It goes without saying that you’ll be expected to include your business expenses while filing your Singapore corporate income tax. The IRAS requires both resident and non-resident companies to declare everything they’ve spent on running their businesses. That includes payments for stuff like advertising, renovation, wages, CPF contributions, etc.
Don’t get alarmed, though. It turns out the IRAS (Inland Revenue Authority of Singapore) doesn’t charge tax on all these business costs. At least you get the benefit of separating them into deductible and non-deductible business expenses.
Here are more details about IRAS deductible expenses and non-deductible expenses in Singapore.
Tax Deductibility of Expenses
Now, for the sake of clarity, tax deductible expenses refer to the business costs that the IRAS excludes from the taxable income of companies in Singapore. That means you won’t be charged any taxes on them.
Non-deductible expenses, on the other hand, are included in your corporate income tax bill. More specifically, they are considered part of the taxable income, which is then assessed and charged accordingly by the IRAS.
For instance - if your company has an annual income of S$100,000, and happens to declare business expenses worth S$20,000 (out of which S$15,000 are deductible and S$5,000 are non-deductible), your taxable corporate income will be calculated by subtracting S$15,000 from $100,000. That ultimately amounts to S$85,000.
What Are Deductible Business Expenses?
In case you’re wondering what to declare as your deductible business expenses, here’s the general rule. According to the Inland Revenue Authority of Singapore, deductible business expenses in Singapore encompass all the costs that you wholly and exclusively incur as part of your income generation.
Here are the accompanying conditions:
- None of the expenses should be prohibited from deduction by the Singapore Income Tax Act.
- All the expenses should be revenue in nature. Not business capital.
- None of the expenses should be a contingent liability. That means they must be incurred, without pegging them on situations that may or may not happen in the future.
- All the expenses ought to have been incurred purely for the sake of generating income.
What Are Non-Deductible Business Expenses?
Non-deductible business expenses are the direct opposite of deductible expenses. In other words, the costs should not have been incurred in the generation of income.
And what does that mean?
Well, this where you place capital expenses like the funds you spend on fixed assets and company incorporation, as well as all the personal expenses that you incur along with your employees - including entertainment and travel costs.
Examples of Deductible and Non-Deductible Business Expenses
The IRAS allows you to declare the following as deductible business expenses:
- Water and electricity costs.
- Employees’ wages.
- Transport and travel costs for business assignments.
- Telephone bills
- Tax fees, including the service fees that you pay a tax agent.
- Supplementary Retirement Scheme (SRS) contributions.
- Stock obsolescence.
- Statutory and Regulatory expenses.
- Staff welfare and benefits expenses.
- Staff training expenses.
- Staff remunerations, including bonuses, salaries, and allowances.
- Secretarial fees.
- Retrenchment payments, including contractual retrenchment payments, ex-gratia retrenchment payments, and outplacement support costs - as long as there’s no complete business cessation.
- Research and development expenses.
- Costs incurred in the registration of trademarks, patents, and designs.
- Costs incurred in the rental of business premises.
- Renovation costs.
- Provision for obsolete stocks.
- Provision for bad and doubtful debts.
- Property tax expenses.
- Printing and stationery costs.
- Postage expenses.
- Costs for periodicals and newspapers.
- Office upkeep expenses.
- Motor vehicle expenses - including upkeep, maintenance, plus running and financing costs of goods / commercial vehicles.
- Medical expenses.
- Legal and professional fees incurred in trade and revenue transactions.
- Intellectual property (IP) licensing expenditure.
- Interest incurred on loans intended for re-financing previous loans or borrowings.
- Interest incurred on late payment of fees to a Management Corporation for a Strata Title Plan (MCST).
- Interest expenses.
- Insurance costs for underwriting bad trade debts.
- Payments for Insurance premiums.
- Employee's income tax paid by the employer.
- Exhibition expenses.
- Exchange loss (trade and revenue in nature).
- Entertainment expenses.
- Employment Assistance Payment (EAP).
- Employee Equity-Based Remuneration (EEBR) Scheme payments.
- Directors' remuneration costs.
- Directors' fees.
- Digital taxes imposed through turnover taxes (not income taxes).
- Voluntary cash contributions to self-employed persons' Medisave Account.
- Cash spend in topping-up of Employees' CPF Minimum Sums.
- Ad-hoc contributions to employees' Medisave accounts.
- Statutory CPF contributions.
- Bank charges.
- Auditors' remuneration.
- Advertisement costs.
- Administrative expenses.
- Accounting fees.
Non-deductible expenses, on the other hand, include the funds that you spend on:
- Withholding tax on the interest payments paid by companies on-behalf of non-residents.
- Retrenchment payments such as ex-gratia retrenchment payments and outplacement support costs - in the event of a complete business cessation.
- Provision for obsolete stocks.
- Provision for bad and doubtful debts.
- Private vehicle hire.
- Private and domestic expenses that are not incurred for business purposes.
- Prepaid expenses.
- Penalties.
- Motor vehicle expenses for S-plated and RU-plated cars.
- Legal and professional fees for non-trade or capital transactions.
- Interest expenses on non-income-producing assets.
- The installation of fixed assets.
- Singapore income tax and any tax on income in a country outside Singapore.
- Impairment loss on non-trade debts.
- Goodwill payments.
- Fines.
- Acquiring fixed assets.
- Bills before the commencement of business.
- Exchange loss (non-trade or capital in nature).
- Donations.
- Dividend payments made on preference shares.
- Digital taxes imposed as income taxes.
- Interest incurred on late CPF contributions.
- Voluntary contributions to CPF.
- Certificate of Entitlement (COE) for motor vehicles.
- Bad debts (non-trade debtors).
- Amortisation.
Where to Start
For expert corporate assistance on calculating and declaring deductible and non-deductible business expenses in Singapore, you can start by talking to us. Besides, it won’t cost you anything to consult our tax filing professionals.