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Productivity and Innovations Credit – PIC

Tax Benefits

About Productivity and Innovation Credit

The Productivity and Innovation Credit (“PIC”) was introduced in the Singapore Budget 2010.

PIC has been enhanced in Budget 2011 and Budget 2012 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.

The six activities along the innovation value chain that will qualify for PIC benefits are:

  • Acquisition or leasing of prescribed automation equipment;
    – Income Tax (Automation Equipment) Rules 2004 (83KB)
    – Income Tax (Automation Equipment) (Amendment) Rules 2010 (24KB) (apply to automation equipment purchased or leased on or after 15 Dec 2010)

  • 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% on up to $400,000 of their expenditure per year on each of the six qualifying activities instead of the 100%/150% tax deduction/allowances under the existing tax rules.

To enable businesses to enjoy maximum PIC benefits, the annual expenditure cap of $400,000 for each activity are pooled to give a combined cap for the period YA 2011 and YA 2012 and the period YA 2013 to YA 2015. With the pooling, 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.

Businesses would therefore be able to enjoy a total tax deduction of up to $3.2 million for YAs 2011 and 2012 and up to $4.8 million for YAs 2013 to 2015 as summarised here:

For newly incorporated/registered businesses whose first YA is YA 2012, the expenditure cap per qualifying activity for YA 2012 is $400,000.

In computing the deduction/allowances, the expenditure is the amount net of grant or subsidy by the Government or any statutory board.

You may refer to the Summary of Deductions/Allowances on Qualifying Activities for more details on the expenditure qualifying for deduction/allowances by activity.

2) Cash Payout Option (Revised)

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 cash payout.

This PIC cash payout option is available from YA 2011 to YA 2015 at a conversion rate of 30% for YA 2011 and YA 2012; and 60% for YA 2013 to YA 2015. The higher cash conversion rate of 60% was announced in Budget 2012 to further support businesses in investing in innovation and productivity.

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 cash payout. The total cash payout for YA 2011 and YA 2012 is therefore a maximum of $60,000 ($200,000 x 30%).

For newly incorporated/registered businesses whose first YA is YA 2012, the expenditure cap for all six qualifying activities is $100,000 and the maximum cash payout is $30,000 for YA 2012.

For YA 2013 to YA 2015, businesses can receive cash payout up to $60,000 ($100,000 x 60%) each year with the higher conversion rate of 60%.

Sole-proprietorships, partnerships and companies eligible for Cash Payout

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.

For more information please visit the IRAS website here

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