The Inland Revenue Authority of Singapore has published an updated e-Tax Guide, Deduction for Statutory and Regulatory Expenses (Second Edition). The guide has been updated to reflect renumbered provisions based on the Income Tax Act 1947 (the ITA), as well as updated citations of Acts. The guide explains the rationale and scope of the deduction allowed for qualifying statutory and regulatory expenses. The e-Tax Guide is relevant to taxpayers that have incurred such expenses during the basis periods for Year of Assessment (YA) 2014 and subsequent YAs.

As explained in the guide, businesses are often required to comply with various laws and regulations. Some of the statutory and regulatory expenses incurred in the course of complying with those laws and regulations may, however, not be deductible for tax purposes based on the Income Tax Act 1947 (ITA) because they are not regarded as wholly and exclusively incurred in the production of an income. But to promote good corporate governance and voluntary compliance with statutory and regulatory requirements, a specific deduction was introduced for qualifying statutory and regulatory expenses incurred during or after the basis period for YA 2014. This is provided under section 14V of the ITA.

Qualifying statutory and regulatory expenses are expenses incurred by a taxpayer for their business and in the production of income accruing in or derived from Singapore or received in Singapore from outside Singapore, and:

• for the purpose of compliance with any written law of Singapore or another country;
• 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, or by a securities exchange;
• to study the impact of any proposed law referred to above that has yet to be enacted, or proposed document referred to above that has yet to be issued;
• to prevent or detect any non-compliance with any law or document referred to above; or
• to voluntarily comply with a requirement of any law or document referred to above, even though the taxpayer is exempt from complying with the requirement.

Further, these qualifying expenses should be directly related to the compliance of the taxpayer with the statutory or regulatory requirement. On the other hand, the following expenses would not qualify for a deduction:

• an expense that is capital in nature;
• a fine, penalty, or composition amount in relation to a composition of an offence under any written law of Singapore or another country;
• an expense to defend against charges of non-compliance with any statutory and regulatory requirement; and
• an expense in relation to appeals to the courts or any quasi-judicial body (e.g., the Income Tax Board of Review).

It is also clarified that where statutory and regulatory expenses would qualify for a deduction under any other provision of the ITA, such as the general deduction provision under section 14(1), the expenses would not be deductible under section 14V.