What Expenses Can I Deduct from Foreign Income in Singapore?

Image: illustration supplied by the contributor; not an official IRAS image.

If you are living in Singapore and earning money from overseas clients, running an online business or working as a freelancer, one question you may have is: Can I deduct my business expenses from the income I earn overseas when filing my Singapore income tax return?

The answer depends on whether your income is taxable in Singapore in the first place. This is an important distinction because not all money received from overseas is treated as foreign-sourced income for tax purposes.

Singapore generally does not tax foreign-sourced income received by individuals in Singapore. However, if you operate a business or provide freelance services from Singapore, your income may be taxable here even if all your customers are overseas.

Let’s understand which expenses you can claim, which ones you cannot, and how to calculate your taxable freelance or business income.

1. First, determine how your income is taxed

Before looking at deductions, you need to establish whether your overseas income is taxable in Singapore.

Simply invoicing a foreign customer, receiving payment in a foreign currency or depositing money into an overseas bank account does not automatically determine where your income is sourced.

IRAS generally distinguishes between foreign-sourced income received by an individual and income derived from business activities carried out in Singapore.

Foreign-sourced income received by an individual

Generally, overseas income received in Singapore, including income deposited into a Singapore bank account, is not taxable for individuals.

However, there are exceptions. For example, overseas income received through a Singapore-based partnership or income from certain overseas business activities incidental to a Singapore business may be taxable.

Business income generated from Singapore

If you operate a business or provide freelance services from Singapore, your income may be taxable here even if your customers are based overseas.

What if you pay tax overseas as well?

If the same income is taxable in Singapore and in another country, you may qualify for foreign tax credit or double taxation relief, subject to IRAS conditions and any applicable double taxation agreement.

Foreign tax credit is generally not available for income that is exempt from Singapore tax. It is intended to provide relief against Singapore tax on qualifying foreign income that is also taxed overseas.

2. Which business expenses can you deduct?

If your overseas client income is taxable as your Singapore trade or freelance income, you can generally deduct qualifying business expenses incurred to earn that income.

IRAS follows the principle that expenses must be incurred wholly and exclusively in producing business income. They must be genuinely incurred, business-related and not personal, capital or otherwise prohibited expenses.

You cannot simply estimate your annual expenses and claim them as deductions. You must maintain proper records and supporting documents.

Here are some practical examples for consultants, freelancers and online business owners.

Three expenses that need particular attention

• Legal fees: Not every legal expense is deductible. IRAS specifically recognises qualifying expenses such as legal fees incurred to recover trade debts or renew leases. Legal fees associated with capital transactions, such as entering into a new lease for immovable property, are generally not deductible as ordinary business expenses, unless a specific statutory deduction applies.
• Payments to family members: If you employ relatives, payments must reflect genuine work performed and reasonable market compensation. Excessive payments or payments for services not actually performed may be disallowed.
• Equipment: Repairs to business equipment may qualify, but buying new equipment is treated differently and may qualify for capital allowances instead.

These categories are based on IRAS’s official guidance. Whether a particular expense qualifies depends on its purpose and circumstances.

3. Expenses you generally cannot deduct

While running a business, it is easy to confuse personal expenses with business expenses. However, IRAS does not allow deductions for costs that are personal in nature or specifically prohibited under the tax rules.

The following are common examples for individual sole proprietors and freelancers:

• Personal living costs: Groceries, household bills, family expenses and personal shopping.
• Your own salary: You cannot pay yourself a salary as a sole proprietor and deduct it as a business expense.
• Personal income tax: Singapore or foreign personal income tax is not a business operating expense.
• Personal medical costs and insurance: Your own medical bills and personal insurance premiums.
• Private travel: Holidays, family trips and normal commuting between home and work.
• Private car expenses: Costs relating to private cars are generally prohibited, even if the car is used for business.
• Capital purchases: Equipment purchases are not ordinarily deducted as a normal running expense. Qualifying assets may instead attract capital allowances.
• Fines and penalties: These are generally not deductible.
• Unsupported estimates: You cannot simply estimate your annual expenses without proper records.
• Personal training expenses: Training expenditure incurred by a sole proprietor or partner for themselves is generally not deductible as a business expense.

4. What if you work from home?

Many freelancers, consultants and online business owners operate from their homes. You may therefore wonder whether you can deduct part of your rent, utilities, internet and other household expenses.

The answer depends on the nature of the expense and whether it meets IRAS’s business expense requirements.

For example, if you run a freelance marketing consultancy from home, you might incur:

• Internet costs used for client work.
• A business-related share of phone charges.
• Software subscriptions used for client projects.
• Qualifying costs for a dedicated workspace.

However, working from home does not automatically entitle you to deduct a percentage of your residential rent, electricity bills or other household expenses.

A dedicated workspace does not, by itself, make household expenses deductible. Any claim must satisfy the applicable tax rules and be supported by a reasonable basis.

For example, if you use your home internet connection for both personal and business purposes, you should only claim the portion that genuinely relates to your business.

If you rent a separate office or coworking space specifically for your business, the rental expense may generally qualify, subject to the usual conditions.

5. Example: Calculating your taxable freelance profit

Suppose you earn S$60,000 annually from overseas clients for freelance marketing consultancy work carried out from Singapore.

Your business expenses are as follows:

In this example, your adjusted business profit is S$50,000. This calculation assumes that all the listed expenses qualify as allowable deductions and that the S$60,000 represents taxable business revenue in Singapore.

Your adjusted business profit is included in your personal income tax computation alongside your other taxable income, such as employment income or rental income, where applicable.

Your final chargeable income may be lower after considering eligible personal tax reliefs and donations.

6. How to claim the deductions

If you are an individual filing a Singapore income tax return as a freelancer or sole proprietor, here are the steps to follow:

1. Maintain proper records. Keep invoices, receipts, contracts, payment records and a clear record of the business purpose for each expense. Maintain records of both your business income and expenditure.
2. Calculate your adjusted business profit. Deduct only allowable business expenses from your business revenue. Do not include personal or prohibited expenses.
3. Declare your trade income correctly. Report freelance or sole-proprietorship income under the Trade, Business, Profession or Vocation section of your individual income tax return. Follow the reporting instructions in myTax Portal and the return issued by IRAS. Depending on your filing requirements, you may receive Form B or Form B1.
4. Keep supporting documents for at least five years. IRAS requires self-employed individuals to maintain proper records and accounts for at least five years. You generally do not need to submit every invoice and receipt with your return, but must be able to produce them if IRAS requests them.

7. What if you operate through a private limited company?

The rules explained in this article primarily apply to individuals operating as freelancers or sole proprietors.

If you have registered a private limited company (Pte Ltd) in Singapore, the company is treated as a separate legal and taxable entity.

Its business income and deductible expenses are assessed under Singapore’s corporate income tax rules rather than the individual income tax rules applicable to sole proprietors.

Therefore, the expenses you can claim, the tax treatment of your income and your filing obligations may be different. If you operate through a company, refer to IRAS’s guidance on business expenses for companies.

One important question about your situation

If you are living in Singapore and receiving payments from overseas clients, do not assume that your income is automatically tax-free.

The tax treatment depends on the nature of your business, where the income-generating activities are carried out, how your business is structured and whether any specific tax exemptions apply.

For example, a consultant providing services from Singapore to clients in the US, UK or Australia may have taxable Singapore business income even though all their clients are overseas.