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For companies

Donations

Employee Equity-Based Remuneration (EEBR) Scheme for Corporate Tax

Employment Assistance Payment (EAP) (Re-employment of Older Employees)

Expenses incurred prior to commencement of business

Impairment loss on trade debts

Interest adjustment

Interest incurred on loans to re-finance earlier loans or borrowings

Medical expenses

Motor vehicle expenses

Private hire car

Research & development (R&D) expenditure

Section 14Q deduction for expenditure incurred on renovation or refurbishment works

Supplementary Retirement Scheme (SRS)

Topping-up of Employees’ CPF Minimum Sums

Voluntary cash contributions to Medisave Account

Donations 

Donations are non-deductible expenses as they are not incurred in the production of income.

However, you can claim tax deduction for donations made to an approved Institution of a Public Character (IPC) or the Singapore Government which benefit the local community. The tax deduction for such approved donations is allowed on a preceding financial year basis. For example, approved donations made during financial year 2013 will be allowed a tax deduction in your tax assessment for Year of Assessment (YA) 2014.

From 1 Jan 2011, a company is required to provide its Unique Entity Number (UEN) to the approved IPC in order to be given a tax deduction on the donations. The tax deduction for such donations will be automatically reflected in the company’s tax assessment based on information from the IPC. As such, you do not need to declare the donation amount in your income tax return (Form C/ Form C-S).

The following summarises the deductibility of approved donations:

  Approved donations made during the period 1 Jan 2002 to 31 Dec 2008 Approved donations with naming opportunity made before 1 Jan 2005 Approved donations with naming opportunity made during the period 1 Jan 2005 to 31 Dec 2008  Approved donations (including donations with naming opportunity) made during the period 1 Jan 2009 to 31 Dec 2015 
 Single deduction  

X

 

 

 Double deduction  

X

   

X

 
 2.5 times deduction      

X

From YA 2003, any unutilised donations can be carried forward to set-off against the income for the subsequent YA up to a maximum of 5 years if there is no substantial change in shareholders. 

For more details on donations and tax deductions, please refer to Charities / IPCs.

Employee Equity-Based Remuneration (EEBR) Scheme for Corporate Tax

Deduction for Treasury Shares

From YA 2007, companies that grant employee stock options (ESOs) or share awards through treasury shares are given a tax deduction if they incur an actual outlay in buying back their own shares to fulfill their ESO or share award obligations. This is in recognition that companies are increasingly linking employee remuneration to the performance of the companies by granting ESOs or share awards under a move towards a more flexible wage system.

The tax deduction is reduced by the amount borne by employees.

Deduction for Shares Acquired from a Special Purpose Vehicle (SPV)

From YA 2012, a company may also claim tax deduction on the cost incurred for its holding company’s shares transferred to its employees under an EEBR scheme administered by a Special Purpose Vehicle (SPV).
 
To qualify, the SPV must be a legal person that can act as trustee of a trust that is set up for the purpose of the EEBR Scheme (EEBR trust).  If the SPV performs other functions, these functions should not create any conflict of interest with its duties as a trustee of the EEBR trust.  The EEBR trust however must be set up solely for the purpose of the EEBR scheme of the corporate group.

For both treasury shares and shares administered through a SPV, the timing of tax deduction for costs incurred by the company for shares transferred to employees under an EEBR scheme would generally correspond with that of the vesting of the shares to the employees, typically determined as follows:

          (a) For Employee Stock Option (ESO) schemes, the date options are exercised;
          (b) For share award schemes, the date shares are vested and if there is no vesting 
               condition, the date of share grant.

Where the company is charged for the cost of the shares transferred by its holding company or SPV, tax deduction is allowed when the shares vest to the employees or when the company is liable to pay the recharge for the shares, whichever occurs later.
 
If the SPV acquires the shares from the open market, the amount deductible to the company is the lower of:

          (a) the amount paid by the company for the shares transferred to employees, and
          (b) the cost to the SPV in acquiring the transferred shares.

However, if the shares are treasury shares acquired directly from the holding company, the amount deductible is the lowest of the amounts in (a) and (b), if any, and the cost incurred by the holding company in buying the treasury shares.

In all instances, the amount deductible is reduced by any amount payable by employees for the shares.

For more details, please refer to the e-Tax Guide “Tax Deduction for Shares used to fulfill obligations under an Employee Equity-Based Remuneration Scheme (264KB).

