Operating expense (opex)

Published Wednesday 30 September 2026

Table of contents

• What is an operating expense?
• Types of operating expenses
• What isn’t an operating expense
• Operating expenses vs capital expenditure
• How to calculate operating expenses
• Are operating expenses tax deductible in Singapore?
• Why operating expenses matter
• Overheads and operating expenses
• Ways to manage operating expenses
• Keep track of operating expenses with Xero
• FAQs on operating expenses
• Related terms
• Learn more about operating expenses

Key takeaways

• Operating expenses are the indirect, day-to-day costs of running your business, such as rent, salaries, utilities and marketing.
• They sit below gross profit on your profit and loss statement; cost of goods sold (COGS), interest, income tax and asset purchases are recorded separately.
• To calculate them, add up every operating cost line for the period, then divide by revenue to get your operating expense ratio.
• Most operating expenses are tax deductible if they meet Inland Revenue Authority of Singapore (IRAS) rules, though depreciation and private costs aren’t.

What is an operating expense?

An operating expense (opex) is an indirect, day-to-day cost of running your business, like rent or staff salaries. It covers what you spend to keep the business going, separate from the direct cost of the products you sell.

Picture a bakery in Tiong Bahru. Flour and butter are direct costs of each loaf, while the shop rent and the cashier’s wages are running costs.

Opex appears on your profit and loss statement after gross profit. Revenue minus COGS gives you gross profit, and subtracting opex gives you operating profit. Interest and tax come off after that, leaving net profit.

Types of operating expenses

Most businesses share a similar set of running costs, even if the amounts differ. Common examples include:

• staff salaries and Central Provident Fund (CPF) contributions
• rent for your office or shop
• utilities, internet, phone bills and software subscriptions
• marketing and advertising
• insurance and professional fees, such as accounting services
• repairs and maintenance
• depreciation and amortisation, which spread an asset’s cost over its useful life

Depreciation counts as opex in your accounts, though IRAS treats it differently for tax. The tax section below explains how.

These costs also split into fixed and variable costs. Fixed costs, like rent and insurance, stay the same each month. Variable costs, like marketing or overtime, rise and fall with how busy you are.

What isn’t an operating expense

Some large costs sit elsewhere in your accounts, and keeping them out of opex gives you an accurate operating profit. Leave these costs out of your opex total:

• cost of goods sold, which covers direct costs like stock and raw materials
• interest on business loans, which is a finance cost recorded below operating profit
• loan principal repayments, which reduce the loan balance on your balance sheet
• income tax, which is calculated on profit and recorded after operating profit
• capital purchases like equipment or vehicles, which are recorded as fixed assets

Goods and services tax (GST) works differently too. If your business is GST-registered, you can generally claim back the 9% GST paid on purchases as input tax, so it isn’t an expense.

Operating expenses vs capital expenditure

Operating expenses keep the business running now, while capital expenditure (capex) buys assets that help you earn income for years. The difference changes when the cost reduces your profit.

Opex is recorded in full in the period you spend it. Capex goes on your balance sheet as a fixed asset, and its cost is spread over its useful life through depreciation.

Say your design studio pays $250 a month for software and buys a $3,000 laptop. The subscription is opex and the laptop is capex, but repairing the laptop later is opex.

How to calculate operating expenses

You can work out your opex from your profit and loss statement in a few minutes. Follow the steps below, then use the ratio to track your costs over time.

Steps to calculate operating expenses

Use the same period for every figure so your total lines up with your revenue.

1. Choose the period you want to measure, such as a quarter or financial year.
2. List every operating cost for that period, including salaries, rent, utilities and depreciation.
3. Remove anything that belongs elsewhere, such as COGS, interest, income tax and asset purchases.
4. Add up the remaining costs to get your total.

The formula is: opex = the sum of all operating cost lines. You can also work backwards: opex = gross profit − operating profit.

Worked example in Singapore dollars

Say you run a café in Singapore with $300,000 in revenue and $120,000 in COGS for the year. That gives you a gross profit of $180,000.

