Singapore require all registered companies in the country to submit their business accounting books to them annually. This is not an easy task as it takes a lot of time, effort, and resources to prepare all pertinent financial data. As a result, hiring the services of qualified accountants or accounting firms has become the norm for most small businesses.

Competent accountants are able to produce the required documentation in the format set by ACRA and IRA on a weekly, monthly, quarterly, or annual basis. This way, business owners are assured of on-time submission of these documents to the concerned government bodies.

Tips to Keep a Small Business Accounting in Order

A great number of establishments in Singapore are using accounting software instead of maintaining manual books to keep their accounting in order. The following tips are applicable to both types of bookkeeping.

Separate personal and business expenses. One should not use the business credit card or cash to pay for personal expenditure.  Keeping separate credit cards and bank accounts for personal and business use will help keep track of a business's cash flow. Though there are applications that can handle crossover expenses, it is better to handle personal and business finances separately.

Set aside time to organize finances. It will take less than 30 minutes per week to take care of the business's bookkeeping. This will enable business owners to have a deeper insight into their business, thereby preparing them to make more informed financial decisions.

Track all expenses. Employee compensation is one of the biggest expenses in every company. A financially competent employer tracks the cost of wages, overtime pay, benefits, and all other costs pertaining to labor. Tracking labor expenditures will allow an employer to see if the company is spending too much on employee compensation and benefits, or if it has some extra budget to reward its employees.

Track all due payments. New startup owners get so caught up in the day-to-day operations of their business that they overlook customer payments and invoices. The business may be collecting payments late, or worse, failing to collect payments. The ideal practice is to track all due payments, record paid invoices, and note which customers are hard to collect from.

Get a qualified accountant. A wise business owner will opt to get the services of an accountant to set the financial side of his business in order. A significant number of new entrepreneurs prefer to do their own business accounting in the hopes of saving money; but in the end, this practice is not really cost-efficient. An accountant will be able to find more tax and contribution deductions, keep the company books up to date, and save the business from penalties. In the event that the business owner knows how to do bookkeeping, it is still better to get an accountant during tax season.

Singapore's startup ecosystem is flourishing. Now is the time to invest. Call Servcorp today and receive a free consultation.