Another tax matter that business owners should learn about after they register companies in Singapore would be tax treatments that can be applied to insurance policies. Insurance premiums are legally considered tax deductible if all of the expenses incurred are exclusively and wholly in the production of income. They must not be considered capital in nature in order to be deductible.
Deductible VS Non-Deductible
To further elaborate between the differences of non-deductible and deductible insurance premiums, here are some examples.
Insurance premiums that are considered capital in nature are insurance policies that relate the business employer as the beneficiary. Their expenses are incurred to acquire capital assets. Non-deductible insurance policies generally come with no contractual obligation for business owners to pass the payouts to their employees’ next-of-kin.
Insurance premiums that are deductible however, would be insurance policies like keyman insurance, work injury compensation and even group term life insurance. These insurance premiums usually relate the business’ employees as the beneficiaries. There are often contractual obligations for the payout to be passed to the employees or their next-of-kin whenever applicable. These costs are considered staff costs. In the event of work injury compensation, the expenditure is treated as an insurance against statutory liability from the Work Injury Compensation Act.
Insurance premiums that have employees as the beneficiaries are generally considered tax deductible, with the exception of group medical insurance and group insurance. This is due to the fact that group medical insurance is a benefit that is considered available to all staff members. Group insurance is also when employers choose not to claim tax deductions from their insurance premiums. In both cases, administrative concession can be granted.
In the event that insurance is taken with the purpose of insuring against company profit loss, the insurance payment is on the revenue account, thereby making revenue receipts taxable for employers.
Capital receipts on the other hand are not taxable, so insurance payouts that are received from capital asset realization is non-taxable.
Business owners should also take the time to consider administrative concessions after their Singapore company formation since the decision to avail itself of administrative concession comes with obligations. By choosing to do so, companies will be required to apply the same treatment to all the employees who are covered by their group insurance policies.
This also means that business owners cannot specifically choose to report staff benefits for the share of insurance premiums that are paid only for some employees. They will also not be able to claim for partial tax deductions for the premiums paid within their income tax filing.
Business owners will also have to take note that administrative concessions are not applicable to companies like Investment holding companies or service companies with cost plus mark-up basis for tax assessment.
By being clearer on how to apply tax treatment for insurance policies after they register companies in singapore, business owners will be able to sufficiently safeguard the welfare of their employees and fulfill tax obligations.