4 tax mistakes to avoid for medical practitioners

More than 20 doctors and dentists have been asked to pay back a total of $3.6 million to IRAS in 2018 relating the period 2014 to 2017. Below are some of the mistakes that doctors and dentists should avoid:

  1. Forming shell companies to for the sole purpose of tax advantage

The advantages of the tax regime for company in Singapore as well as the comparison of the corporate tax vs individual income tax have been discussed respectively in the two earlier articles, “What so great about the Tax system in Singapore for Singapore resident companies?” dated March 20, 2019 and “Personal vs Company income tax” dated March 29, 2019.

However, forming of corporates for the sole purpose of avoiding paying full taxes or primarily tax driven without commercial substance is definitely raising the eyebrows of IRAS. IRAS is empowered to take away the tax advantage and claim back whatever tax amount is due. Some of the actual cases of shell companies formed by doctors included the following:

a.  Incorporating several companies to split income by the customers’ district

b. Splitting income by medical supplies and consultations and booking them separately in shell companies for tax advantage.

c. Using shell companies to book income of each doctor in each shell companies and paying by way of dividends out of the shell companies to each doctor.

A common theme for the above structure is the absence of commercial substance, usually without any direct headcount for the shell companies or the shell company is not performing any meaningful commercial activity.

  1. Incomplete reporting of revenue

Consultation fee and prescription of medical supplies are not reported at gross or in full. Proper and complete records for revenue received must be maintained to ensure completeness of revenue reporting. All records must be kept for a minimum of 5 years.

  1. Incorrect claim of private expenses

Private and domestic expenses are not deductible for tax and these include personal insurance, personal or family travel expenses, personal entertainment and domestic utility, phone charges etc

  1. Excessive payments to family members

Family members working as employees or appointed as directors in the company must be properly remunerated with payments at arms’ length and pegged to the market. Disproportionate amount paid to related parties are disallowed. All payments to related parties must be substantiated with proper records and for business purpose.