Singapore Income Tax: Tax Deduction on Statutory and Regulatory Expenses

Singapore businesses are required to comply with various laws and regulations. Some of the statutory and regulatory expenses incurred to comply with those laws and regulations may however not be tax deductible as they are construed as not wholly and exclusively incurred in the production of business income. 

In order to promote good corporate governance and voluntarily compliance with statutory and regulatory requirements, Section 14X of Singapore Income Tax Act provides a specific deduction on such expenses incurred during the year or the basis period for Year of Assessment (“YA”) 2014. (i.e. financial year ending in the year preceding that YA). 

The following expenses incurred in the production of income accruing in or derived from Singapore or received in Singapore from outside Singapore by the business are tax deductible with effect from YA 2014: - 

a) For the purpose of compliance with any written law of Singapore or another country; 

b) For the purpose of compliance 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; 

c) To study the impact of any proposed law referred to in (a) that yet to be enacted, or proposed document referred to in (b) that yet to be issued; 

d) To prevent or detect any non-compliance with any law referred to in (a) or document referred to in (b); 

e) To voluntarily comply with a requirement of any law referred to in (a) or document referred to in (b), even though the business is exempt from complying with the requirement. 

Transfer Pricing (“TP”) Documentation 

The Inland Revenue Authority of Singapore (“IRAS”) has set up a more comprehensive guidance on transfer pricing documentation. 

Comprehensive guidance will be on:- 

a) Objective of preparing TP documentation 

To demonstrate the pricing of the transaction with their related parties is arm’s length. 

b) Contemporaneous TP documentation 

To ensure the integrity of tax payers’ transfer pricing positions and prevents taxpayers from justifying their positions after the fact. 

c) Types of TP documentation 

To provide documentation of their group and the specific companies involved in the related party transactions. Under group level, the documentation should provide a good overview of the group’s business whereas entity level, the documentation should provide sufficient details of the subject taxpayers’ business and the transaction with its related parties. 

d) Extent of TP documentation 

To ascertain the facts and circumstances of the transaction, undertake transfer pricing analysis and apply acceptable transfer price methodology to ascertain the transfer pricing and maintain relevant documents. 

e) Compliance matters relating to TP documentation 

The tax payers should observe the compliance requirement as follows: - 

1) TP documents should be prepared on contemporaneous basis; 

2) Submission of TP documentation upon IRAS request for verification purposes; 

3) Review of TP documentation periodically to ensure the financial and economic analysis contained, applied transfer pricing method disclosed is still relevant and the transfer pricing is still at arm’s length;

4) Should retain TP documentation in any medium, whether in paper, electronic form or any system for 5 years from the relevant year of assessment as required in Section 67 of Singapore Income Tax Act; 

5) TP documentation not in English may be requested by IRAS be translated in English. 

Compliance with Foreign Account Tax Compliance Act (“FATCA”) Requirement 

On 22 September 2014, the IRAS has proposed regulations to assist financial institutions in Singapore to comply with the US FATCA which requires all the financial institutions outside USA to regularly pass information on financial accounts held by US persons to the US Internal Revenue Service. 

A 30% withholding tax will be imposed on certain gross payment received from the US if the information is not submitted to US Internal Revenue Service on regular basis. Such US Act is to target non-compliance with US tax law by US persons using overseas accounts. 

The Public Consultation on Proposed Regulations was held from 22/09/2014 to 17/10/2014.

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