What Are Allowable Expenses?

Navigating the financial landscape of running a business in Singapore involves understanding key tax concepts, including allowable business expenses. These tax-deductible expenses, recognised by the Inland Revenue Authority of Singapore (IRAS), can significantly benefit your company’s financial health and overall profitability.

Understanding Allowable Business Expenses

So, what exactly are allowable business expenses?

Allowable business expenses are costs your business incurs specifically to generate income and support its daily operations. The IRAS allows these business expenses to be deducted from your business revenue, meaning they reduce the amount of income you’re taxed on. These differ from non-deductible expenses, which are personal or unrelated to business income generation.

What Are the Allowable Business Expenses IRAS Approves?

1. Employee costs

IRAS acknowledges various employee-related costs that are integral to your operations. This includes salaries paid to staff, bonuses, retrenchment, compulsory contributions to their Central Provident Fund (CPF), and premiums for their insurance. However, expenses such as CPF contributions above the statutory limit and personal expenses incurred by employees are considered disallowable and cannot be deducted for tax purposes.

2. Rent and utilities

Tax deductible expenses for your business premises include rent, electricity, water, and other utilities, provided they are exclusively for business use. Ensuring these costs are solely for operational purposes is essential to meet IRAS criteria for tax deductions.

3. Finance and professional fees

Fees for essential professional services are also considered allowable business expenses. This includes costs associated with legal consultations, accounting services, and other necessary business consultancy fees. These expenses are deductible when directly related to your business operations.

4. Maintenance and repair fees

Costs incurred for the maintenance and repair of equipment and property used in your business are generally deductible. For the fees to qualify as allowable business expenses, the repairs must preserve the asset’s existing condition rather than improve it. This means that major renovations or refurbishments are not eligible as they typically enhance the value of the asset beyond its original state.

5. Insurance coverage

Businesses can claim deductions for various types of insurance that protect their operations. This includes insurance for work injury compensation, premiums for business assets, and professional indemnity insurance.

6. Business travel

Deductible business travel expenses include airfare, land transportation, and lodging incurred during trips for business meetings, conferences, or other work-related activities.

7. Research and development (R&D)

Eligible deductions for R&D expenses vary based on whether your company conducts in-house R&D, outsources it, or participates in cost-sharing agreements. The location of the R&D activities and their relevance to your existing business operations also influence the qualifying amount.

8. Bad debts (trade debtors)

Businesses can deduct bad debts that were previously recorded as income and prove to be irrecoverable. This deduction is allowable only if there’s sufficient evidence that all reasonable steps to recover the debt have been taken without success.

9. Motor vehicle expenses

Allowable expenses for business vehicles cover maintenance, running costs, and financing for commercial types like vans, lorries, and buses. These expenses are deductible when such vehicles are exclusively utilised for business operations.

10. Marketing and advertising

Expenses incurred to raise brand awareness and promote your products or services are generally tax-deductible expenses. This includes costs for advertising campaigns, both online and offline, as well as public relations activities designed to enhance your brand’s image.

Master Your Taxes and Finances

Understanding these allowable expenses is more than just a tax-saving tactic; it’s vital to your business’s overall financial strategy. However, navigating the complexities of what you can and can’t claim can be especially challenging for businesses that are just starting out or lack dedicated resources.

So, instead of stressing over the complexities alone and leaving potential savings untapped, consider getting professional help from corporate service providers like Singapore Corporate Services (SCS).

Our consultants provide expert tax services in Singapore to maximise allowable deductions and ensure compliance with IRAS guidelines. Our bookkeeping and accounting services also help you track and manage these expenses efficiently, giving you a clearer picture of your financial health.

Let us help your business achieve greater financial clarity and compliance.