Taxes are one of the great unavoidables of business life, but they don’t have to be as burdensome as one might think. Most tax authorities (wherever you may be) allow certain taxable business expenses to be claimed as deductions against your company’s revenue. If done well, you may end up reducing your tax bill by a fair bit.
Emphasis on “fair”: that is, if you follow the rules set by your local revenue service.
Tax authorities throughout Southeast Asia don't, as they say, "play play": strict rules govern what each revenue service considers legitimate deductions against business expenses, and any business trying to play fast and loose with the tax rules will not enjoy the consequences.
The four general categories in this list will give you an idea of the type of allowable business expenses you can claim on your next tax return.
You need to remember one general rule. Any deduction you claim must be related to your business; you’ll need to demonstrate why you need to incur that specific expenditure to earn income. That means personal or private expenses cannot be deducted—nor any expense that was not exclusively made for the purpose of generating business income.
1. Operational business expenses
Within reason, the government will allow you to deduct certain costs related to the day-to-day running of your business. The list varies from country to country, but in broad strokes, you’ll be allowed to claim deductions on the following business expenses:
Business upkeep costs relating to the maintenance of one’s business premises, equipment and machinery may be deducted. The amount and degree of allowable deductions vary from country to country; renovations (as opposed to repairs) are generally not permitted as they are capital expenses not directly related to revenue, but exceptions have been made.
Malaysia allows a tax deduction of up to MYR 300,000 for renovation and refurbishment of business premises; while Singapore allows companies to claim deductions on the cost of renovating business premises up to S$300,000.
Transportation/travel costs may be deducted, usually for the cost of travelling on public transport in the course of business. In Singapore, for instance, travel allowances for employees are deductible; expenses related to private cars and company cars are not.
Motor vehicle expenses covering commercial vehicles such as vans, lorries and buses are also deductible, usually those relating to repairs, maintenance, parking fees and petrol costs.
Other allowable business expenses in this category include rent, utility, and telephone charges; marketing and advertising costs; and expenses incurred for licences and licence renewal.
Certain home-office business expenses may be deducted, particularly in the light of the increasing number of employees working from home. Singapore’s IRAS, for instance, will permit home office workers to deduct additional power and telecommunications bills incurred after one begins working from home.
2. Employee/staff costs
You can deduct certain classes of salaries, wages, commissions, and bonuses that you spend on your employees in the course of normal business operations. Salaries and bonuses are generally allowable deductions, but you’ll need to check with your respective internal revenue agency for other costs, which may vary from country to country.
Medical expenses, for instance, are deductible in Singapore if they do not exceed 1% of the total remuneration the employee receives in a year. In Indonesia, benefits received in kind by employees (like free housing) are not tax-deductible to the company providing the benefit, but expenses for meals and transportation provided to all staff are.
You may want to check with your accountant if you can deduct certain social security/retirement schemes as well. In Singapore, for instance, an employer’s contributions to their employees’ Supplementary Retirement Scheme (SRS) are fully deductible as staff costs to the employer, as long as it falls under annual SRS contribution cap.
3. Finance and professional costs
Whether you’re hiring a lawyer to handle a legal dispute, or having your business accredited for particular services, the fees you pay to these government or professional bodies (within limits) can be deducted against your business revenue. These include fees charged by attorneys, bookkeepers, tax preparers, and accountants, among others.
Many government revenue services allow deductions for interest incurred in the ordinary course of business, but only if the loan in question is used for business purposes. Singapore also allows deductions against borrowing costs (guarantee fees, bank option fees, prepayment fees, etc.) as a substitute for interest expense, or to reduce interest costs.
4. Certain religious and civic expenditures
Recognising the salutary effects of religious practice and community-minded activity on society at large, many governments allow deductions for business expenses incurred in the course of doing one’s civic or religious duty.
The respective revenue services of Singapore, Malaysia, and Indonesia, for instance, permit deductions or offer tax rebates for payment of certain religious dues—these may include (but are not limited to) mosque building fund contributions, zakat, fitrah or other religious dues authorised by law.
In Singapore, contributions and volunteer work rendered to a recognised Institution of Public Character (IPC) may be deducted from one’s tax obligations to the tune of up to 250% the value of one’s donation.
Making sense of the broad strokes
The process of determining one’s allowable business expenses is highly complex, and varies from country to country. This list only provides the broadest of broad strokes: to get the full picture of your company’s specific deductible business expenses, you’ll need to consult your company’s designated finance manager or a tax professional to determine which of these expenses can actually be deducted from your taxable income.
Figuring out how taxes and expenses interact can be time-consuming and confusing. But it’s not time to throw your hands up just yet – you can both gain greater visibility over your tax paperwork and extract the greatest value from your allowable deductions by using a platform like SAP Concur.
Take a closer look at your taxes, and use an efficient automated platform to help your business manage your business expenses efficiently and proactively. Learn more about how to increase visibility into your expenses here.
For more on our #BusinessSpendManagement series, click here.