Employment Assistance Payment (EAP)
(Re-employment of Older Employees)

To enable more people to continue working after the statutory retirement age of 62 (or contractual retirement age, whichever is higher), from 1 Jan 2012, employers are required under the Retirement and Re-employment Act (RRA) to re-employ their older employees until they reach 65.  To be eligible for re-employment, these older employees must be medically fit to continue working and whose performances have been assessed to be satisfactory.

Where the employer is not able to find a suitable job for the eligible employee who wishes to work beyond his retirement age, the employer must offer a one-off Employment Assistance Payment (EAP) to the employee.  The RRA provides that employers are not obliged to make the EAP if:

     (i) the eligible employees declined the employer's offer of re-employment; or 
    (ii) the employees do not meet the eligibility criteria for re-employment under the new RRA.

As EAP is paid out only if employers are unable to find suitable positions in their existing business structures for eligible employees, it is tax-deductible as it is closely connected with the continuance of the company’s business and therefore incurred in the production of income.

Find out more about Re-Employment of Older Employees on the Ministry of Manpower website.

Expenses incurred prior to commencement of business

Generally, expenses incurred before a business commences operations are not tax deductible as they are incurred for the purpose of setting up the operations and not wholly and exclusively incurred in the production of income.

From YA 2004 to YA 2011

As a concession for enterprise development, a business will be treated as having commenced its operations on the first day of the accounting year in which it earns its first dollar of business receipt (i.e. deemed date of commencement of business). With this concession in place, revenue expenses incurred in the aforesaid accounting year, including those incurred prior to the day on which the business earns its first dollar of receipt, will be deductible for tax purposes.

The concession does not apply to companies that are subject to tax in accordance with Section 10E of the Income Tax Act.

From YA 2012

In Budget 2011, the concession for enterprise development was enhanced to allow a deduction for revenue expenses incurred 1 year prior to the deemed date of commencement of business.

As with the earlier concession (from YA 2004 to YA 2011), this enhanced concession will not be applicable to companies that are subject to tax in accordance with Section 10E of the Income Tax Act.

The table below summarises the tax treatment for expenses incurred prior to commencement of business:

Revenue expenses incurred

From YA 2004 to YA 2011 From YA 2012

1 year before the accounting year in which the company earns its first dollar of business receipt

Not tax deductible

Tax deductible. The revenue expenses are treated as incurred on the deemed date of commencement of business

During the accounting year in which the company earns its first dollar of business receipt

Tax deductible

Tax deductible


Example

A company was incorporated on 1 Jul 2009 to carry on a business. Its accounting year ends on 31 Dec. The company first incurred revenue expenses such as rental expenses, utilities, etc on 1 Sep 2009. It earned its first dollar of business receipt on 1 Sep 2011.

A summary of the above events is as follows:

Pre-Commencement

The table below shows the tax concessions for expenses incurred prior to commencement of business before and after the enhancement:

Revenue expenses incurred from

Before the enhancement After the enhancement

1 Sep 2009 to 31 Dec 2009 (YA 2010)

Not tax deductible

Not tax deductible. The revenue expenses are not incurred 1 year prior to the deemed date of commencement of business, which is 1 Jan 2011

1 Jan 2010 to 31 Dec 2010 (YA 2011)

Not tax deductible

Tax deductible in YA 2012. Revenue expenses incurred during the period are treated as incurred on 1 Jan 2011*

1 Jan 2011 to 31 Dec 2011 (YA 2012)

Tax deductible as the business is treated as having commenced on 1 Jan 2011 Tax deductible as the business is treated as having commenced on 1 Jan 2011

* The expenses incurred in 2010 should not be claimed in YA 2011 as the company has not commenced business yet.  Please claim deduction of the revenue expenses incurred in 2010 in YA 2012, as the deemed date of commencement of business is 1 Jan 2011.

For more details, please refer to the e-Tax Guide “Concession for Enterprise Development - Deduction of Certain Expenses Incurred before Business Revenue is Earned (140KB).

Actual date of commencement

Certain businesses may have commenced operation before the first dollar of business receipt is earned. 

The concession for enterprise development does not preclude a business from substantiating that it has commenced its operations earlier than the accounting year in which it earns its first dollar of business receipt. When the business has established its profit-making structure and started its first commercial activity*, it can be regarded as having commenced business.  All revenue expenses incurred from the actual date of commencement of business will be deductible for tax purposes.

