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6.4. Reserves and Provisions

Provisions are generally deductible for income tax purposes if the following conditions are satisfied:

  • Provisions are established for losses or charges that are clearly identified and likely to occur.
  • Provisions are recorded both in the books and financial statements.
  • Provisions are listed on the statement of reserves attached to the annual tax return.

Reserves or the portion of them that are not used in accordance with their intended purposes or no longer have a purpose in the following financial year must be added back to the income in such financial year. Abusive establishment of provisions may result in the provisions being added back to taxable income and related penalties shall be applied.