Singapore’s corporate tax rate on chargeable income at 17 percent – it is one of the lowest in the world. Understanding your expenses is one of the key factors that your Cloud Accountant will do to help you manage your tax payable.
What is a deductible expense?
Deductible expenses help your business generate profit.
For example, the marketing and promotion costs are deductible, while the petrol for your private car is not. You have a (legal) liability to pay it as it is billed to your company.
For example, your CPF contributions payment are something you are contractually obliged to pay, so they are deductible. But if you plan to buy A4 size papers for the office, but have not done so yet, you cannot expense it off.
Big tickets fixed assets over a certain amount are not expenses off in full. The purchase of a new office property is not deductible while getting packs of A4 size papers is.
In general guideline, the following are deductible cost
- Human Capital cost (Including training and staff welfare)
- Software subscription cost (Google email and cloud accounting fee)
- Consultancy Cost
- Government licence cost
- Rental and electricity cost
- Medical and insurance costs (Medical fee is capped at 1% of the total remuneration your employee gets in a year If your company is under Portable Medical Benefits Scheme (PMBS), your cap is 2%)
- Travelling and business costs
- Hire purchase Interest cost
- Finance and professional costs
- Day to day running costs
Deductible costs embrace a whole range of your business activity spheres: from the salaries you pay to the employees to the money you spend on advertising. Once you start operations, you should keep track of all expenses and hand it to your accountants who can help you determine if it is deductible.
You can deduct the costs that you or your employee incur while you go on business trips. A single taxi ride counts as a business trip, and so does travelling to another country.
Fixed assets cannot be deducted directly. Instead, we use capital allowance method approved by IRAS to calculate the permitted value for yearly deduction. Your accountant should be able to give you a break down at the end of the year of the estimated tax payable.
Non-deductible expenses are also anything that you spend on what is not directly connected to generating profit. For example, you cannot deduct your company’s incorporation fees or your private car costs.
Some examples of non-deductible expenses are as per below:
- Incorporation cost
- Fixed assets cost
- Depreciation of fixed assets.
- Legal fees and stamp duty on a new lease (renewal is permitted).
- Membership fees to enter Singaporean professional bodies (such as Singapore Medical Association or Institute of Certified Public Accountants of Singapore).
- Renovation costs that change the structure of the property purchase. (Using S14Q calculation method is permitted)
- Private costs such as private entertaining expenses and gifts to family members and petrol cost.
- Personal travelling expenses
Ultimately, the most important thing to keep in mind is having a valid and paper evidence of the purchase of service or products. You have to keep bills, records and other reasoning for any spending for 5 years in case IRAS wants to see it.
What happens if you do not have an official bill when you hire a sub-contractor who did not issue an invoice for a small amount.
- Provide full name and contact details
- Registration Identity Card (NRIC) or Passport number and address of the person you pay (if the person is non-resident, confirm you paid the withholding tax);
- State the amount you pay to the person;
- Cover the nature of the service you get;
- State the place(s) where the service was provided;
- Report if the person is in any way connected to the directors or shareholders of the company.
Still unsure of what to do with your new set-up. EBOS Cloud Accountant will be able to set your new cloud accounting system and process your tax planning while we manage your finances. Focus on what you can do best to generate business. Leave the expenses to us.