Q:
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Are all kinds expenses deductible for profits tax purposes?
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A:
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No. The following should be excluded when computing the assessable profits:
1.
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domestic or private expenses and any sums not expended for the purpose of producing the profits;
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2.
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any loss or withdrawal of capital, the cost of improvements and any expenditure of a capital nature;
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3.
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any sum recoverable under insurance or contract of indemnity;
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4.
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rent of or expenses relating to premises not occupied or used for the purpose of producing the profits;
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5.
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taxes payable under the IRO, except Salaries Tax paid in respect of employees' remuneration;
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6.
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any remuneration or interest on capital or loans payable to or, subject to section 16AA, contribution made to a mandatory provident fund scheme in respect of the proprietor or the proprietor's spouse or, in case of a partnership, to its partners or their spouses.
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Q:
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Are there any special rule or tax relief for some expenditures?
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A:
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Yes, there are special rules or tax reliefs for allowable deductions, subject to certain provision, on expenditures incurred for the following:
1.
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expenditure on research and development;
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2.
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expenditure on patent rights, rights to know-how and specified intellectual property rights;
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3.
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expenditure on building refurbishment;
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4.
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expenditure on “prescribed fixed assets”;
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5.
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expenditure in relation to environmental protection/friendly facilities.
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Q:
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What kind of assets can be defined as prescribed fixed assets?
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A:
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It can be defined into three categories. The first one is machinery or plant which specified in the First Part of the Table annexed to Rule 2 of the Inland Revenue Rules as is used specifically and directly for manufacturing process. The second one is computer hardware and the third one is computer software and computer systems.
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Q:
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What is the timing of deduction for expenditures incurred for patent rights, rights to know-how and specified intellectual property rights?
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A:
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For patent rights or rights to know-how, a full deduction is allowed during the basis period in which the expenditure is incurred. For specified intellectual property rights, deduction of the capital expenditure is to be allowed by 5 equal amounts over 5 consecutive years starting from the year of assessment in the basis period for which the capital expenditure is incurred.
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Q:
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What is the timing of deduction for expenditures incurred to building refurbishment?
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A:
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It is allowed as a deduction by five equal instalments, the first of which is allowed in the basis period during which the expenditure was incurred and the remaining four instalments in the basis periods for the next succeeding four years of assessment. Even the relevant property is sold before the instalments are fully granted, the taxpayer is still entitled to the remaining instalments.
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