What is capital expenditure (capex)?
Capital expenditure (capex) is money spent on long-term assets. Learn how it works and how it's taxed in Singapore.
September 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Capital expenditure (capex) is spending on assets you'll use for over one year. It sits on your balance sheet as property, plant and equipment (PP&E).
- Capex comes in two types: maintenance capex keeps current operations going, while growth capex adds capacity or opens new markets.
- You claim capital allowances instead of an upfront deduction, spread over one, three or more years under Inland Revenue Authority of Singapore (IRAS) rules.
- Separating capex from operating expenditure (opex) gives you a truer view of profit and makes it easier to plan cash for upgrades.
What is capital expenditure?
Capital expenditure (capex) is money a business spends to buy, build or upgrade assets it'll use for more than one year. Machinery, delivery vans, computers and office fit-outs are all common examples.
You record capex on your balance sheet as PP&E. The cost then reaches your profit gradually through depreciation over the asset's useful life.
This approach follows accrual accounting, which matches a cost to the periods it helps you earn income.
Picture a café buying a new espresso machine. It'll make coffee for years, so its cost is spread across those years instead of landing in one month. Operating expenditure works the other way, because everyday running costs are expensed straight away.
Fixed assets are items your business owns and uses over the long term instead of selling them. Each capex purchase adds to your fixed assets.
Types of capital expenditure
Capex falls into two groups, and each plays a different role in your budget. Knowing which is which makes it easier to decide what to fund first.
Maintenance capex
Maintenance capex is what you spend to replace or repair existing assets so your business keeps running at its current level. Replacing a worn-out delivery van or an ageing point-of-sale system counts as maintenance capex, because it keeps today's capacity in working order.
Growth capex
Growth capex is money you invest to add capacity or reach new markets. Buying two extra vans to cover more of the island, or fitting out a second outlet, is growth capex.
Growth capex is discretionary: you choose to invest because you expect a return. That gives you room to time these purchases around your cash position.
Examples of capital expenditure
Capex covers a wide mix of assets, and the tax treatment in Singapore varies by item. Common examples for Singapore small businesses include:
- premises such as an office or shop unit, although buildings generally get no allowance since the Industrial Building Allowance was phased out in 2010
- machinery and specialist equipment you'll use for more than one year
- vans, lorries and other vehicles you use for business
- computers and business software
- research and development (R&D), although many R&D costs qualify for deductions under the IRAS R&D tax measures
- intellectual property such as patents or trademarks
- business acquisitions, where you buy another business or its assets to expand
Before you file, check each purchase against the IRAS rules in the tax section below.
Capex vs opex: what's the difference?
Capex and opex reach your accounts at different times. That timing changes how you record costs and read your profit.
Capex buys assets that last more than one year, so you record them on the balance sheet and spread the cost through depreciation. Opex covers day-to-day running costs, which you expense in full in the period you incur them.
Say you buy a laptop for your business: that's capex. The electricity to run it and your office rent are opex.
Cash timing differs too. A large capex purchase can tie up your working capital immediately, even though its cost reaches your profit slowly. For tax, Singapore also treats capex and opex differently: day-to-day costs are generally deductible when incurred, while capex earns capital allowances.
How to calculate capital expenditure
You can work out your capex for a period using figures from your balance sheet and profit and loss statement. The standard formula, set out in the Corporate Finance Institute's PP&E guide, is:
Capital expenditure = ending PP&E − beginning PP&E + depreciation
Use net PP&E figures, after depreciation, for both balances. Follow these steps to apply the formula:
- Find your PP&E balance at the start of the period on your opening balance sheet.
- Find your PP&E balance at the end of the period on your closing balance sheet.
- Take the depreciation expense for the period from your profit and loss statement or the notes to your accounts.
- Subtract the beginning PP&E from the ending PP&E, then add the depreciation.
Here's how that works in practice. Say your balance sheet shows PP&E of S$50,000 at the start of the year and S$65,000 at the end. Depreciation for the year was S$10,000.
Capex = S$65,000 − S$50,000 + S$10,000 = S$25,000
That means you spent S$25,000 on new or upgraded assets during the year. You add depreciation back because it lowered the closing PP&E balance without any cash leaving the business.
Where to find capital expenditure in financial statements
Capex doesn't sit on a single line; it shows up across your financial statements in different ways. Singapore companies prepare these under frameworks such as Singapore Financial Reporting Standards (International) (SFRS(I)), listed in the Accounting and Corporate Regulatory Authority's accounting standards guide.
Balance sheet
Your balance sheet shows the value of your long-term assets under PP&E. Each capex purchase increases this balance, while accumulated depreciation reduces it over time.
Cash flow statement
Your cash flow statement is usually the quickest place to spot capex. Under International Accounting Standard 7, which Singapore adopts as SFRS(I) 1-7, cash spent buying PP&E sits under investing activities.
