IRAS issued a new e-Tax Guide on 12 September 2014 in which to explain the rationale and scope of deduction allowed for qualifying statutory and regulatory expenses with effect from Year of Assessment 2014. By way of background, Section 14X of the Income Tax Act has been introduced as a result of the Income Tax (Amendment) Bill 2014.
What are qualifying statutory and regulatory expenses?
Qualifying statutory and regulatory expenses are expenses incurred by a taxpayer for his business and in the production of income accruing in or derived from Singapore or received in Singapore from outside Singapore, and:
(a) for the purpose of compliance by him with any written law of
Singapore or another country;
[E.g. Tax compliance fee and audit fee, and expenses incurred to rectify non-compliance with the tax and company law requirements]
(b) for the purpose of compliance by him with any code, standard, rule, requirement or other document issued by the Government, a public authority established by or under any public Act, or by the
government or a public authority of another country, or by a
[E.g. expenses incurred to comply with non-statutory codes and directives issued by the MAS and ASC, annual listing fees and other expenses incurred to comply with the Singapore Exchange Listing Manual.]
(c) to study the impact of any proposed law referred to in (a) that has
yet to be enacted, or proposed document referred to in (b) that has
yet to be issued;
[E.g. Expenses incurred to study the impact of implementing proposed statutory requirements that has yet to be enacted,
such as when the Foreign Account Tax Compliance Act (“FATCA”) was first proposed by the US government.]
(d) to prevent or detect any non-compliance with any law referred to in (a) or document referred to in (b);
[E.g. GST ACAP expenses paid to an independent ACAP reviewer to review and verify that a company’s internal controls for GST reporting and filing are working well.]
(e) to voluntarily comply with a requirement of any law referred to in (a) or document referred to in (b), even though he is exempt from
complying with the requirement.
[E.g. Audit fees incurred by a company that is eligible for audit exemption under the Companies Act.]
What are NOT qualifying statutory and regulatory expenses?
(a) expense that is capital in nature;
(b) fine, penalty or composition amount in relation to a composition of an offence under any written law of Singapore or another country;
(c) expense to defend against charges of non-compliance with any
statutory and regulatory requirement; and
(d) expense in relation to appeals to the courts or any quasi-judicial
body (e.g. the Income Tax Board of Review).
Please note that there is no double deduction of the statutory and regulatory expenses. If the expenses would have been qualified for a deduction under Section 14(1), they would not be deductible under Section 14X.
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