This guide provides an overview of the Productivity and Innovation Credit Scheme in Singapore. We will help you understand how your company can enjoy up to 400% tax deductions and/or 60% cash payout for qualifying investments under the PIC Scheme.
The Productivity and Innovation Credit (PIC) Scheme was first announced in Budget 2010 with the aim of encouraging enterprises to upgrade their capabilities by investing in a wide range of productivity and innovation-related activities. With effect of 2011, a tax deduction of 400% is claimable on the first S$400,000 spent for each of the qualifying PIC activities.
Budget 2013 Update
To encourage businesses to undertake improvement in productivity and innovation, eligible businesses that spend a minimum of $5,000 in qualifying PIC investments in a YA will receive a dollar-for-dollar matching cash bonus.
The PIC Bonus is capped at $15,000 for the 3-year period (YA 2013 to YA 2015), and is given in addition to existing PIC benefits of:
a) 400% PIC tax deductions up to $400,000 in expenditure for each PIC qualifying activity; or
b) Cash payout at 60% on up to $100,000 of the qualifying expenditure.
Liberalized scope of Automation equipment
With effect from YA 2013, more equipment will qualify for PIC benefits through the following changes:
a) Liberalized conditions for approving equipment that is not on the prescribed list:
i) The equipment automates or merchandises, whether in whole or in part, the work processes, whether core or non-core of the business; and
ii) The equipment enhances the productivity of the business.
An equipment that is a basic tool will be allowed if:
- It increases productivity compared to the existing equipment used in the business; or
- It has not been used in the business before.
b) The term “automation equipment” is changed to “IT and automation equipment” to reflect the fact that PIC already supports IT-related software besides automation equipment.
c) The prescribed equipment list has been expanded and will be updated regularly to take into account feedback from businesses.
To help businesses that license IP rights instead of acquiring the IP for innovation or productivity improvements, the PIC scheme will be enhanced to allow IP in-licensing costs incurred from YA 2013 to YA 2015 to qualify for PIC benefits.
The current PIC qualifying activity of “Acquisition of Intellectual Property” will also be renamed to “Acquisition and In-Licensing of Intellectual Property” to reflect the change.
IRAS will release further details by April 2013.
It pays to be productive in Singapore
If companies plan their PIC strategies well, they stand to save up to S$9.6 million in taxes per annum.This is possible as they can estimate their taxable income and make provisions for investments in qualifying activities at the time of annual budgeting. Companies can invest in any of the following 6 categories to take advantage of PIC.
- Purchase / lease of PIC Automation Equipment
- Training of Employees
- Acquisition of Intellectual Property
- Registration of Intellectual Property
- Research & Development
- Approved Design Projects
- An eligible business can opt to convert 60% of qualifying PIC expenditure (capped at S$100,000) into a non-taxable cash payout, amounting to S$60,000 per YA.
- Claimable any time after the end of each financial quarter, but no later than the due date for the filing of its income tax returns for the relevant year. Businesses may obtain the first quarterly cash payout starting July 2012.
Businesses that can opt for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have:
Productivity and Innovation Credit (PIC) Scheme
The Productivity and Innovation Credit (PIC) Scheme has been further enhanced during the 2012 Singapore Budget. The PIC scheme aims to encourage businesses to upgrade their capabilities along the innovation and productivity value chain by providing participants tax incentives when they do so. The table below outlines the benefits of the PIC scheme:
The PIC cash payout has been doubled from 30% to 60% for up to S$100,000 of qualifying expenditure, from YA 2013 to YA 2015.
|Qualifying activities||Gist of qualifying expenditure
under the PIC scheme
|Total deductions under the PIC|
|Acquisition or Leasing of Prescribed Automation Equipment||Costs incurred to acquire/lease prescribed automation equipment. Automation equipment that are bought on hire purchase and are to be repaid over 2 year-installments or more will be eligible for PIC cash payouts.||400% allowance or deduction for qualifying expenditure subject to the expenditure cap, 100% allowance or deduction for the balance expenditure exceeding the cap.|
|Training Expenditure||Costs incurred on inhouse training (i.e. WDA certified or ITE certified); as well as all external training. Qualifying inhouse training expenditure of up to $10,000 per YA will not require certification.Expenses incurred by training agents may qualify for PIC claims if they meet stated conditions.|
|Acquisition of Intellectual Property Rights (“IPRs”)||Costs incurred to acquire IPRs for use in a trade or business (exclude EDB approved IPRs and IPRs relating to media and digital entertainment contents)|
|Registration of Intellectual Property Rights (“IPRs”)||Costs incurred to register patents, trademarks, designs and plant variety.|
|Design Expenditure||Costs incurred to create new products and industrial designs where the activities are primarily done in Singapore.|
|Research & Development (“R&D”)||Costs incurred on staff, costs and consumables for qualifying R&D activities carried out in Singapore or overseas, if the R&D done overseas is related to the taxpayer’s Singapore trade or business. R&D expenditure on cost-sharing agreements will be eligible for PIC claims.The multiple sales criteria will be removed to facilitate R&D in software development that is not intended for sale.||400% tax deduction for qualifying expenditure subject to the expenditure cap*. For qualifying expenditure exceeding the cap for R&D done in Singapore, deduction will be 150%. For balance of all other expenses, including expenses for R&D done overseas, deduction will be 100%|
Total expenditure cap for YA 2011 and YA 2012 – $800,000 for each of the six qualifying activities.
Total expenditure cap for YA 2013 to YA 2015 – $1,200,000 for each of the six qualifying activities.