Productivity and Innovation Credit
The Productivity and Innovation Credit (“PIC”) was introduced in the Singapore Budget 2010.
PIC has been enhanced in Budget 2011 to provide tax benefits for investments by businesses in a broad range of activities along the innovation value chain. The tax benefits under PIC will be effective from Years of Assessment (YA) 2011 to YA 2015.
Key six activities along the innovation value chain that will qualify for PIC benefits are:
- Acquisition or leasing of prescribed automation equipment;
- Training of employees;
- Acquisition of Intellectual Property Rights;
- Registration of patents, trademarks, designs and plant varieties;
- Research and development activities; and
- Investment in approved design projects.
Tax Benefits under PIC
1) 400% Tax Deduction/Allowances
For YA 2011 to YA 2015, all businesses can enjoy deduction/allowances at 400% of their expenditure on each of the six qualifying activities instead of the 100%/150% tax deduction/allowances under the existing tax rules.
The deduction/allowances are subject to the following expenditure cap:
- Total expenditure cap for YAs 2011 and 2012 - $800,000 for each of the six qualifying activities; and
- Total expenditure cap for YAs 2013 to 2015 - $1,200,000 for each of the six qualifying activities.
In computing the deduction/allowances, the expenditure is the amount net of grant or subsidy by the Government or any statutory board.
2) Cash Payout Option
To support small and growing businesses which may be cash-constrained, to innovate and improve productivity, businesses can exercise an option to convert their expenditure into a non-taxable cash payout. They can convert up to $100,000 (subject to a minimum of $400) of their total expenditure in all the six qualifying activities into a cash payout. The rate of conversion is 30% which means a maximum cash payout of $30,000 per year.
This PIC cash payout option is available for the first three years of PIC, i.e. YA 2011 to YA 2013.
For YA 2011 and YA 2012, businesses can opt to convert up to a combined cap of $200,000 qualifying expenditure for all six qualifying activities, into a cash payout. The total cash payout for YA 2011 and YA 2012 is therefore a maximum of $60,000 ($200,000 x 30%). For YA 2013, the maximum cash payout is $30,000 ($100,000 x 30%).
Eligibility for Cash Payout Option
Businesses eligible to opt for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have:
a) incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;
b) active business operations in Singapore; and
c) at least three local employees (Singapore citizens or PRs with CPF contributions excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company).) A business is considered to have met this three-local-employees eligibility if it contributes CPF on the payrolls of at least three local employees in the last month of its basis period for the qualifying YA.