IRAS updated its business expense guidance to include tax deductions for qualifying Green Certificates and Green Credits (GCCs) used for voluntary sustainability commitments. The revised guidance also clarified the tax treatment of operational costs, insurance premiums, intellectual property licensing and interest expenses.
The Inland Revenue Authority of Singapore (IRAS) has updated its guidance on business expense deductions, clarifying new rules for Green Certificates and Green Credits (GCCs). The previous guidance on carbon credits has been removed, as their tax treatment is now covered under the GCC guidance.
Under the guidance, businesses can deduct expenses that are wholly and exclusively incurred in the production of income, provided the expenses meet the requirements of the Income Tax Act 1947.
Rules for deductible expenses
To qualify for a deduction, an expense must relate directly to income production, and the legal obligation to pay must have arisen during the relevant period. It must also be revenue in nature, rather than a capital investment, and must not be prohibited under the Income Tax Act 1947.
Deductible expenses include salaries, rent, utilities, accounting and audit fees, statutory Central Provident Fund (CPF) contributions, staff training and costs associated with commercial goods vehicles.
Medical expenses are deductible subject to a cap of 1% or 2% of total remuneration. Non-deductible expenses include company incorporation costs, private passenger car expenses, fixed asset purchases, depreciation, income taxes, statutory fines and penalties, and general provisions for bad debts.
Specific provisions for doubtful trade debts and revenue losses caused by theft or employee embezzlement may qualify for deductions, subject to the applicable rules.
New deductions for green credits
Under Section 14ZJ of the Income Tax Act 1947, businesses can claim a 100% tax deduction for qualifying GCC costs from Year of Assessment (YA) 2026. The deduction covers credits surrendered or retired to meet voluntary sustainability commitments or statutory requirements.
Before YA 2026, deductions were available only for expenses incurred to meet mandatory statutory or regulatory obligations. The deduction must be claimed in the YA corresponding to the basis period in which the credits are surrendered or retired.
Qualifying GCCs include carbon credits representing greenhouse gas emission reductions, removals or avoidance, and Renewable Energy Certificates (RECs) representing the environmental attributes of renewable electricity supplied in Singapore under the Electricity Act 2001.
Eligible costs include purchase prices, intermediary and trading fees, professional services, and registration and compliance expenses. Deductions are based on actual costs incurred, not the market value of the credits when surrendered. Validation and verification costs incurred by project developers selling credits do not qualify under Section 14ZJ.
Other business expense rules
Companies adopting Financial Reporting Standards (FRS) 109 can deduct impairment losses on revenue-related trade financial assets, while reversals are taxable. Other companies can claim deductions only for specific provisions on doubtful trade debts.
Insurance premiums for qualifying revenue-related policies, including Keyman insurance and Work Injury Compensation, are deductible. Insurance payouts compensating for lost profits are taxable, while capital payouts are non-taxable.
Licence fees for qualifying intellectual property rights used in trade or research and development are deductible under Section 14 or Section 14C. Under the Enterprise Innovation Scheme (EIS), eligible businesses with annual group revenue below SGD 500 million can claim a 300% enhanced deduction on qualifying intellectual property acquisition and licensing costs, subject to a combined cap of SGD 400,000 per YA from YA 2024 to YA 2028. A cash payout option of 20% is available on up to SGD 100,000 of qualifying expenditure, capped at SGD 20,000 per YA.
Interest on borrowings used to finance income-producing assets is deductible. Interest linked to non-income-producing assets is generally non-deductible, with common interest expenses allocated using the Total Asset Method (TAM).
The guidance also covers additional tax concessions under the Corporate Volunteer Scheme, the Double Tax Deduction for Internationalisation Scheme and R&D tax measures.