Your operating costs for the year are:

• $72,000 in staff salaries and CPF contributions
• $54,000 in rent
• $6,000 in utilities
• $3,600 in marketing
• $2,400 in accounting and software fees
• $2,000 in depreciation on kitchen equipment

Together, these come to $140,000 in opex. Subtract that from gross profit and your operating profit is $40,000.

Operating expense ratio

The operating expense ratio shows how much of each dollar of revenue goes on running costs. The formula is opex ÷ revenue × 100.

For the café, that’s $140,000 ÷ $300,000 × 100 = 46.7%. If the ratio climbs while revenue stays flat, your running costs are rising faster than your sales.

Are operating expenses tax deductible in Singapore?

Most running costs are tax deductible in Singapore, which lowers your taxable income. Under IRAS rules on deductible business expenses, a cost qualifies when it’s:

• incurred wholly and exclusively to produce income
• actually incurred by the business
• revenue in nature, so it relates to day-to-day running rather than buying assets
• allowed under the Income Tax Act 1947

Many everyday costs meet these rules, including rent, staff salaries and bonuses, statutory CPF contributions, utilities, advertising, accounting fees, repairs and phone bills.

Some costs in your accounts still can’t be claimed. IRAS doesn’t allow a deduction for:

• depreciation, which you replace with capital allowances
• the purchase cost of fixed assets
• private and domestic expenses
• Singapore income tax

An accountant can confirm how these rules apply to your business before you file.

Why operating expenses matter

Your running costs shape how much profit you keep and how much cash you need each month. Tracking them helps you:

• see your operating profit, which shows how well the core business performs
• plan cash flow, since rent and salaries fall due whether sales are strong or slow
• set budgets and prices that cover your running costs
• claim the deductions you’re entitled to when you file with IRAS

Overheads and operating expenses

Overheads are a subset of operating expenses: the indirect costs of keeping the business open, such as rent, insurance, admin staff and accounting fees. Every overhead counts as opex, but costs like sales commissions move with activity and are usually tracked separately.

Grouping your overhead costs on their own shows the minimum you need to cover each month, even in a slow period. That number is a useful floor when you set prices or plan for quieter months.

Ways to manage operating expenses

Managing opex means spending where it earns a return and trimming where it doesn’t. Start with a monthly review, then try these ideas:

• compare expense lines month to month to spot rising costs early
• review software subscriptions and cancel the ones you rarely use
• renegotiate rent and insurance contracts when they come up for renewal
• automate manual admin like data entry to free up staff time
• track your operating expense ratio each quarter

There are more ways to cut business costs that protect the quality of your products and service.

Keep track of operating expenses with Xero

Clear, current expense records help you protect your profit and plan with confidence. Xero brings in transactions through automated bank feeds and lets you upload bills and receipts, so your profit and loss report stays up to date.

You can share access with your accountant to check deductions before you file. See how it works with your own numbers when you get one month free.

FAQs on operating expenses

These answers cover common questions about how opex is classified and taxed in Singapore.

Is an operating expense an asset?

No, opex reduces profit in the period you incur it, while an asset sits on your balance sheet. The exception is a prepayment, like rent paid in advance, which is an asset until the period it covers.

Are salaries and CPF contributions operating expenses?

Yes, salaries and employer CPF contributions for most staff count as opex. If your business makes products, wages for staff who directly produce them are often included in COGS instead.

Is depreciation an operating expense?

Yes, depreciation is opex in your accounts, but you add it back when working out taxable profit. You then claim capital allowances on qualifying assets under IRAS rules.

Is GST an operating expense?

For GST-registered businesses, GST on purchases is usually claimed back as input tax, so it isn’t opex. If you aren’t GST-registered, the GST you pay forms part of the cost of each expense.

What’s the difference between operating expenses and operating costs?

The terms often overlap, but some businesses use operating costs to mean operating expenses plus COGS. Check which definition your accountant or report uses before comparing figures.

Related terms

• Expense
• Operating profit
• Gross profit
• Opex vs capex
• Net profit
• Balance sheet

Learn more about operating expenses

• How to measure profitability
• Financial statements explained
• What is gross profit margin?
• How to calculate cost of sales
• Ways to increase profits