To increase Singapore’s attractiveness as an international intellectual property holding location, writing-down allowances will be granted on capital expenditure incurred in acquiring intellectual property rights (IPRs) under Section 19B of the Income Tax Act.
Scope of writing-down allowances
The writing-down allowances will apply to capital expenditure incurred by a company from 1 Nov 2003 to the last day of the basis period for Year of Assessment (YA) 2015 in acquiring IPRs for use in its trade or business.
For the purpose of claiming writing-down allowances, IPRs mean:
- Patent;
- Copyright;
- Trademark;
- Registered design;
- Geographical indication;
- Lay-out design of integrated circuit;
- Trade secret or information with commercial value; and
- Plant variety (with effect from YA 2011).
For more details on the above IPRs, please refer to IPOS’ website .
To be eligible for writing-down allowances, the transferee (i.e. company that acquires the IPR) must acquire the legal and economic ownership of the IPR from the transferor (i.e. person who sells the IPR to the transferee). Legal ownership means the legal assignment of the IPR is granted to the transferee. Economic ownership means the future economic benefits attributable to the IPR will accrue to the transferee.
How to compute writing-down allowances
Writing-down allowances will be granted to the transferee on a straight-line basis over a 5-year period on the capital expenditure incurred in acquiring the IPR. For this purpose, “capital expenditure” excludes legal fees, registration fees, stamp duty and other costs related to the acquisition of the IPR.
For approved IPRs acquired from 22 Jan 2009 to the last day of the basis period for YA 2015 on:
- Films;
- Television programmes;
- Digital animations or games; or
- Other media and digital entertainment contents
by an approved media and digital entertainment company for the purpose of its trade, writing-down allowances shall be granted over two years instead of five years on the capital expenditure incurred on the acquisition of these IPRs.
Productivity and Innovation Credit (PIC)
From YAs 2011 to 2015, as part of the PIC scheme, capital expenditure incurred to acquire IPRs* can qualify for 400% writing-down allowances instead of 100% allowances subject to a certain expenditure cap, and 100% writing-down allowances on the balance expenditure exceeding the cap.
*Exclude IPRs that are granted waiver of the legal ownership condition and IPRs pertaining to films, television programmes, digital animations or games or other media and digital entertainment contents approved for writing-down allowances over two years.
How to claim for writing-down allowances
A company claiming for writing-down allowances is required to submit the following documents/ information together with its Income Tax Return (Form C/ Form C-S):
- Declaration Form (53KB) to confirm that the ownership requirements of the acquired IPR have been met.
- Third-party independent valuation report on the value of the IPR acquired where:
- the capital expenditure incurred in acquiring the IPR is > $0.5 million for a related party* transaction; or
- the capital expenditure incurred in acquiring the IPR is > $2 million for an unrelated party transaction.
- Information about the valuer:
(a) Independence - Confirm that the IPR valuer and the firm that he/ she belongs are independent from the IPR transaction (i.e. unrelated party with no interest in the IPR acquisition/ disposal). If the valuer also undertakes other assignment(s) for the company, the valuer must be able to demonstrate that there is no conflict of interest between the IPR valuation assignment and the other assignment(s) undertaken;
(b) Qualification - State whether the IPR valuer is a Certified Public Accountant, a Chartered Financial Analyst or a person with such other equivalent or relevant qualification. For the latter, full particulars of the qualification and the professional institute that awarded the qualification has to be stated; and
(c) Experience - Describe the valuer’s experience in valuing similar types of IPRs or IPRs in similar industries.
*For the purpose of the requirement to submit a valuation report, the company and the transferor are considered to be “related parties” where:
- one person, whether directly or indirectly, has the ability to control the other or where both of them, whether directly or indirectly, are under control of a common person; or
- one person has, directly or indirectly, at least 25% of the issued capital of the other person.
In a case where a valuation report is submitted, the amount that is eligible for writing-down allowances would be the actual capital expenditure incurred by the transferee or the amount as stated in the valuation report, whichever is the lower.
The Comptroller reserves the right to require a second independent valuation or to adjust the amount eligible for the writing-down allowance, if there is reason to believe that the true value of the IPR (on an arm’s length basis) is materially different from that which is presented in the valuation report.
Disposal of IPRs
Prior to YA 2011
Before the writing-down period ends
Where writing-down allowances have been made to the company in respect of any IPRs and, before the writing-down period ends, any of the following events (i.e. “specified events”) occurs:
- The IPRs come to an end without being subsequently revived;
- The company sells, transfers or assigns all or any part of the IPRs;
- The company permanently ceases to carry on the trade or business for which the IPRs were acquired,
no writing-down allowances for the IPRs shall be made to the company for the year in which the event occurs or any subsequent years. In addition, any writing-down allowances granted previously shall be deemed as income and brought to tax in the year in which the event occurs.
After the writing-down period ends
Where writing-down allowances have been made to the company in respect of any IPRs and, after the writing-down period ends, the company sells, transfers or assigns all or any part of the IPRs, the sales proceeds shall be deemed as income (i.e. a balancing charge*) and brought to tax in the year of disposal.
*Capped at the capital expenditure incurred in acquiring the IPRs.
From YA 2011
- Where the IPRs comes to an end without being subsequently revived, or a company permanently ceases to carry on the trade or business for which the IPRs were acquired, no writing-down allowances shall be made to the company for the year in which the event occurs or any subsequent years. Any writing-down allowances granted previously shall not be deemed as income in the year in which the event occurs.
- Where a company sells, transfers or assigns all or any part of the IPRs:
Proceeds from disposal of IPR is greater than the tax written down value (“TWDV”)
The difference between the sale price and the TWDV of the IPR shall be deemed as income (i.e. a balancing charge*) and brought to tax in the year of disposal.
*Capped at the amount of writing-down allowances granted previously.
Proceeds from disposal of IPR is less than or equals to the TWDV
The difference between the sale price and the TWDV of the IPR is not available to the company as a balancing allowance in the year of disposal.