On or about 2 January 2020, the Inland Revenue Authority of Singapore (IRAS) has updated information on taxation for construction companies and added a new section that sets out common scenarios of income and expense items, and the corresponding tax treatment to determine the taxable profits of construction companies.
Revenue derived by construction companies usually arises from long-term contracts and is recognised progressively over a period of time – this is commonly known in the industry as the Percentage of Completion (“POC”) method of income recognition.
For income tax purposes, IRAS accepts the accounting recognition of income over time as it is consistent with the tax rule of taxing income when it is accrued*. Similarly, expenses charged to the accounts are generally deductible unless they are of a capital nature or specifically disallowed for deduction.
* The recognition of revenue from construction contracts was governed by Singapore Financial Reporting Standard (SFRS) 11 Construction Contracts. The standard has been superseded by SFRS 115 or Singapore Financial Reporting Standards (SFRS 115) – Revenue from Contracts with Customers (as the case may be). SFRS 115 are effective from annual periods beginning on or after 1 January 2018.
It also covers the record-keeping requirements for these companies.
For more information, please visit the IRAS website.
Source: IRAS website, 2 January 2020