CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

TOPIC 7
Taxation of Partnerships &
Tax Treatment of LLPs/LPs
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Outline
• Taxation of Partnerships
• What constitutes a partnership
‾ Types of partners
‾ Partnership filing – Form P
‾ Partners leaving partnership or
Singapore
‾ Change in profit sharing ratio
‾ Change of partnership
• Tax Treatment of Limited Liability
Partnerships (LLP)
• Tax Treatment of Limited Partnerships (LP)
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
What constitutes a partnership
• Defined as a legal relationship which subsists
between 2 or more persons carrying on a business
in common with the objective of making a profit and
sharing it between them.
• Not a person and not treated as a separate legal
entity.
• Tax is not imposed on the partnership. Instead
partners are assessed individually on their
respective share of profits/losses of the partnership.
~ Tax Transparent
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
• Partners may consist of resident individuals, non-resident
individuals as well as companies.

• A joint venture between 2 companies or between a

company and an individual can also be classified as a
partnership.

• Mere joint ownership of property does not create a

partnership if the owners are not carrying on a business
with a view to profit.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Types of Partners
• Active Partners Those who actually take part in the conduct
of the business;
• Sleeping Partners Those who have capital in the business, but
take no part in its operations;
• Limited Partners Those who contribute a certain fixed amount
of capital beyond which they are not liable
for the firm’s debts. Depending on
partnership agreement they may receive
interest on this capital and take part in the
management of the business.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
• Salaried Partners Those who receive fixed-salary. They
are in fact merely employees of the
partnership.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Contributed Actual contributions to the partnership
as capital (in cash or in kind) less any
Capital amounts drawn out or received back by
him (whether as a distribution or a loan
or otherwise)
and
The amount of profits or gains of the
trade, business, profession or vocation
from past year of assessment to which
the partner is entitled (whether as a
distribution or a loan or otherwise) but
which he has not received.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Company Partnership

Shareholder agreement Partnership Deed

Register with ACRA Register with ACRA

Legal person Not a legal person

Tax as a company Tax transparent

Precedent Partner /
Resident Director
Resident manager
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Partnership Filing – Form P
• precedent partner of the partnership is responsible
to file the tax return (Form P) on behalf of the
partnership.

• If no partner is personally present in Singapore,

the tax return shall be filed by the attorney, agent
or manager of the partnership in Singapore.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Partnership Filing – Form P (cont’d)

• The precedent partner is the partner who:-

a. is named in the partnership agreement; or

b. appointed by the other partners if there is no
agreement, or
c. Acting precedent partner
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Partnership Filing – Form P (cont’d)

• The tax return should include the following:-

(a) the income of the partnership;

(b) the names and addresses of the other

partners; and

(c) the share of the income to which each

partner was entitled to.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Partners leaving partnership or Singapore
• If a partner is leaving Singapore or exiting the
partnership, the partners are required to give one
month’s notice in writing to the Comptroller for tax
clearance.
• If the partner has money due or payable to him from
the partnership, the partners present in Singapore are
not allowed to pay such money without the written
permission of the Comptroller.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Partnership allocation of Profits
• Income of partnership for any period is
computed in the same way and on same basis
as that of a person carrying on a trade or
business.

• Step 1: Determine the adjusted profit and the

divisible profit

• Step 2: Prepare the allocation to the partners

CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Steps to arrive at the partners’ share of profits/losses are:-
a) Calculate the partnership’s divisible profit or loss.

Pre tax net Profit xxx

Less: Income from other sources xxx
xxx
Add/(Deduct):
Non-deductible expenses xxx
Non taxable items xxx
xxx
Divisible profit (loss) zzz
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
b) Apportion the following in accordance to the
profit sharing ratio:-

(i) Divisible profit

(ii) Partnership Income from other sources

(iii) Partnership Approved donations

(iv) Partnership Wear and tear allowances

CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
c) Tabulate the above allocation in the following manner:
X Y Z
Salaries (actual entitlement) xxx xxx xxx
Interest on capital (actual entitlement) xxx xxx xxx
Divisible profits (Profit sharing ratio) xxx xxx xxx
Adjusted profits xxx xxx xxx
=== === ===

