Generally, interest expenses incurred on loans or borrowings taken to finance income-producing assets are tax-deductible.
Borrowing costs are costs other than interest expenses that are incurred to secure lower interest rates on loans or borrowings to finance capital expenditure that produces taxable income. These include guarantee fees, bank option fees, prepayment fees, early redemption fees, etc.
To align the tax treatment of borrowing costs with interest expenses, a list of tax-deductible borrowing costs is prescribed in the Income Tax regulations. To qualify for tax deduction, the borrowing costs must be incurred as a substitute for interest expense or to reduce interest costs.
Learn more about tax deduction for borrowing costs other than interest expenses (PDF, 407KB).
In today’s digital age, companies may incur additional taxes overseas on income generated from cross-border activities.
The deductibility of these digital taxes is based on existing provisions of the Singapore Income Tax Act 1947:
- If such taxes are imposed as an income tax, deduction is prohibited under Section 15(1)(g).
- If such taxes are imposed in the form of turnover taxes (not income taxes), they are generally deductible against income taxable in Singapore under Section 14(1). Examples of such taxes are India’s Equalisation Levy and the United Kingdom’s Digital Services Tax.
Donations are non-deductible expenses as they are not incurred in the production of income.
However, you can claim tax deduction for donations if they are made to an approved Institution of a Public Character (IPC) or to the Singapore Government to benefit the local community (referred to as 'approved donations').
View the list of approved donations.
|Approved donations (including donations with naming opportunity) made from 1 Jan 2015 to 31 Dec 20151||Approved donations (including donations with naming opportunity) made from 1 Jan 2016 to 31 Dec 20232|
|3 times deduction||2.5 times deduction|
1 In conjunction with SG50, approved donations made during the period from 1 Jan 2015 to 31 Dec 2015 (both dates inclusive) are given a tax deduction of 3 times the amount of donation.
2 To continue encouraging Singaporeans to give back to the community and to provide strong support for the charity sector, the tax deduction at 2.5 times of the amount of qualifying donations is extended for another 2 years till 31 Dec 2023.
Claiming Tax Deductions on Approved Donations
Your company is required to provide its Unique Entity Number (UEN) to the approved IPC in order to be given a tax deduction on the approved donations.
To enhance your filing experience, the approved donation amounts will be pre-filled in the Form C-S/ Form C-S (Lite)/ Form C based on information obtained from the IPCs. Learn how to claim tax deductions for approved donations in Form C-S/ Form C-S (Lite)/ Form C.
Making Adjustments for Donations in Your Tax Computation
Step 1: Add back all donations made (approved donations or otherwise) to arrive at the adjusted profit as donations are non-deductible expenses.
Step 2: Claim a tax deduction of 2.5 times the amount of approved donations. You can check the amount of approved donations made by the company via the View Donations digital service at mytax.iras.gov.sg. Tax deduction on approved donations is allowable on a preceding financial year basis.
Example 1: Tax Computation for Year of Assessment (YA) 2021
A company with its financial year from 1 Jun 2019 to 31 May 2020 made approved donations of $100 in Jul 2019 and $200 in Mar 2020.
|Add: Non-Deductible Business Expenses||$300|
|Less: Approved Donations||$(750) #|
|Chargeable Income (Before Exemption)||$550|
# Approved donations made in Jul 2019 and Mar 2020 = $100 + $200 = $300
Tax deduction for approved donations made in Jul 2019 and Mar 2020 = $300 x 2.5 times = $750
- Estimated Chargeable Income (ECI) Return: The company should declare $550 as the company's ECI.
- Corporate Income Tax Return: The tax deduction for approved donations of $750 will be pre-filled in the company's YA 2021 Form C-S/ Form C-S (Lite)/ Form C. For Form C, the Chargeable Income (before Exempt Amount) should be declared as $550. For Form C-S/ Form C-S (Lite), there is no need to declare Chargeable Income (before Exempt Amount).
Example 2: Tax Computation for YA 2021
A company with its financial year from 1 Jan 2020 to 31 Dec 2020 made donations of $100 in Feb 2020, of which $80 are approved donations.
|Add: Non-Deductible Business Expenses||$100|
|Less: Approved Donations||$(200) #|
|Chargeable Income (Before Exemption)||$900|
# Approved donations made in Feb 2020 = $80
Tax deduction for approved donations made in 2020 = $80 x 2.5 times = $200
- ECI Return: The company should declare $900 as the company's ECI.
- Corporate Income Tax Return: The tax deduction for approved donations of $200 will be pre-filled in the company's YA 2021 Form C-S/ Form C-S (Lite)/ Form C. For Form C, the Chargeable Income (before Exempt Amount) should be declared as $900. For Form C-S/ Form C-S (Lite), there is no need to declare Chargeable Income (before Exempt Amount).
Carrying Forward Unutilised Donations
Any unutilised donation can be carried forward for up to 5 years to set-off the company’s income for subsequent YAs, provided that there is no substantial change in the company's shareholders.
Employee Equity-Based Remuneration (EEBR) Scheme
An EEBR scheme typically provides employees with employee stock options (ESOs) or share awards under an employment service agreement.
