As per Singaporean legislation, individuals (employees or sole proprietors) and companies are required to file annual income tax returns to the Inland Revenue Authority of Singapore (IRAS). Among the tax incentives implemented by IRAS are double tax deductions for businesses in the city-state.
What is Double Tax Deduction (DTD)?
Double tax deduction refers to cases when a company is allowed to claim twice the amount of expense incurred against its taxable income. The qualified expense for double tax deduction is usually specified by the tax authority to encourage targeted spending. For example, if a company incurred qualified expense eligible for double tax deduction amounting to SGD15,000, the company may claim SGD30,000 (SGD15,000 x 2) against taxable income.
Singapore’s Double Tax Deduction for Internationalisation scheme
In Singapore, double tax deduction is automatically allowed for expenses that are used for the following categories mainly involving internationalisation activities such as:
- Overseas business development trips
- Overseas investment research trips
- Participation in overseas trade fairs
- Local trade fairs approved by Enterprise Singapore or Singapore Tourism Board.
Activities involving promoting new products and services and increasing overseas market share would be deemed as qualifying activities. Typical examples of expenditure would include accommodation, travel expenses, brochures production and exhibit rental incurred for promoting company products in overseas trade fairs. In addition, consultancy fees for overseas market surveys and marketing campaigns professional fees are also part of approved qualifying expenses.
The objective of such tax policy is to encourage Singapore companies to go global and internationalise their products or operations. International expansion would then raise a company’s profile overseas and potentially increase revenue base.
Companies must take note of the expenditure limit, which is SGD100,000 per YA from 1 April 2012 to YA2018 and SGD150,000 per YA for YA 2019 to 31 March 2020. For instance, automatic deduction claims would be limited to SGD200,000 for YA 2017 if a company has spent SGD120,000 on qualified activities.
Application for Double Tax Deduction claim
Companies can apply for approval for double tax deduction if they have incurred qualifying expenses in addition to the expenditure limit by writing in to Enterprise Singapore or Singapore Tourism Board (STB). In addition, expenditure incurred that does not explicitly fall under the above four categories may be claimed for double tax deduction provided approval is obtained. Approval is granted on a case by case basis and needed before the company can proceed to claim from their tax filing. As usual, proper proof and documentation of purpose of expenditure should be maintained to support the claim.
Extension of DTD to Qualifying Salary Expenses
Singapore has expanded the scope of double tax deduction to include qualifying salary expenses. Salary expenses incurred between 1 July 2015 to 31 March 2020 for Singaporean Citizens and Permanent Residents assigned to overseas employment posts may qualify for double tax deduction up to a cap of SGD 1million per YA subject to approval. The company has to be an approved entity by Enterprise Singapore. This would incentivise companies to create job opportunities overseas.
Consulting a qualified tax professional may be a good option to clear any doubts regarding the double taxation scheme in place and the necessary approval applications and procedures.