Series on Singapore tax laws – Part 13

Partnership firms and its taxation

General partnership – A partnership is an unincorporated body of the following, excluding a Hindu joint family, who have agreed to combine their skills and labour for the purposes of carrying on a business and sharing the profits between:

  • two or more individuals;
  • one or more individuals and one or more corporations; or
  • two or more corporations

The maximum number of members of a partnership is 20. Singapore follows The Partnership Act of 1890 of United Kingdom.

Features –

  • Partnership is not regarded as a separate entity for legal and tax purposes
  • Liability of each of the partners is unlimited
  • If any partner ceases, or is about to cease, to be a partner, the partners present in Singapore are obliged to give 1 month’s written notice to the tax authorities before the partner actually ceases to be a partner

Taxation mechanism –

  • Partnership is not charged to tax as an entity but the adjusted income is allocated between the partners and directly included in their taxable income
  • Return to be filed in Form P of its income for every year of assessment

Limited liability partnership – Limited liability partnership (LLP) gives its owners the flexibility of operating as a partner while giving them limited liability. It combines the benefits of a partnership with those of private limited companies.

Features –

  • For tax purposes an LLP will be treated as a partnership and not as a separate legal entity, i.e. each partner will be liable to tax on his share of income from an LLP
  • If the partner is an individual, his share of income from the partnership will be taxed based on the prevailing individual income tax rate. If the partner is a company, its share of income from the partnership will be taxed at the prevailing corporate income tax rate
  • LLP is required to report the capital contribution of its partners in the tax retur

(IRAS has issued Circular setting out the income tax treatment of limited liability partnership, The circular gives guidance on tax treatment related to reduction in contributed capital of partner, LLP in liquidation, property sold to or by LLP, LLP that carries on business of making investment etc.)

Limited partnership

An LP is a business structure that allows a business to operate and function as a partnership without a separate legal personality from the partners. It must consist of one or more general partners who have unlimited liability and one or more limited partners who enjoy limited liability.

A partnership is deemed to be a general partnership unless one or more partners of the partnership are registered as limited partners under the LP Act. LPs are generally taxed in the same way as LLPs, except in certain cases.

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