Profit tax – are all expenses tax deductible? (3)

During the operation of the company, taxpayers will advance a large number of expenses in order to arrange tax avoidance. These expenses will cover more than one fiscal year’s accounting base period, and taxpayers will claim a lump-sum deduction in the payment year. However, according to the interpretation and implementation guidelines of the Tax Ordinance, the expenditure cannot be deducted in the entire payment year. Since the accounting concept is that income and expenses must match, the prepaid expenses need to be apportioned according to the time period covered, and the apportioned expenses will be deducted from the profit and loss account of the relevant accounting year.

Examples of advance expenses: A taxpayer pays a lump sum of two years’ rent for the company or pays a large sum to provide several years of maintenance for the elevators of a building. These lump-sum advances cannot be deducted in full in the payment year but are based on the coverage. The relevant time period is allocated and deducted in the corresponding fiscal year.

The above information is for reference only. If in doubt, we welcome your tax inquiries.