* For example, a business which provides fund management services is regarded as having established its profit-making structure and started its first commercial activity when it is ready to market its services and conclude contracts with its potential clients. The business of fund management therefore commences on the date that the necessary set-up is in place for marketing activities to be conducted. All revenue expenses incurred by the business from that date onwards will be deductible for tax purposes.

Please refer to the e-Tax Guide “Determination of the Date of Commencement of Business  for some guiding principles and other examples on the determination of the date of commencement of a business.

Impairment loss on trade debts

Under FRS 39, impairment losses are incurred under certain circumstances described in the Accounting Standard. For income tax purposes, impairment losses incurred on financial assets on revenue account will be allowed as a deduction and any reversal amount will be taxed.

With the adoption of FRS 39, general and specific provision for bad and doubtful debts would no longer be made. There is no differentiation between general and specific provision for doubtful debts and impairment losses on debts will be deductible as long as the debts are relating to trade and are revenue in nature.

However, for companies that opted for pre-FRS 39 tax treatment, only specific provision for doubtful debts will be deductible for tax purposes. General provision for doubtful debts will continue to be not deductible for tax purposes.

How to claim for tax deduction

Companies claiming tax deduction need not submit any supporting documents with their Income Tax Return. However, they must retain the following and submit them to IRAS upon request:

  • details of debts (name and amount owing by each debtor) which was not incurred in respect of the trade or business such as loans and advances;
  • details of debts which were taken over in the case of a transfer or merger of business;
  • details of debts in respect of a trade that had ceased, including any activity granted with pioneer incentive that had ceased;
  • segregation of debts relating to the different tax rate categories.

The following additional information is required for trade debts owing by related parties, where the amount of impairment loss exceeds $250,000:

  • relationship between the company and the trade debtor;
  • whether normal credit policy and terms were extended to the related party. If not, please provide the reasons for the extended credit policy and terms;
  • whether steps were taken to recover and enforce the debts. If not, please provide the reasons for not enforcing the debts;
  • reasons why the related party was unable to repay the trade debt.

Interest adjustment

Interest expenses relating to non-income producing assets are not deductible for income tax purposes.

As such, you have to make interest adjustments in your tax computation if there are any interest expenses applicable to non-income producing assets.

What are non-income producing assets?

Non-income producing assets are assets which do not produce any income.

Examples of non-income producing assets are:

  • Vacant properties acquired for long-term investment,
  • Investments in shares/securities which have not yielded dividends,
  • Interest-free loan or amount owing by non-trade/sundry debtors,
  • Interest-free loan or amount owing by related companies (non-trade)/shareholders.

Interest adjustments are normally made using the total asset method (TAM). This method works on the principle that total funds are used to finance total assets.

Under the total asset method, interest adjustment (disallowable interest expense) =

Cost of non-income producing assets* x Interest expenses
Cost of total assets*

* Before the introduction of FRS 39 on 1 Jan 2005, historical cost is used for the numerator and denominator of the TAM without taking into account any provisions made (e.g. provision for depreciation and bad debts) and valuation surplus/deficit.

With the adoption of the FRS 39 for accounting purposes, financial assets and liabilities are now shown at fair value, cost or amortised cost. For tax purposes, the treatment of financial instruments on revenue account is aligned with that of the accounting treatment of FRS 39. When you make interest adjustment on non-income producing assets, the value of these assets is the value reported in the balance sheet without adjustment for any provisions made and valuation surplus/deficit.

However, if you wish to use historical cost to value the assets, you can make an election in writing, at the time of submitting your tax return. You must be able to track the historical cost of all the assets separately and keep proper records on the cost of the assets. Once the election is made, it will be applied consistently. You can opt to use the value of the financial assets shown in the balance sheet under the FRS 39 treatment at any time after that. Such a move to the FRS 39 treatment is irrevocable once it is exercised.

If you have opted to remain on the pre-FRS 39 tax treatment, the historical cost will be used to compute the value of the assets.

For information on the income tax implication arising from the adoption of FRS 39, please click here.

Interest-free loan on amount owing by directors

Interest adjustment is not required for interest-free loan or amount owing by directors as it constitutes staff cost. The interest-free benefits are taxable as employment benefits of the directors. (Note: Interest benefits must be included in directors' Form IR8A).