Income from other sources

(Profit sharing ratio) xxx xxx xxx

Approved donation
(Profit sharing ratio) xxx xxx xxx
=== === ===

Wear and tear allowances

(Profit sharing ratio) xxx xxx xxx
=== === ===
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
d) The partners will be assessed individually on
their share of the taxable income.

e) The partners’ share of approved donation

and wear and tear allowances can be used
to set-off against the statutory income of the
individual partner.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
General format for calculating partners’ chargeable income
Salaries xxx
Interest on capital xxx
Share of divisible profit xxx
Adjusted profits from partnership xxx
Less: wear and tear allowances xxx
Statutory income xxx
Add: Income from other sources xxx
Less: loss b/f xxx
donation xxx
xxx
Assessable income xxx
Less: Personal reliefs xxx
Chargeable income xxx
===
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Worked Example 1
Mr. A, B and C are in partnership. Partnership agreement is
as follows:-
A B C
Salaries $5,000 NIL $10,000
Profit sharing ratio 3 2 3
Interest on capital 5% 5% 5%
The P/L for the YE 31 December 2019 is as follows:-
Sales $185,000
Less: Cost of sales 90,000
Gross profit 95,000
Less: Expenses (include partners’
salaries & interest on capital) 47,000
Operating profit 48,000
Dividend income 9,000
Net Profit $ 57,000
=====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Work Example 1 (cont’d)
Included in the expenses are:-
a) Depreciation $4,600
b) Approved donation $2,000
The partners’ capital as at 1 January 2019 are:-
Mr A $50,000
Mr B 40,000
Mr C 50,000
$140,000
======
The wear and tear allowance for YA 2020 is $16,000.
Required:
Compute the allocation of profits to the partners for YA 2020.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Worked Example 1

Net Profit $57,000

Less:Income from other sources
Dividend income 9,000
_______
48,000
Add: Depreciation $4,600
Approved donation 2,000

6,600
Divisible Profit(Loss) 54,600
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Worked Example 1
A B C
$ $ $
Salaries 5,000 NIL 10,000
Interest on capital 2,500 2,000 2,500
Divisible profits 20,475 13,650 20,475
Adjusted profits 27,975 15,650 32,975
===== ==== =====
Dividend income 3,375 2,250 3,375
==== ==== ====
Approved donation 1,875 1,250 1,875
==== ==== ====

Wear and tear allowance 6,000 4,000 6,000

==== ==== ====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Change in Profit Sharing Ratio
When there is a change in the profit sharing ratio (PSR)
during the year, the profit or loss is to be allocated to the
partners as follows:-
a) Compute the adjusted profit for the whole period.
b) Apportion the adjusted profit in terms of two periods i.e.
before the change and after the change in PSR.
c) For each of the period, compute the divisible profit.
d) Apportion the divisible profit before the change in PSR
using the old profit sharing ratio.
e) Apportion the divisible profit after the change in PSR
using the new profit sharing ratio.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Worked Example 2
D, E and F have been in partnership for many years. The
adjusted profit for the recent three years are as follows:-
Year ended Adjusted profits
30.6.17 $36,000
30.6.18 42,000
30.6.19 60,000
The partnership agreement is:-
D E F Total
Salaries (per annum) $1,000 $2,000 $3,000 $ 6,000
Capital (interest @ 10%) 10,000 10,000 10,000 int= 3,000
Profit sharing ratio 3 2 1

On 1 January 2018, F contributed an additional $30,000 capital

and from that day residual profits were to be shared equally.

Required: Allocate the profits to the partners for all relevant YAs
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Worked Example 2
Year of Assessment 2018
Total D E F
$ $ $ $
YE 30.6.17 $36,000
Salaries 6,000 1,000 2,000 3,000
Interest on capital 3,000 1,000 1,000 1,000
Divisible profits
(3:2:1) 27,000 13,500 9,000 4,500
Adjusted Profits YA 2018 36,000 15,500 12,000 8,500
===== ===== ===== ====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Work Example 2 (cont’d)
Year of Assessment 2019
Total D E F
$ $ $ $
YE 30.6.18
1.7.17 – 31.12.17
6/12 X $42,000 = $21,000
Salaries (6/12) 3,000 500 1,000 1,500
Interest on capital 1,500 500 500 500
Divisible profits
(3:2:1) 16,500 8,250 5,500 2,750

