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Income Tax For Partnerships
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Partners in a partnership are considered "self-employed" – i.e. you do not pay yourself any wages. The business income is treated as part of your total personal income and taxed at personal income tax rates.
This guide is not meant to be a comprehensive guide on income tax. It only covers the tax obligations of partners.
The Basics Tax Rates & Exemptions Deductions, Relief & Rebates Medisave & Income Tax Filing Your Tax Return Payment Of Taxes Where Can I Get Help?
The Basics
Taxable Income
- Any income that is "accrued" or received in Singapore by a person or business is subject to income tax.
- In essence, it means that if your customer pays you for a product in Singapore or you receive money from your overseas sales in Singapore, the money is subject to tax.
- Taxable income includes income from your business, salary from employment, interest earned on your deposits and rental income.
Capital Gains
- Capital gains are not subject to tax.
- For instance, if you buy and sell shares at a profit, the profit is not subject to tax. However, the dividends that you earn from the shares are income and subject to tax.
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Tax Rates & Exemptions
- As your business income forms part of your personal income, the two are calculated together when you file your tax returns.
- Your business income is reported separately (Form B or B1) and added to all your other personal income. The total is then subject to personal income taxes.
- The tax rates from Year of Assessment 2007 onwards are shown in the table below. Taxes are charged progressively (0% - 20%) on your chargeable income. The chargeable income is your business/trade income plus any other personal income, minus all deductions, reliefs and rebates.
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Deductions, Reliefs & Rebates
Your chargeable income (the portion that is subject to taxes) is your total income minus any deductions and reliefs. You can also utilise tax rebates to reduce your taxes.
Business-Related Deductions
- Allowable Business Expenses
You can deduct any expenses that are incurred solely for the purposes of generating income for your business. Items such as rent, wages paid to employees and expenses on stationery and supplies are all considered "allowable business expenses".
- Capital Allowances
You can claim capital allowances on plant and machinery that you have purchased for your business.
- Unutilised Losses & Capital Allowances
Losses and capital allowance can be used to offset your total chargeable income. Any part of the losses or capital allowance not fully used to offset income in the financial year is termed as "unutilised".
- You can also carry forward unutilised losses and capital allowances to offset income made in the next financial year.
- With effect from Year of Assessment 2006, you can also carry back unutilised losses and capital allowances of up to S$100,000 in the current year to offset the income made in the preceding year.
Personal Donations, Reliefs & Rebates
- As your trade income forms part of your personal income, you can also use personal reliefs and donations to reduce your taxes.
- You can claim deductions for donations made to certain charitable organisations.
- You can claim tax reliefs. There are various types of tax reliefs such as course fees, child, wife/handicapped spouse, etc.
- You can claim tax rebates such as the Parenthood Tax Rebate.
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Medisave & Income Tax
Compulsory Medisave
- All self-employed persons who are Singapore Citizens or Permanent Residents must contribute to their Medisave as long as their net trade income exceeds S$6,000 per year.
- Net trade income is your business income minus all allowable business expenses, capital allowances and trade losses.
Calculation Of Medisave Contribution
- The amount of Medisave you contribute is a percentage of your total business trade income subject to a maximum cap.
How & When To Contribute To Medisave
- After you file your income tax, IRAS will send you a Notice of Computation (NOC) which states clearly how much you have to contribute.
- You can make your contributions directly to the Central Provident Fund (CPF).
Relief For Medisave Contributions
- You can claim relief for your Medisave contributions and voluntary contributions subject to a fixed cap.
For More Information
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Filing Your Tax Return
How Do I Pay Taxes?
- The precedent partner must file a tax return on behalf of the entire partnership (Form P). The precedent partner is appointed or by default is the first name on the partnership agreement.
- All partners, including the precedent partner, must report their share of profit / loss from the partnership business in their Individual Income Tax Return (Form B or Form B1).
- Based on your tax return, the Inland Revenue Authority of Singapore (IRAS) will assess how much tax you need to pay. IRAS will then send you a Notice of Assessment and Statement of Account.
- You can submit your tax return by:
- E-Filing at myTaxPortal; or
- Filling up Form B/B1/P and mailing it back to IRAS
When Do I File My Tax Return?
- You need to file your tax return by 15 April every year. You should be filing your trade income for the previous year.
- Example: In 2009, you should be filing a return on business income for year 2008.
- If you fail to file your tax return by 15 April, you will have committed an offence under the Income Tax Act.
How Do I Report My Business Income?
- The precedent partner reports the entire partnership’s business income using Form P. On Form P, you will need to report:
- If the partnership’s turnover is more than S$500,000, you have to submit a certified statement of accounts together with Form P.
- From Year of Assessment 2005, the precedent partner of a husband and wife partnership must also file Form P.
- All partners, including the precedent partner, must report their share in the business income using Form B or B1. On this form, you will need to report:
- your share of the profit/loss after all deductions ("divisible profit/loss")
- your salary, bonus, CPF and benefits from the partnership
- your share of “other partnership income”
"Divisible profit/loss” is your share of the profits/loss after deducting:
- all partners’ salaries, bonuses, CPF and benefits
- all partners’ share of the “other partnership income”
"Other partnership income” refers to income from:
- savings (e.g. interest)
- investments (e.g. Singapore dividends)
- rent
- foreign income
Can You Help Me Calculate My Taxes?
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Payment Of Taxes
When Do I Pay My Taxes?
- You have to pay your taxes within 1 month of receiving the Notice of Assessment and Statement of Account.
- You can pay off all your taxes at one go or by monthly instalments using GIRO. You should pay your taxes promptly or you may have to pay penalty fees.
What If I Do Not Agree With The Tax Assessment?
- If you disagree with the tax assessment, you can write to IRAS and state the reasons why you feel the tax assessment is incorrect.
- Please note that you must still pay your taxes within 1 month of the Notice of Assessment even if you object to the assessment.
What If I Object To My Share Of The Profit / Loss In The Partnership
- If a partner wants to object to his share of the profit / loss, the objection must be lodged by the precedent partner. The precedent partner must write to IRAS stating clear reasons for the objection.
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Where Can I Get Help?
- Visit these websites and web resources for more in-depth information on partnership income tax or consult with your accountant.
- You can also contact IRAS:
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