Preparing Tax Computations in Functional Currencies Other Than Singapore Dollars

Preparing Tax Computations in Functional Currencies Other Than Singapore Dollars

Tax Computations in Non – Singapore Dollars Functional Currencies

Companies that prepare their financial statements in a functional currency other than Singapore Dollars (S$) are required to prepare their tax computations in that same non-S$ currency. However, all amounts declared in the Corporate Income Tax Return must still be reported in S$.

Key Considerations for Preparing Tax Computations

For companies using non-S$ functional currencies, all figures in the tax computation—up to the point of determining chargeable income (after applying any partial tax exemption or start-up tax exemption)—must be reflected in the company’s functional currency.

If a company changes its functional currency from S$ to a non-S$ currency, transitional rules apply. These rules ensure that previously reported S$ balances are correctly converted into the new functional currency.

Translation Rules for Specific Tax Computation Items

1. Current-Year Items

These include tax-adjusted profits or losses, capital allowances, other income sources, and donations. They must be reported in the tax computation based on their actual values in the company’s functional currency, as per the financial statements.

2. Tax Written Down Value (TWDV) of Transferred Assets (Section 24)

If assets are transferred between parties with different functional currencies, the TWDV must be converted from the seller’s currency to the buyer’s using the exchange rate on the date of sale.

3. Group Relief – Loss Items

Losses are transferred based on the functional currency of the transferor. If the transferor and claimant use different currencies, the losses must be converted using the average exchange rate for the relevant Year of Assessment (YA).

4. Tax Exemption Amounts (Partial or Start-Up Relief)

These exemptions are granted in S$. The exempt amounts should be translated into the functional currency using the average exchange rate for the YA.

5. Tax Payable

To calculate tax payable, multiply the chargeable income (in the functional currency, after exemptions) by the corporate tax rate and the average exchange rate for the YA.

6. Foreign Tax Credit (FTC)

The S$ equivalent of Singapore tax payable on foreign-sourced income is computed by applying the corporate tax rate and the average exchange rate to the foreign income amount. The foreign tax paid is similarly converted to S$ using the average rate.

7. S$ Dividends and Interest Received

These must be converted into the recipient’s functional currency using the YA’s average exchange rate.

Calculating the Average Exchange Rate

The average exchange rate is derived from the average of month-end exchange rates during the financial period forming the basis period. These rates can be obtained from the Monetary Authority of Singapore (MAS):

• Go to MAS website under ‘Statistics’ → ‘Exchange Rates’
• Download the monthly rates for the relevant financial period
• Add the month-end rates and divide by the number of months to calculate the average

For financial periods exceeding 12 months (due to a change in financial year-end), the total profit or loss must be apportioned between two separate YAs.

Example:

• YA 2024: Basis period = October 2023 to December 2023
• YA 2025: Basis period = January 2024 to December 2024

Use MAS’ Exchange Rate Search to obtain the necessary rates for each YA.

Submitting the Corporate Income Tax Return

Although tax computations may be prepared in a non-S$ currency, the Corporate Income Tax Return (Form C-S/ C-S (Lite)/ Form C) must be completed in S$. All relevant figures must be converted using the average exchange rate for the respective YA.

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