This line shows the cash that actually left your business. It can differ from the balance sheet movement if you bought an asset on credit.
Profit and loss statement
Capex doesn't appear directly on your profit and loss statement. Instead, the asset's cost flows through as a depreciation expense each year, gradually reducing your reported profit.
Capex metrics to track
Once you know your capex figure, a few simple measures show whether your spending is paying off. Useful measures to track include:
- free cash flow, which is operating cash flow minus capex and shows the cash left after investing in assets
- the capex-to-revenue ratio, which divides capex by revenue to show how much of your sales you reinvest
- the capex-to-depreciation ratio, which compares capex with depreciation to show whether you're adding assets faster than they wear out
Read free cash flow alongside profit measures such as operating profit after tax. Together, they show whether your earnings are turning into spare cash once asset spending is paid for.
How to plan a capital expenditure budget
A capital expenditure budget sets out the assets you plan to buy and when you'll pay for them. Work through these steps to build yours:
- List the assets you'll need to replace or add over the next 12 months, starting with your fixed asset register.
- Sort each item into maintenance or growth capex, so essential replacements get funded first.
- Estimate each item's full cost, including delivery and installation, and the extra revenue or savings you expect.
- Match the timing of big purchases to your cash flow forecast so you keep enough cash for day-to-day bills.
- Review the budget at least once a year and compare your actual spending with the plan.
Is capital expenditure tax deductible in Singapore?
You get tax relief on capex through capital allowances, spread over one or more years, instead of an upfront deduction. IRAS business expenses guidance classes buying fixed assets as a capital expense, which isn't deductible as an ordinary business cost.
Capital allowances
Capital allowances are deductions for the wear and tear of qualifying fixed assets, such as plant and machinery. IRAS grants them in place of depreciation, which isn't deductible. They follow IRAS timelines, separate from the depreciation rates in your accounts.
Under Section 19, you spread the claim over the asset's prescribed working life of six, 12 or 16 years. The IRAS capital allowances page sets out which assets fall into each category.
1-year and 3-year write-offs
If you'd like relief sooner, Section 19A gives you faster options. Under Section 19A(1), you can write off any qualifying asset over three years, claiming one-third of its cost each year.
A 100% write-off in one year applies to computers and prescribed automation equipment. Low-value assets costing up to S$5,000 each also qualify, but your total one-year claim for them is capped at S$30,000 per Year of Assessment (YA).
Larger purchases outside these categories use the three-year or working-life options.
Renovation and refurbishment deduction
Renovation and refurbishment works that don't affect a building's structure get a separate Section 14N deduction, which isn't a capital allowance. You can deduct up to S$300,000 of qualifying costs in each fixed three-year period, and the current period runs from YA 2025 to YA 2027.
You'd usually claim the deduction over three years, but from YA 2025 you can choose a one-year write-off instead. The IRAS Section 14N rules explain which works qualify. Tax rules change, so confirm your claims with your accountant before you file.
Track capital expenditure with Xero
Accurate capex records make it simpler to value your assets and prepare capital allowance claims on time. With Xero's fixed asset management tools, you can track every asset in one place and calculate depreciation automatically.
When you record transactions as you go, you'll always know what you've spent and what you can still afford. Try Xero for your business and get one month free.
FAQs on capital expenditure
Here are quick answers to common questions about capital expenditure in Singapore.
Can capital expenditure be negative?
The amount you spend on assets can't fall below zero, but the capex formula nets off assets you sell or write off. If disposals outweigh purchases in a period, the result can come out negative.
Does capital expenditure affect profit?
Yes, but at two different speeds: depreciation lowers your accounting profit, while capital allowances lower your taxable profit. Because the two follow separate timelines, your accounting and taxable profit can differ in any given year.
What is the difference between capital expenditure and revenue expenditure?
Revenue expenditure covers day-to-day costs such as salaries and rent, which IRAS generally treats as deductible in the year you incur them. Capital expenditure buys long-term benefits, so you get relief through capital allowances instead.
Can you claim GST on capital expenditure?
If you're registered for goods and services tax (GST), you can generally claim the 9% GST you pay on capital purchases as input tax. You'll need to meet the IRAS input tax conditions, such as using the asset for your business and holding a valid tax invoice.
Can you claim capital allowances on a company car?
Generally no: the IRAS capital allowance rules exclude S-plated private cars and Q-plated or RU-plated business cars, unless they're registered as private hire cars or cars for instructional purposes. Commercial vehicles such as vans do qualify, and a company car still counts as a fixed asset in your accounts.
Is software a capital expenditure?
It depends on the cost: the IRAS list of business expenses treats software set-up costs as non-deductible, while licence and software renewal costs are deductible. Check how your purchase is structured with your accountant.
Related terms
Learn more about capital expenditure
Handy resources
Advisor directory
You can search for experts in our advisor directory
Xero Small Business Guides
Discover resources to help you do better business
Financial reporting
Keep track of your performance with accounting reports
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.