Working out which tax deductible expenses Singapore businesses can claim starts with a general rule from IRAS that’s simple to state and harder to apply in practice: an expense is deductible if it’s incurred wholly and exclusively in the production of income, and it isn’t specifically disallowed under the Income Tax Act. Most of the confusion SMEs run into is in that second part, since a handful of common business costs are only partially deductible, or not deductible at all, even though they feel like ordinary costs of doing business.
Generally deductible expenses
These are typically deductible in full, provided they’re properly incurred for business purposes and supported by records:
- Employee salaries, CPF contributions, and bonuses
- Rent for business premises
- Utilities and office supplies
- Business insurance premiums
- Professional fees (accounting, legal, tax advisory) related to running the business
- Marketing and advertising costs
- Interest on loans used for business purposes
- Depreciation is not itself tax-deductible, but capital allowances on qualifying fixed assets serve a similar function under Singapore’s tax rules
Expenses with restrictions or special treatment
Entertainment expenses. Business entertainment (client meals, hospitality) is generally deductible, but IRAS distinguishes this from purely social entertainment. Keep records of who was entertained and the business purpose, since this is a common area of scrutiny.
Motor vehicle expenses. Running costs for cars used in the business are generally deductible, but private passenger cars (as opposed to commercial vehicles) are subject to specific restrictions, and expenses for cars that aren’t wholly used for business purposes need to be apportioned.
Medical expenses for employees. Deductible, but subject to a cap, typically expressed as a percentage of total employee remuneration, unless the company has implemented a Portable Medical Benefits Scheme or similar arrangement that allows the cap to be lifted.
Renovation and refurbishment costs (R&R). Certain qualifying renovation costs can be claimed under a specific R&R deduction scheme, subject to a cap over a rolling period, rather than as an outright general deduction.
Donations. Donations to approved Institutions of a Public Character generally qualify for tax deduction, often at an enhanced rate, but donations to non-approved organisations don’t qualify at all.
Expenses that are generally not deductible
- Private and domestic expenses, including personal expenses run through the company
- Fines and penalties, including traffic fines or regulatory penalties, even if incurred in the course of business
- Capital expenditure (the cost of acquiring a fixed asset itself, as opposed to capital allowances claimed on it over time)
- Provisions for future or contingent liabilities that haven’t actually been incurred yet, as opposed to genuine, incurred expenses
Why this matters beyond just tax filing
Getting expense classification wrong doesn’t just risk a larger tax bill if IRAS disallows a claimed deduction. It can also trigger penalties for incorrect filing if the disallowed amount is significant, and it creates rework at tax season when your accountant has to go back through the year’s expenses to reclassify items that shouldn’t have been claimed as fully deductible.
The cleanest fix is getting the categorisation right at the point the expense is recorded, not at year-end when someone is trying to reconstruct twelve months of transactions from memory.
A practical habit worth building
Keep a simple, consistent chart of accounts that separates ambiguous categories (entertainment, motor vehicle, renovation) from straightforward ones (rent, salaries, utilities) from the start. Getting your tax deductible expenses Singapore categorisation right at the point of recording, rather than reconstructing it at year end, is the habit that makes month-end bookkeeping faster and year-end tax filing considerably less painful.
Not sure what’s actually deductible?
Talk to Abacuscorp about getting your expense categorisation right, and your tax filing accurate, from the first entry.
