The guide details how business entities registered in Singapore can enjoy a 400% tax deductions/ allowances and/or 60% cash payouts for investment in innovation and productivity improvements in any of the six qualifying activities. The tax benefits under PIC are available from years 2011 to 2018. Additionally, from years 2013 to 2015, businesses can also benefit from a PIC Bonus, which is a dollar-for-dollar matching bonus given on top of the existing tax deductions/ allowances and/or the cash payout.

Introduced in Budget 2010, and later enhanced in Budgets 2011, 2012, 2013 and 2014, the PIC scheme encourages businesses to get significant tax deductions or payouts for investments in research and development, innovation, automation and training.

 

Who is Eligible for the Productivity and Innovation Credit (PIC) Scheme?

In general, all Singapore-registered business entities are eligible for the PIC scheme.

However, to be eligible for the cash payout option, the entity must have at least 3 regular employees with CPF contributions. Such employees do not include sole proprietors, partners under contract of service, and shareholders who are also directors of the company.

Overview of the PIC Scheme

As the country embarks on a major productivity drive, the scheme is being implemented for businesses to invest in a broad range of activities along the innovation value chain to improve innovation and productivity from year of assessment (YA) 2011 to YA 2018. The basis period in the scheme refers to the accounting period ending in the year before the YA. For example if a company’s accounting period ends on October 31, the basis period for YA 2014 will be November 1, 2012 – October 31, 2013.

The scheme covers spending on six business activities in the following areas:

• acquisition and leasing of PIC information technology (IT) and automation equipment

• training of employees

• acquisition and in-licensing of intellectual property (IP) rights

• registration of patents, trademarks, designs and plant varieties

• research and development activities

• design projects approved by Design Singapore Council

Benefits of the PIC Scheme

Businesses can claim up to 400% tax deductions/allowances and/or 60% cash payout from YAs 2011 to 2018. Additionally, from YAs 2013 to 2015, businesses can also benefit from a PIC Bonus, which is a dollar-for-dollar matching cash bonus given on top of the existing tax deductions/ allowances and/or the cash payout.

400% Tax Deductions/Allowances under PIC

Businesses can deduct 400% (up to$400,000) of their qualifying expenditure on each of the six qualifying activities from their income. The annual expenditure cap of $400,000 may be combined as follows:

YEARSEXPENDITURE CAP PER QUALIFYING ACTIVITYTAX DEDUCTION PER QUALIFYING ACTIVITY

2011 and 2012 (combined)S$800,000S$3,200,000
(400% x S$800,000)

2013 to 2015 (combined)S$1,200,000S$4,800,000
(400% x S$1,200,000)

2016 to 2018 (combined)S$1,200,000S$4,800,000
(400% x S$1,200,000)

60% Cash Payout under the PIC Scheme

This option is to help small and growing businesses, which are generally faced with cash flow problems. Such businesses have the option of converting their qualifying PIC expenditure into a cash payout to invest in technology or upgrade their operations. This option of cash payout will be from years 2011-2015 and 2016-2018.

Importantly, to be eligible for the cash payout option, businesses must have:

• active business operations in Singapore

• the necessary qualifying expenditure must be incurred during the basis periods for years 2011 – 2015

• employ at least three local employees (Singapore citizens or permanent residents with Central Provident Fund contributions)

This year onwards, as the Government made some changes in the scheme, to satisfy the condition of three-local employees:

• the claimant must produce supporting documents about the company’s corporate structure

• the company’s corporate structure and centralised hiring practices are adopted for bona fide commercial reasons

• notably, employees who have been recharged of employment cost will not contribute to the requisite headcount

If the above are met, businesses will have the option to convert up to S$100,000 of their qualifying expenditure for all six activities taken together into a cash payout. Thus, maximum cash payout will be:

YEARSEXPENDITURE CAP PER QUALIFYING ACTIVITYCASH PAYOUT

2011 and 2012 (combined)S$200,000S$60,000
(30% x S$200,000)

2013 to 2015 (combined)S$100,000 per yearS$60,000 per year
(60% x S$100,000)

2016 to 2018 (combined)S$100,000 per yearS$60,000 per year
(60% x S$100,000)

How to Apply for the PIC Scheme

While businesses can claim the 400% tax deductions/allowance while filing the tax returns (the due date is April 15 for sole-proprietorships and partnerships, and November 30 for companies), those applying for the cash payout must complete and submit the PIC Cash Payout Application Form directly to IRAS.

This can be done any time after the end of your business’ accounting year in which the qualifying expenditure is incurred but no later than the filing deadline of your business’s income tax return.

The Authority says that for YAs 2013 to 2018, businesses can opt for cash payout on a quarterly basis any time after the end of each financial quarter but no later than the filing deadline of the business’ income tax return.

Additionally, businesses claiming cash payout on PIC IT and Automation Equipment acquired under a hire-purchase agreement for YAs 2013 to 2015, must also complete the Hire-Purchase Template.

The Authority generally makes the cash payout within three months of receipt of the properly completed application form, relevant annexes and hire-purchase template.

Few examples of qualifying expenditure under the IT and Automation Equipment clause:

• cost or lease expenses of IT equipment such as fax machine, laser printer, computer, lap-top and software

• cloud computing payment

• website development costs (including costs incurred for the one-time registration of a domain name for the website) from YA 2014