- February 18, 2023
- Posted by: Vivek Sharma
- Category: Knowledge Base
Introduction: Supporting Innovative Research in Singapore
The newly introduced Enterprise Innovation Scheme (EIS) by Finance Minister Lawrence Wong, while unravelling the Singaporean budget for 2023, chiefly preoccupies itself with the central goal of fostering Research and Development (R&D) Activities in Singapore, implying optimised tax deductions for staff expenses and consumables. The enhanced tax incentives immensely contribute to the already existing deductions of up to 250% of qualifying expenditures.
Deductions for Staff Expenses and Utilizables on R&D
The latest announcement allows businesses to avail of tax benefits of up to 400%, which may be utilised for the first $400,000 of staff costs and consumables incurred on eligible R&D projects for each Year of Assessment (YA) from 2024 to 2028.
Similar allowances have been outlined for Intellectual Property (IP) registration, as businesses are free to enjoy a tax deduction of up to 400% for the first $400,000 of qualifying IP registration costs realised for each YA from 2024 to 2028.
Acquisition and Licensing of Eligible Intellectual Property Rights
The EIS proposition also includes tax allowances for relevant Acquisition and Licensing of Qualifying IP Rights. Specifically, the proclaimed enhancement will enable businesses to use deductions of 400% for the first $400,000 of qualifying expenditure incurred on acquiring and licensing qualifying IP rights for each YA from 2024 to 2028.
It is to be noted that the announced improved measures enrich the previous benefits of up to 200% for the above two cases. Concerning the acquisition and licensing of qualifying IP rights, the increased benefits are applicable for businesses that secure less than $500 million over the concerned Year of Assessment. Moreover, the initial expenditure cap is meant for the collective cost of IP rights acquisition and licensing.
Upskilling and Technical Education
Apart from its prime focus on manufacturing and innovation, the EIS devotes sufficient cushion to training expenditure. While the rates and ratios of benefits are invariably identical to those of the categories mentioned above, the enhancement would be applied to the training cost of courses eligible for SkillsFuture Singapore funding and further aligned with the Skills Framework. These include various vocational and academic orientations, such as workplace safety, Data Analysis, Responsive Web Interface Design, Customer Service Operations, and Social Media Marketing, amongst others.
The Singaporean Government is also set to maximise tax deductions whereby businesses may claim tax allowance of up to 400% for up to $50,000 of eligible innovation expenses incurred on qualifying innovation projects executed with partner institutions for each YA from 2024 to 2028. These Partner Institutions’ catalogues include various reputed technical education bodies, such as Singapore Polytechnic, Ngee Ann Polytechnic, Republic Polytechnic, Nanyang Polytechnic, Temasek Polytechnic, The Institute of Technical Education and Precision Engineering Centre of Innovation at A*STAR SIMTech, amongst others.
The eligible Innovation activities to be carried out in tandem with the Institute of Technical Education (ITE) or partner institutions or polytechnics include diverse activities related to research, experimental development, engineering, design, creative work, IP engagements, software development, and database design, amongst others. Consequently, the validation of the project as one qualifying innovation must be completed by the relevant partner institution.
Cash Conversion
The most lucrative aspect of the scheme is an option for cash conversion that provides untaxed cash payout at an impressive conversion ratio of 20% on up to $100,000 of net qualifying expenditure across all qualifying endeavours. The case payout, Set in lieu of tax allowances, is fixed to be capped at $20,000 per Year of Assessment. It is to be noted that the applications for these cash payouts are expected to be submitted along with the annual income tax returns of the concerned businesses.
By the phrase “Eligible Businesses”, the Ministry refers to registered business trusts and companies along with partnerships and sole-proprietorships with a minimum of 3 full-time local associates deriving a gross monthly salary of at least $1,400 for six months and above during the basis period of the relevant Year of Assessment.
Expert Insights
Despite undeniable similarities with the erstwhile Production and Innovation Credit (PIC) Scheme, available from YA 2011 to YA 2018, the current EIS seems a far more consolidated, tailored and targeted program. Most significantly, it provides vital aegis to businesses that are not presently profitable, preparing them to withstand the associated risks of innovation by maximising benefits out of tax deductions.
The incorporation of the Enterprise Innovation Scheme has already drawn widespread acclaim from intellectual minds who state that it is a bold and intelligent move to make emerging IT companies more competitive and productive through seamless and uninhibited digital empowerment. The President of the Association of Small & Medium Enterprises (ASME), Kurt Wee, points out, “Our companies need to focus more on innovation and in making use of technology to become more efficient – and this is a clear and sharp signal for them to push ahead on this front.”
The potential sustainability of the EIS is well emphasised by the Global Investment & Innovation Incentives Leader of Deloitte Singapore, who observes, “The Enterprise Innovation Scheme (EIS) looks like a potential game-changer for encouraging businesses to continue investing in R&D locally and even for MNCs considering Singapore as a potential location for R&D activities. The option to convert up to 20 percent of qualifying expenses to cash will be welcome by businesses working toward profitability. We hope the Government will be able to apply learnings from administering the hugely popular PIC scheme to the EIS.”
On the other hand, the renowned Tax Partner of Deloitte Singapore, Larry LOW, critically opines, “Given the lessons learnt from the old PIC Scheme that lapsed in Year of Assessment 2018, execution of the new EIS is expected to be more seamless. The IRAS does not need to reinvent the wheel as measures previously put in place to curb PIC abuse may similarly be put in place for the EIS… It is nonetheless heartening to see the Government recognising the role that polytechnics and ITE may play in embracing and supporting innovation in the marketplace, and encouraging enterprises to collaborate with these institutions via the EIS.”
Concluding Remarks
With unwavering prioritisation of all-embracing state-of-the-art innovation, the EIS might grant the perfect launchpad to the ever-ambitious and transitional IT industry to explore unprecedented horizons. In an era of disruption and uncertainty, the EIS can provide the much-needed assurance and sponsorship to futuristic and digitally empowered technological entities to stay resilient and competitive while devising cutting-edge solutions.
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