29 June 2010
Businesses can now apply to IRAS for the cash payout under the Productivity and Innovation Credit (PIC) scheme.
The PIC scheme, announced in Budget 2010, was introduced to encourage productivity and drive innovation for economic growth, by providing enhanced tax incentives for investments in a wide range of activities: automation equipment; training of employees; research and development; registration of intellectual property rights; acquisition of intellectual property rights; and design. The five-year scheme is expected to cost the Government $480 million each year.
Businesses that invest in a qualifying activity can deduct 250% of the expenditure from their taxable income --- with a cap of $300,000 on the expenditure for each activity per year. This means a tax deduction of as high as $750,000 for the qualifying activity per year. Any expenditure above the cap will also enjoy deductions at the current levels of between 100% and 150%. Businesses can claim the enhanced tax deductions in their income tax returns.
For the first three years of the scheme (i.e. Years of Assessment 2011 to 2013), businesses can choose to convert 7% of the tax deduction (which is capped at $300,000) into a cash payout each year. For example, if a company invests $120,000 in automation equipment, the company can claim a tax deduction of $300,000 (250% of $120,000). The company can instead choose to convert the entire tax deduction of $300,000 into a cash payout of $21,000 (7% of $300,000).
Businesses are also given greater flexibility in enjoying the cash payout option for the first two years. The tax deduction cap of $300,000 does not apply; they can choose to convert a total tax deduction of $600,000 into cash payout. This means a total cash payout of $42,000 in the first two years. This is to help the small and medium enterprises which may be cash-constrained and require more time to phase in their investments.
The cash payout option is available to businesses which employ at least three local employees and make CPF contributions for them in the last month of their accounting period. This cash conversion option will especially help small, growing businesses with low taxable incomes which require funds for investments in technology, or to upgrade their operations for further growth.
Businesses opting for the cash payout will have to complete and submit the PIC Cash Payout Application Form to IRAS. The form can be found on IRAS’ website, www.iras.gov.sg. They can start applying for the cash payout any time after the accounting year-end of their business but before the income tax return filing deadline for that YA. This means that companies should submit the application form latest by 30 November, and sole-proprietorships and partnerships should do so by 15 April.
Sole-proprietorships and partnerships with revenue not exceeding $500,000 are currently not required to submit certified statements of accounts with their income tax returns. They will need to do so if they wish to convert the qualifying tax deductions to cash.
Businesses which have applied for the cash payout will be notified of the application status and receive the payout within three months. Once the option of a cash payout is chosen, businesses cannot revoke the option and claim tax deductions on amounts that have been encashed.
Businesses can refer to the IRAS e-Tax Guide “Productivity and Innovation Credit”, which contains information and illustrations on computation of the tax deductions under PIC and the cash payout. The e-Tax Guide and the cash payout application procedure can be found on the IRAS website, www.iras.gov.sg.
IRAS will be conducting a series of free seminars starting from July 2010 to facilitate businesses’ understanding of the details of the PIC scheme and the cash payout. The seminar dates and registration details are available at the IRAS website, under the section ‘News & Events’ > ‘Workshops & Seminars’
For further assistance, businesses may:
- Email their enquiries to firstname.lastname@example.org; or
- Call the IRAS helplines at 1800 356 8622 (for companies) and 6351 3534 (for Self-Employed / Partnerships).
Inland Revenue Authority of Singapore
Illustration on computation of tax deduction and conversion of tax deduction into cash (54 KB)