1.7.17 – 31.12.17 21,000 9,250 7,000 4,750

===== ===== ===== ====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Work Example 2 (cont’d)
Year of Assessment 2019
Total D E F
$ $ $ $
1.1.18 – 30.6.18
6/12 X $42,000 = $21,000
Salaries 3,000 500 1,000 1,500
Interest on capital 3,000 500 500 2,000
Divisible profits
(1:1:1) 15,000 5,000 5,000 5,000
______ _____ _____ _____
1.1.18 – 30.6.18 21,000 6,000 6,500 8,500
1.7.17 – 31.12.17 21,000 9,250 7,000 4,750
______ _____ ______ _____
Adjusted Profits YA 2019 42,000 15,250 13,500 13,250
===== ===== ====== =====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Solution to Work Example 2 (cont’d)
Year of Assessment 2020
Total D E F
$ $ $ $
YE 30.6.19 $60,000
Salaries 6,000 1,000 2,000 3,000
Interest on capital 6,000 1,000 1,000 4,000
Divisible profits 48,000 16,000 16,000 16,000
(1:1:1)
60,000 18,000 19,000 23,000
===== ====== ====== =====
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Taxation of Partnerships
Change of partnership

• When there is a change of partnership due to

reasons such as death, retirement and admission,
then the partnership is deemed to have ceased or
dissolved and a new partnership is formed.
• When there is a change of partners, Section 24
will be elected.
• no balancing allowance or balancing charge
needs to be computed. The plant and machinery
will be deemed to be transferred to the new
partnership at the tax written down value.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LLPs

Background
• Limited Liability Partnership (LLP) structure
recommended by Company Legislation and
Regulatory Framework Committee (CLRFC) in Oct
2002
• LLP Act came into operation on 11 April 2005.
• Partnership with limited liability.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LLPs

Features
• Function as a partnership but status of a separate legal
person (i.e. limited liability)
• Not affected by changes in partners.
• At least 2 partners.
• Claims can be made against LLP to full extent of its
assets not the individual partners
• Claims can be made against negligent partners and
their personal assets.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LLPs

Features (Cont’d)
• Innocent partners’ liability limited to amount they
contributed to the LLP.
• Not required to file accounts or have them audited.
• Does not need to disclose its capital, but need to
declare solvency status annually.
• Need to keep proper accounting records for
inspection where appropriate.
• Must have at least 1 locally resident manager.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LLPs

Tax Treatment
• Treated as a partnership and accorded tax
transparent treatment.
• Each partner taxed on share of profits, based on
its own tax rate:
- Individual based on personal income tax rate;
- Company based on prevailing corporate tax
rate
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LLPs

Tax Treatment (Cont’d)
• restriction on the amount of a partner's share of capital
allowance and trade loss from the LLP that can be offset
against his other sources of income (referred to as
"relevant deduction") - current and prior YAs
• The total offset shall not exceed each partner's contributed
capital as at the end of the basis period relating to the
current year of assessment.
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LPs

Features
• It must consist of one or more general partners who
have unlimited liability, while the rest are limited partners
who enjoy limited liability.
• A general partner (s) of an LP is/are personally/jointly and
severally liable for all the debts incurred, obligations and
liabilities of the LP
• A limited partner of an LP is only liable for the debts
incurred by the LP to the extent of his capital contributed, and
is not allowed to take part in the management of the LP
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

Income Tax Treatment of LPs

Tax Treatment
• The limited partners of an LP are treated in the
same manner as the partners of an LLP for income
tax purposes (deductibility of loss items, etc.)
• The general partners of an LP are treated in the
same manner as partners of a general partnership
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

SUMMARY…
• The different types of partnerships – General, LLP, LP
• The difference between each type of partners
• Tax filing requirement for a partnership
• What is defined as the contributed capital of a partner
• How to prepare a partnership tax computation and
compute the share of divisible profit / loss among the
partners
CHAPTER 7 SIT Internal TAXATION IN SINGAPORE

END