A Guide to Recovering from Business Losses in Singapore
You cannot avoid unexpected trends, market changes, and pandemic-like situations.And the resulting business losses in Singapore can adversely impact company’s stability, profit, and growth. This situation may even give your competitors a chance to gobble up your market share, making your comeback difficult. Here are a few tips to overcome business losses and lessen their impact.
Tips to Overcome Business Losses in Singapore
Offset Trading Losses against Your Earnings
As a business owner, you must know how to use all the legal means to lessen the adverse impact of business losses. Singapore allows you to offset trading losses against your earnings in the same accounting year. You can offset them against earnings from rental, interest, dividends, Etc.
Yes, you need to have deep accounting knowledge to get the tax treatment right. Many companies simply outsource it to accounting firms in Singapore. These professionals know how to treat and effectively manage these business losses and optimise cash flow for you.
Singapore tax laws also permit you to carry your business losses forward indefinitely and deduct them from future trading profits. You must fulfil certain criteria to be able to do so.
Firstly, you have to pass the shareholding test. If there are no substantial change in your shareholders and their shareholding. You pass the test provided common shareholders own 50% or more shares on certain dates.
If you own a group of companies, you can use Group relief to soften the impact business losses. You are allowed to transfer the company losses to another company (claimant) in the same group. To deduct these losses against the assassable earnings of the claimant company, you have to fulfil the following criterion.
Both companies must:
- Be Singapore registered
- Be part of the same group
- Fulfil threshold of 75% share capital
- Match in accounting year-end
Treatment of Carry Forward Unused Tax Losses in Singapore
Loss Carry-Back Relief
In 2006, Singapore launched a loss carry-back scheme to enable small companies, sole proprietors, and partnerships to overcome economic difficulties. It allows you to carry back unabsorbed trade losses for up to 3 YAs immediately preceding the year of loss. The aggregated loss amount is capped at $200,000. However, you have to fulfil qualifying criterion and shareholding test.
Tax Exemption Scheme for New Start-Up Companies
As founder of a new start-up Singaporean company, you can claim certain tax exemptions under Section 43 of the Income Tax Act 1947.
If you fulfil certain conditions, you can claim from YA 2020 onwards,
- 75% tax exemption on your first $100,000 of normal chargeable income; and
- 50% tax exemption on your next $100,000 of normal chargeable income
This scheme allows you to optimise your tax liability. However, before you carry-forward or carry-back your losses consult one of the professional accounting firms in Singapore the tax implications.
Singaporean Holding Companies
Singapore allows investment holding companies to operate and earn their income through dividends, rental, or interest. If you run such a company then you need to know that you may not be able to optimise your losses by carrying them forward.
Disqualifies Loss Items
Singapore dose not allow you to transfer or offest certain types of losses against your profits or other income. These disqualified loss items are as follows:
Loss of a Foreign Branch
In singapore, you cannot transfer or offset the loss of a foreign branch of your company against your other income. You cannot use these losses to reduce the tax amount of your Singapore incorporated company.
Losses Associated with Tax Exempt Income
If your company incurred losses and if its income is wholly tax exempt in Singapore, you cannot carry forward or transfer its losses to offset against other income.
Losses Associated with Specific Activities or of Trade
In Singapore, unused losses or capital allowances associated with certain activities or trades are quarntined under specific provisions.
Loss Items of Companies Receiving Economic Expansion Incentives
Singapore provides companies with Economic Expansion Incentives. These companies may not be able to utilise certain losses for tax optimisation.
Expenses Incurred by Dormant Companies
If you own a Singaporean dormant company then at the end of year, you cannot carry forward or transfer its unused losses through expenses to offset them against other income.
Unutilised Section 14Q Deductions
Section 14Q deductions are allowances granted by the Singaporean government for prescribed tasks. If you have utilised these deductions under this section in a YA, you cannot carry forward these losses or transfer them to offset against your other earnings.
Unutilised Losses of Investment Holding Companies (Current Year)
If you run an investment holding company then you cannot carry forward or transfer its losses covered under Section 10E or additional expenses over the earnings from investment to offset against income from the same year or future years.
If you want more specific details about the disqualified loss items, do not hesitate to hire an experienced accounting firms for your Singaporean company.
Avoiding and Recovering Losses in Business
Analyse the Causes
If you have suffered business losses in Singapore, start analysing the situation and find what caused them. Zero-in on areas, activities or aspects of your business that precipitated in losses. It will enable you get a grip on the challenges your company is facing.
Cost-Cutting
Take a detailed view of your expenses. Segregate them and simply reduce or eliminate unnecessary expenses. You can also streamline and reduce investment locked in inventory.
If it is possible, go through your contracts with suppliers, and see if you can renegotiate with them. You can also try and increase financial stability by economising your operations without hurting quality and customer satisfaction.
Adjust Your Prices and Profits
Update your pricing strategy and bring it in alignment with the market. Actively check the prices your target audience is willing to pay. If you lower your prices, make sure that they will cover your business costs and still yield profits.
Find Alternate Revenue Streams
You will need to widen your horizon and put in extra efforts to generate more income. Find new streams of revenue to exploit using your existing resources.
Go to the drawing board and see if you can come up with new products or services or add value to your existing ones to reach out to more audience. Take a review of your situation and see if going into partnership with a dominant market player will help.
Customer Relationship
If is far easier to generate income from your loyal customers than trying to increase it by finding new customers. Focus on strengthening your relationship with your loyal customers. Provide them with loyalty programs, exceptional service, personalised offers, discounts, Etc.
Increase Marketing Activity
If needed, refocus your marketing strategies to target broader audience and attract new clients. Target the most lucretive customer segment and leverage digital marketing and social media platforms to enhance your branding. Stay visible and attractive through targeted messaging.
Hire Professionals
You need professional advise and expertise to mitigate business losses in Singapore. Hire business advisors, financial experts, and accountants.
They will help you find new opportunities, eliminate waste of resources and money, and prioritising projects to improve ROI.
Cash Flow Management
Streamlining your cash flow management increases your chances of weathering the business losses in Singapore. Focus on invoicing and payments, send reminders for due payments, if necessary penalise the late payments. Bringing discipline to your cash flow will increase liquidity in your business.
Employee Management
Have a hart to hart with your employees and instill confidence that together you all can overcome the losses. Ask them for ideas, areas to improve, and reward positive actions.
After suffering business losses in Singapore, prioritise taking a stock of the situation, finding the root causes, taking steps to eliminate waste, and retaing existing clients and finding new customers. Keeping cool head is the way to master the situation.
Being resillient, adatable, and proactive will help you overcome the losses and win the battle. Contact us at info@sbsgroup.com.sg or +65-6536 0036 to talk to our expert accountants to find the causes of your business losses and to know the steps to minimise their adverse effects.
Also Read: Cost to Register a Company in Singapore
