By CHAI WAI FOOK and CHOO ENG CHUAN

DO you have a systematic plan for taking stock of your own tax position before the year-end?

Systematically taking stock of your overall tax position will help you identify and evaluate tax planning opportunities to reduce or defer the payment of your tax liability. Depending on your circumstances, implementing the correct strategies can help ease your tax burden.

We highlight some tips for year-end corporate tax planning that you should consider if your company's facts and circumstances are similar to such scenarios.

In Singapore, to enjoy a particular tax incentive, applicants have to satisfy certain terms and conditions set out by the relevant government agency (such as the Economic Development Board and International Enterprise Singapore). Some of these conditions are quantitative criteria, such as business spending or headcount that must be met at stated milestones.

A shortfall in meeting the conditions can lead to cancellation of the particular tax incentive from the date when the conditions are not met, or even withdrawal of the incentive from the day when the incentive commenced.

If you are a company enjoying certain tax incentives, you should review your progress in meeting the conditions. This will enable you to take steps to meet your commitments under which the incentive was given before it is too late.

Newly incorporated companies cannot carry forward tax losses if they have not commenced business. As such, they should consider generating their first dollar of trade revenue in the current accounting year to convert their revenue expenses incurred during the same year to deductible expenses.

It was announced in this year's Budget that the start-up tax exemption scheme will be liberalised. Tax exemption for start-ups is allowed as long as there is at least one individual shareholder holding at least 10 per cent of the issued ordinary shares throughout the basis period relating to the year of assessment (YA) of claim.

This change is effective from YA 2009 and will also apply to existing companies still within the first three YAs of incorporation. Eligible start-up companies are entitled to 100 per cent tax exemption for their first $100,000 of chargeable income and 50 per cent tax exemption for the next $200,000 of chargeable income.

If you are an eligible start-up company still within the first three YAs of incorporation and your taxable income for the current year is expected to be less than $300,000, you should consider deferring part or all of the claim for capital allowances in order to take full advantage of the tax exemption.

Remittances of foreign-sourced dividend income, branch profits and service income to Singapore by Singapore resident companies are exempt from Singapore income tax, if the foreign income is received from a jurisdiction with a maximum corporate tax rate of at least 15 per cent.

In addition, the foreign-sourced income must have been subjected to income tax in that jurisdiction (the 'subject to tax' condition). This 'subject to tax' condition is not considered met if the foreign income is invested in or moved to another foreign jurisdiction that does not levy income tax on such income before the income is remitted back to Singapore.

If you have qualifying foreign income, you should remit the income to Singapore directly without channeling the funds to an overseas bank account in a third country.

A further concession with regard to the 'subject to tax' condition was announced by the Inland Revenue Authority of Singapore (IRAS) when it issued a revised version of the circular entitled 'Tax exemption for foreign-sourced dividends, foreign branch profits and foreign-sourced service income' on June 5 this year. The foreign-sourced dividend income is regarded as remitted directly from the jurisdiction where the dividend is sourced if the dividend income is temporarily deposited into a custodian account in a foreign jurisdiction.

To enjoy this concession, you should remit the foreign dividend to Singapore within one year from the date of deposit into the custodian account and there is no additional income being generated from the custodian account other than incidental interest paid on the sum standing in the custodian account.

Another new change announced in this year's Budget statement that will benefit Singapore resident companies that derive foreign-sourced income from non-Double Taxation Agreement (DTA) countries which do not meet the conditions of the above foreign-sourced income exemption regime is the extension of unilateral tax credit (UTC) to all types of foreign-sourced income. This change takes effect from YA 2009.

Singapore resident companies with foreign-sourced income derived from non-DTA countries (eg Hong Kong), which do not meet the conditions of the foreign-sourced income exemption regime, should assess how much foreign-sourced income can be remitted back to Singapore without triggering incremental Singapore tax liability by making use of UTC.

A company which adopts FRS 39 for accounting purposes will automatically come under the FRS 39 tax treatment set out under the circular issued by the IRAS on Dec 30, 2005, and section 34A of the Income Tax Act unless the company makes a written election out of the FRS 39 tax treatment.

This election means that the company will continue to apply pre-FRS 39 tax treatment rules. A duty is imposed on the company to provide details to the IRAS to show how the tax adjustments are arrived at and to maintain relevant documents to support the tax adjustments made.

Companies which elect out of the FRS 39 tax treatment may revoke the election and opt into the FRS 39 tax treatment. Once the option is made, it is irrevocable. If the company wants to avail itself of the FRS 39 tax treatment for any YA, it has to make an application to the IRAS to revoke the election during the basis period. For example, for the FRS 39 tax treatment to apply to YA 2009, the company must revoke the election during the accounting year ending in 2008.

If you have elected out of the FRS 39 tax treatment in a previous YA, should you revoke the election and opt into the FRS 39 tax treatment in the current year?

To avoid paying tax on unrealised fair value gains recognised in the profit and loss (P&L) account, the taxpayer may elect out of the FRS 39 tax treatment. Using the same example, if a securities dealer has subsequently suffered a paper loss in the accounting year ending in 2008 and the prices of the investments are not expected to recover in the near future, the securities dealer may revoke the election and opt into the FRS 39 tax treatment to claim deductions of the unrealised loss recognised in the P&L account earlier.

These are some of the possible ideas for corporate tax planning under certain scenarios. The challenge is to adopt a proactive approach towards reviewing your tax position before the year-end. Companies should also keep close tabs on changes to the tax rules so that they do not miss out on new tax planning opportunities.

Chai Wai Fook is a tax director and Choo Eng Chuan is a tax partner at Ernst & Young Solutions LLP.

This article was first published in The Business Times on November 28, 2008.