Medical Practice Incorporation: Commercial Substance and Tax Attribution

Key steps and distinctions

IRAS identifies four recurring concerns: moving income earned mainly through personal skill into a company, artificially splitting one business across companies, repeatedly reincorporating the same business, and attributing profits contrary to economic reality. Incorporation is not automatically prohibited. The analysis asks whether the arrangement produces a tax advantage, satisfies the exception requiring genuine commercial reasons without tax reduction as a main purpose, and uses the tax provision within its intended scope. IRAS examines functions performed, assets used, risks borne and the doctor’s arm’s-length remuneration. For example, employing staff and assuming employment or workplace risks may support commercial reasons, but the professional still needs remuneration consistent with the services performed. A lower corporate tax rate or repeated access to start-up exemptions does not establish those reasons. Depending on the findings, IRAS may disregard the company structure and assess the individual, consolidate artificially split company income, or adjust remuneration with a corresponding company deduction. Keep evidence explaining the actual business role and remuneration policy. The guide’s examples are illustrative, so an arrangement absent from the examples is not thereby outside section 33.