ESOs enable employees to buy a certain number of shares in the company at a fixed price, sometime in the future. Share awards involve giving employees actual company shares for free or at a price below the market price.
Your company is allowed a tax deduction for treasury shares transferred to its employees under an EEBR scheme. It may also claim tax deduction on the relevant costs incurred where an EEBR scheme is administered by a Special Purpose Vehicle (SPV).
Deduction for Treasury Shares
Tax deduction is allowed on the actual cost incurred in acquiring the treasury shares, less any amount payable by employees for such shares. No tax deduction is allowed if new shares are issued to be transferred to the employees.
If a holding company transfers its treasury shares to employees of a subsidiary under an EEBR scheme, the subsidiary is allowed tax deduction if the holding company recharges the subsidiary for the shares transferred. The tax deduction is based on the lower of actual cost incurred by the holding company to acquire the treasury shares and the recharge, reduced by any amount payable by employees for the shares.
Deduction for Shares Acquired from a Special Purpose Vehicle (SPV)
Your company may claim tax deduction on certain costs incurred when an EEBR scheme is administered by a SPV.
To qualify, the SPV must be a legal person that can act as trustee of a trust that is set up for the sole purpose of the EEBR scheme. If the SPV performs other functions, these functions should not create any conflict of interest with its duties as a trustee.
The amount of tax deduction depends on how the shares are acquired:
- SPV acquires company's shares from the open market
- SPV acquires holding company's shares from the open market
- SPV acquires treasury shares of the company
- SPV acquires treasury shares of the holding company
Broadly, the costs deductible are the amounts charged by the SPV for the acquisition and transfer of the shares to the employees.
Learn more about tax deduction for shares used to fulfil obligations under an EEBR Scheme (PDF, 442KB).
Timing of Tax Deduction
The timing of tax deduction for both treasury shares and shares administered through an SPV generally corresponds with the vesting of the shares to the employees as follows:
The dates when options are exercised.
- Share Awards
The dates the shares are vested. If there is no vesting condition, the date of share grant applies.
Where your company is charged for the cost of the shares transferred by its holding company or SPV, tax deduction is allowed when the shares vest to the employees or when your company is liable to pay the recharge for the shares, whichever occurs later.
Learn more about the timing of tax deduction for shares used to fulfil obligations under an EEBR scheme (PDF, 442KB).
Employment Assistance Payment (EAP)
Employers must offer a one-off EAP to an older worker if they are unable to find a suitable job for the eligible older employee who wishes to work beyond his retirement age. This EAP is tax-deductible.
Learn more about the re-employment of older employees at the Ministry of Manpower’s website.
Expenses Incurred Before Commencement of Business
Watch our e-Learning video to learn about the tax deductibility of expenses incurred before commencement of business.
Expenses incurred before your business commences its business are not tax-deductible as these are incurred to set up the operations of the business and not 'wholly and exclusively' for the production of income.
Generally, a business may be regarded as having commenced its business when the business has established its profit-making structure and started income producing activities.
To assist businesses in enterprise development, a business is treated as having commenced its business on the first day of the basis period in which it earns its first dollar of business receipt (i.e. deemed date of commencement of business). Revenue expenses incurred from the deemed date of commencement of business as well as 1 year prior to the deemed date of commencement of business are tax-deductible.
The above tax treatment does not apply to companies that are subject to tax under Section 10D of the Income Tax Act 1947.
|Revenue expenses incurred||Tax Treatment|
|1 year before the first day of the basis period in which your company earns its first dollar of business receipt (i.e. deemed date of commencement of business)||Tax-deductible. The revenue expenses are treated as incurred on the deemed date of commencement of business|
|During the basis period in which the company earns its first dollar of business receipt||Tax-deductible|
A company was incorporated on 1 Jul 2018. Its financial year ends on 31 Dec. The company first incurred revenue expenses such as rental expenses and utilities on 1 Sep 2018. It earned its first dollar of business receipt on 1 Sep 2020.
A summary of the above events and the tax treatment for revenue expenses incurred before the commencement of business is as follows:
Learn more about the deductibility of certain expenses incurred before business revenue is earned (PDF, 135KB).
Actual Date of Commencement
The concession for enterprise development does not preclude your business from substantiating that it has commenced operations earlier than the basis period in which it earns its first dollar of business receipt. If the actual date of commencement is established to be earlier than the deemed date of commencement, all revenue expenses incurred from the actual date of commencement of business are tax-deductible.
A business that provides fund management services is regarded by IRAS as having established its profit-making structure and started its first commercial activity when it is ready to market its services and conclude contracts with its potential clients.
If the business is ready to market its services and conclude contracts on 1 Sep 2018, IRAS will accept that business has commenced on 1 Sep 2018 (i.e. in YA 2019), even though it may not have earned its first dollar of business receipt yet. All revenue expenses incurred by the business from that date onwards will be deductible for tax purposes.
Learn more about the guiding principles and view other examples on the determination of the date of commencement of business (PDF, 79KB).