What You Need To Know About Productivity & Innovation Credit Scheme
The trade industry plays an integral role in boosting Singapore’s economy. Hence, government institutions work together in developing and implementing grants and schemes to further encourage more local and foreign entrepreneurs who are interested in Singapore company formation.
Among these grants and schemes is the Productivity and Innovation Credit (PIC) Scheme facilitated by the Inland Revenue Authority Singapore (IRAS). In 2010, the scheme was introduced to hearten Singapore’s small and medium-sized enterprises to invest in programs that would improve innovation and productivity within the business. To encourage more enterprises to enhance their business’ innovation and productivity, the PIC scheme offers significant tax deductions or sizeable payouts for investments that are made in innovation, automation, research & development, and training.
The tax deduction scheme is available to enterprises until Year of Assessment (YA) 2018. On top of that, from YA 2013 to YA 2015, SMEs in Singapore may enjoy a PIC bonus or a dollar-for-dollar matching cash out. It is imperative for businesses to ensure first that its activities fit into the qualifying activities below prior to making a PIC claim.
Six Qualifying Productivity and Innovation Activities
1. Acquiring and rental of prescribed and approved PIC Information Technology and Automation Equipment. Deemed as the most frequently and commonly claimed activity under this scheme, this refers to expenses incurred to either purchase or lease any PIC IT and automation equipment. Examples of qualified spending under this activity are the cost of developing the business’ website or rental expense of IT equipment like computers, laptop, or fax machine.
2. Attainment and In-licensing of Intellectual Property Rights. Any expenses that were incurred with the intent of securing an IPR for business and trade purposes fall under this qualified activity. An example would be the amount paid for copyright.
3. Design Singapore Council-approved design projects. Any expense incurred in creating new industrial designs or products where the activities are chiefly done in Singapore.
4. Research and Development Activities. This includes any staff costs and consumable expense incurred in executing qualifying R&D activities whether in Singapore or abroad. A qualifying R&D expenditure means a taxpayer may conduct R&D, participate in an R&D cost-sharing agreement, or get assistance from an R&D service provider.
5. Registering patents, designs, plant varieties, and trademarks. Any expense incurred in the registration of a design, patent, trademark or plant varieties falls under this category.
6. Training of employees in different fields. Any cost that is incurred in the in-house or external training of staff members for the purpose of business and trade such as course fees.
Productivity and Innovation Credit Scheme Benefits
There are two (2) ways in which a business may claim its PIC benefits. Enterprises can either opt for tax deductions/allowances or cash payout option.
Tax Deductions or Allowances
SMEs may enjoy up to 400% tax deductions/allowances on up to S$400,000 of annual expenses incurred for any of the six (6) qualifying activities mentioned above. The tax deductions or allowances may be claimed when SMEs file their income tax return on the filing due date of the corresponding YA. Sole proprietorships and partnerships must file by April 15 while companies must file by November 30.
Cash Payout Option
The payout option aims to help cash-strapped SMEs to continue innovating and improving productivity within the business. Instead of tax incentives, they have the option to convert qualifying expenditure into a cash payout. This option is available until Year of Assessment 2015.
Eligible enterprises may convert up to S$100,000 of its total expenditure in all of the six (6) qualifying activities to non-taxable cash payout for each Year of Assessment. The rate is at 60% of total expense incurred. For each application, minimum qualifying expenditure is S$400. Any expenditure that has been converted into cash can no longer be claimed as tax deductions or allowances.
In order to be eligible for the cash payout, the business must be a partnership, sole proprietorship or company that satisfies the following terms and conditions:
√ It must incur the required qualifying expenditure and must be entitled to PIC during the qualifying YA.
√ It must be actively operating in Singapore.
√ It must have at the very least three (3) local employees who are either Singapore citizens or Permanent Residents that are actively giving their respective CPF contributions. Sole-proprietorship, partners, and shareholders who are also directors are excluded from this particular condition. Any individual that is deployed under a centralized hiring arrangement shall be considered as employees of the business as long as the claimant are able to provide supporting documents on the recharging of employment costs by a related entity, in respect of employees working solely in the claimant’s entity.
Enterprises that opt to apply for cash payout must accomplish the new PIC Cash Payout Application form online. The printed and signed original document must be submitted to IRAS. For Year of Assessment 2013 to 2015, eligible enterprises may either submitted their applications at the end of each quarter or combined consecutive quarters in the business’ financial year. Note that applications should not be submitted later than income tax return filing due date.
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