Preparation of Tax Computations in Non-S$ Functional Currencies
Companies that prepare their financial statements in non-Singapore Dollar (S$) functional currencies must also prepare their tax computations in the same non-S$ functional currency. However, all amounts declared in the Corporate Income Tax Return must be in S$.
Impact on Preparation of Tax Computations
For companies that prepare financial statements in non-S$ functional currencies, all items in the tax computation up to the chargeable income (after applying partial tax exemption or tax exemption for new start-up companies) should be in the non-S$ functional currency.
If there is a change in functional currency from S$ to a non-S$ currency (i.e., financial statements and tax computations for previous Years of Assessment (YAs) were prepared in S$), transitional rules must be applied to translate existing S$ balances into the new non-S$ functional currency.
Translation of Specific Items in the Tax Computation
The following translation rules apply to both existing and newly incorporated companies:
Items | Translation Method for Tax Computation |
Current year items including:– Current year tax adjusted profit/loss- Current year capital allowances- Other sources of income- Current year donations | Reflected in the tax computations based on actual non-S$ functional currency values as shown in the financial statements. |
Tax written down value (TWDV) of assets transferred under Section 24 | If the buyer and seller have different functional currencies, the TWDV of the assets in the seller’s functional currency must be translated to the buyer’s functional currency using the exchange rate prevailing at the date of sale. |
Loss items under Group Relief system | Loss items are transferred out based on the functional currency of the transferor. If the transferor and claimant have different functional currencies, the items should be translated into the claimant’s functional currency at the average rate for the relevant YA. |
Amounts exempted under partial tax exemption or tax exemption for new start-up companies | The exempt amounts are granted in S$. These S$ amounts should be translated into the non-S$ functional currency using the average rate for the relevant YA. |
Tax payable | Computed by multiplying the company’s chargeable income (after applying the exemptions) in non-S$ by the Corporate Income Tax rate and the average rate for the relevant YA. |
Foreign tax credit (FTC) | The Singapore tax payable in S$ on foreign-sourced income is computed by multiplying the relevant amount of foreign-sourced income (in non-S$) by the Corporate Income Tax rate and the average rate for the relevant YA. The foreign tax paid in S$ is computed by multiplying the actual amount paid (or reflected) in the functional currency by the average rate for the relevant YA. |
Receipt of S$ dividends and interest | These S$ amounts should be translated into the recipient’s functional currency using the average rate for the relevant YA. |
Average Rate Calculation
The average rate is computed using the average of the month-end exchange rates for the financial period constituting the basis period. The Monetary Authority of Singapore (MAS) provides these exchange rates.
To retrieve the average exchange rate:
- Visit MAS’ website under ‘Statistics’ → ‘Exchange Rates’.
- Select the relevant financial period and download the monthly exchange rates.
- Compute the average rate by adding the month-end rates and dividing by the number of months in the period.
For companies with financial statements covering more than 12 months due to a change in financial year end, the profits or losses must be apportioned between two different YAs.
Example:
- YA 2024: Basis period from Oct 2023 to Dec 2023.
- YA 2025: Basis period from Jan 2024 to Dec 2024.
Using MAS’ Exchange Rate Search Function, companies can retrieve the relevant rates for each YA.
Impact on Completion of Corporate Income Tax Returns
The Corporate Income Tax Return (Form C-S/ Form C-S (Lite)/ Form C) must be completed in S$. If financial statements and tax computations are in non-S$ functional currencies, relevant items must be translated into S$ using the average rate for the respective YA.