Many business owners consider restructuring their companies to reduce their tax bill. Singapore’s tax system permits tax planning to minimise tax liability. However, there is a difference between legitimate tax reduction and tax avoidance.
The Law
Section 33 of the Income Tax Act 1947 gives the Comptroller of Income Tax the power to disregard arrangements structured to obtain a tax advantage. Where a corporate structure exists primarily to avoid tax, with no commercial justification, the Inland Revenue Authority of Singapore (“IRAS”) can tax you as if the structure never existed.
Real Life Application
A recent High Court case demonstrates how this provision applies.
Three doctors left KK Women’s and Children’s Hospital and moved into private practice together. They incorporated a joint company, with each holding one-third of the shares. The joint company paid each doctor a monthly salary of S$5,000.
Each doctor later incorporated their own separate company. The solo companies billed patients for inpatient services, while the joint company handled outpatient services. Each doctor received a monthly salary of S$6,000 from their solo company.
These salaries were extremely low relative to their prior earnings, where one doctor had earned S$45,600 per month at KK Hospital. The structure allowed the doctors to minimise tax by extracting profits from both the joint and solo companies through dividends and interest-free loans. As the sole owners, there was no one to hold them accountable for repaying the loans or paying interest.
The doctors also claimed tax benefits under the Start-Up Tax Exemption and Partial Tax Exemption schemes by fragmenting the private practice business across multiple companies.
In 2016, the doctors informed IRAS that their medical companies had ceased operations and were preparing to be struck off. IRAS objected, commenced tax audits and concluded that the structure had been designed primarily to obtain tax advantages. IRAS invoked Section 33 and disregarded the arrangement and taxed the business income directly in the doctors’ individual names. IRAS also clawed back tax benefits obtained through the fragmented structure.
The doctors applied to the Income Tax Board of Review for relief but were unsuccessful. They then appealed to the High Court.
On 18 June 2026, the High Court dismissed their appeal. Justice Alex Wong observed that this case was “the latest of several cases where medical professionals have run afoul of the tax authorities.” The court found that one of the doctors could not explain why his salary remained so low as the practice grew more profitable, or why profits were extracted as dividends and loans rather than remuneration.
The court upheld IRAS’s decision to disregard the structure and tax the doctors as individuals.
Conclusion
Corporate structures must have genuine commercial justification. While tax planning is permitted, arrangements designed primarily to avoid tax can be disregarded by IRAS under Section 33. IRAS will tax the income as if the arrangements never existed. Seek professional advice to ensure your structure is commercially justified and compliant.
Disclaimer: This article provides general information and does not constitute legal advice. Please seek professional advice for your specific situation.
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