Tax depreciation is allowable at specified rates on buildings used in qualifying industry sectors, subject to conditions. In 2010, industrial building allowances were replaced by a Land Intensification Allowance. The latter provides for faster depreciation but is subject to approval as it is allowed as a tax incentive. Transitional provisions for industrial building allowances are available for taxpayers who committed to qualifying capital expenditure on or before 22 February 2010.
Tax depreciation is available on machinery and equipment on a straight-line basis over their specified working life for all types of business. In lieu of the straight-line basis, accelerated tax depreciation allowances can be claimed by all businesses on all machinery and equipment in equal instalments over three years. For the year of assessment 2021, depreciation allowance claims may be made over two years, with 75% of the cost written off in the year of assessment 2021, and the remaining 25% in the following year.
A 100% depreciation allowance is available on capital expenditure incurred on computers, robots, standby generators, pollution control equipment, and prescribed automation equipment.
Writing down allowances on a straight-line basis over five years are allowable on the cost of acquisition of intellectual property (IP), subject to certain conditions. Taxpayers acquiring IP in the 2016 to 2019 income years may make an irrevocable election to claim the writing down allowances over 10 or 15 years instead of five.
Gains on tax depreciable property (i.e. the excess of proceeds over tax base) are taxed as ordinary income to the extent that tax depreciation has been allowed; that is, there is a clawback of tax depreciation on the disposal of the asset.
Payments for the acquisition of goodwill are generally capital in nature and not deductible.
Generally, expenses incurred prior to the commencement of business are not tax deductible. However, most businesses are allowed to deduct expenses incurred in the 12 months immediately preceding the accounting year in which the business earned its first dollar of trading income. Deductible expenses are those that would have been allowed a deduction had they been incurred after the business commenced operations.
In addition, deductions and writing down allowances are available for certain types of pre-commencement expenditure (acquisition of plant and machinery, R&D, etc.) that are deemed to be incurred on the first day on which the taxpayer carries on business.
Interest incurred on capital employed in the production of income, and prescribed borrowing costs that are incurred as a substitute for interest or to reduce interest costs, will be allowed as a tax deduction.
Research and development (R&D) expenses
For the years of assessment 2019 to 2025, enhanced tax deduction of 250% of qualifying expenditure is available for R&D carried out in Singapore, subject to conditions. Where the R&D is carried out overseas, a deduction of 100% of qualifying expenditure is allowed.
Expenditure incurred in relation to R&D cost-sharing arrangements are accorded the same tax treatment as R&D expenses.
Intellectual property (IP) acquisition expenses
For the years of assessment 2019 to 2025, enhanced tax deduction of 200% is available for each of the following:
- the first SGD 100,000 of qualifying expenditure incurred to register qualifying IP, and
- the first SGD 100,000 of expenditure incurred to license qualifying IP.
Bad trade debts and provisions for trade debts are deductible to the extent that they are incurred in the business and previously included as trading receipts. Doubtful debts are deductible if they are properly estimated and specific. General provisions for bad debts are not deductible.
Businesses that have elected to align their tax treatment of financial instruments with the accounting treatment prescribed by SFRS 39 (Financial Instruments: Recognition and Measurement) will be allowed a tax deduction for impairment losses on trade debts when they are incurred (regardless of whether they are general or specific provisions). Correspondingly, any reversal will be taxed. Businesses that have adopted SFRS 109 (Financial Instruments) will be allowed a tax deduction for impairment losses on trade debts when recognised in the profit and loss account, to the extent that the debts are credit impaired. Correspondingly, any reversal will be taxed.
Donations are deductible only if they are made in cash or another prescribed form and to an approved recipient. The deduction allowed for qualifying donations is generally 250% of the value of the donation. Businesses that send employees to volunteer and provide services to approved charitable institutions from 1 July 2016 to 31 December 2021 will be allowed to deduct 250% of the wages and incidental expenses incurred, subject to certain conditions.
Fines and penalties
Fines and penalties imposed for violations of the law are not deductible.
Income taxes are generally not deductible in determining corporate income. However, irrecoverable GST is deductible under certain circumstances. The FWL and property taxes are deductible to the extent they are incurred wholly and exclusively in the production of income.
Other significant items
Private automobile expenses are not deductible.
The tax deduction for medical expenses is limited to 2% of total payroll if the employer implements certain portable medical insurance or benefit schemes. Otherwise, the amount deductible will be limited to 1% of total payroll. Where the company is exempt or taxed at a reduced rate, the excess expenses will be taxed at the prevailing corporate rate.
A tax deduction for employee share-based remuneration (stock awards or stock option schemes) is allowed only if treasury shares in the company or its holding company are purchased to fulfil such obligations. A company may also claim a tax deduction when the share-based remuneration scheme is administered by a special purpose vehicle (SPV). The deduction is restricted generally to the lowest of the actual outlay incurred by the company, its holding company, or the SPV.
Net operating losses
Loss carryover, including unutilised tax depreciation allowance, is unlimited, provided shareholdings in the loss-making corporation have not changed beyond 50% of the total number of issued shares. Additionally, for tax depreciation allowances to be carried forward, the same trade needs to be continued. The tax authorities may exercise discretion to allow carryover of tax losses and unutilised tax depreciation even when there has been a change in shareholding beyond 50%, absent any tax avoidance motives. Losses and tax depreciation of up to SGD 100,000 incurred by the company in the current year can be carried back for one year. For the year of assessment 2020, current year losses and tax depreciation of up to SGD 100,000 may be carried back for up to three immediate preceding years of assessment. The carryback of losses and tax depreciation is subject to the continuity of shareholding test and the same trade test for carryback of tax depreciation.
Payments to foreign affiliates
Payments to non-residents, including foreign affiliates, are deductible, provided they are fair and reasonable, are revenue in nature, and can be seen to be relevant to earning the payer’s income.