The interest-free benefits can be calculated based on:

Interest-free loan due from each director as at the Balance Sheet date multiply by the average prime lending rates.

Find out more on the prime lending rates at the Monetary Authority of Singapore website .

Interest incurred on loans to re-finance earlier loans or borrowings New!

The deductibility of interest expense on capital employed in acquiring income is governed by section 14(1)(a)(i) of the Income Tax Act (ITA).

Where interest expenses are incurred on loans or borrowings taken to finance income-producing assets, they must also satisfy the following general conditions to be deductible against income:

  • they are incurred wholly and exclusively in producing the income;
  • they are incurred in the basis period for the YA;
  • deduction of the interest is not otherwise prohibited under the ITA.

Based on a strict interpretation of section 14(1)(a)(i), interest expenses incurred on a loan taken up to re-finance an earlier loan or borrowing is not deductible for tax purposes as the subsequent loan is taken up to repay an existing one and the interest incurred is therefore not payable on capital employed in acquiring the income.

Administrative Concession

Since April 1995, as an administrative concession, IRAS has decided to allow claims for deduction of interest expense incurred on loans taken up where the whole of the proceeds is used to re-finance earlier loans or borrowings that qualify for interest deduction.  This is provided that the taxpayer can prove to the satisfaction of the Comptroller that the re-financing is effected for genuine commercial reasons. Some of the reasons which may be acceptable to the Comptroller include:

  • the re-financing arrangement is effected so as to achieve an overall reduction in cost of finance (e.g. due to better credit terms such as lower interest rates);
  • the re-financing arrangement is necessary due to the taxpayer’s financial position (e.g. he may be in financial difficulties and need to restructure the loan in the interim).

Some examples of situations where the above concessionary tax treatment may be applied are:

  • the taxpayer re-finances a higher interest-bearing loan with a lower interest-bearing one;
  • the taxpayer re-finances an interest-free loan with an interest-bearing one because the period of the interest-free loan has expired;
  • the taxpayer re-finances a lower interest-bearing loan with a higher interest-bearing one because the period of the lower interest-bearing loan has expired.

The onus of proof that the re-financing arrangement is effected for genuine commercial reasons rests solely with the taxpayer.

The concessionary tax treatment does not preclude the Comptroller from:

  • disallowing taxpayer’s claims for deduction of interest incurred on a subsequent loan against the income derived from an asset purchased with the original loan where the proceeds from the subsequent loan are used to finance another asset (e.g. the first asset is pledged as security to raise the funds to purchase the second asset);
  • disallowing interest incurred in respect of non-income producing assets. 

Medical expenses

Tax deduction for medical expenses is capped at 1% of total employee remuneration accrued for the year. However, the cap on medical expenses is at 2% of total employee remuneration accrued for the year if the company has implemented any of the following portable medical benefits options:

  • Portable Medical Benefits Scheme (PMBS);
  • Transferable Medical Insurance Scheme (TMIS);
  • Provided employees with inpatient medical insurance benefits in the form of portable medical shield plans (but the additional deduction will exclude premiums for riders that cover deductibles and co-payments^); or
  • Made ad-hoc contributions to employees’ Medisave accounts (subject to a cap of $1,500 per employee per year) during the relevant basis period.

Find out more about the above portable medical benefits and qualifying conditions at the Ministry of Manpower’s website .

^ If the medical expenses (including rider premiums) do not exceed 1% of the total remuneration of the employees for the relevant basis period, the full amount of medical expenses will be deductible.

If the medical expenses (including rider premiums) exceed 1% of the total remuneration of the employees for the relevant basis period, any excess amount which does not relate to rider premiums, will be deductible up to another 1% of the total remuneration of the employees for the relevant basis period.

Example:

Total employee remuneration* Medical expenses** incurred

Company did not implement portable medical benefits

Company implemented portable medical benefits

   

Amount deductible (capped at 1% of total employee remuneration)

Amount not deductible

Amount deductible (capped at 2% of total employee remuneration)

Amount not deductible

100,000

2,500

1,000

1,500

2,000

500

* Total employee remuneration:

includes:

  • employees' salaries, allowances & bonuses;
  • directors' remuneration;
  • CPF contributions.

excludes:

  • directors' fees;
  • medical expenses;
  • cash allowances in lieu of medical expenses;
  • benefits-in-kind;
  • skills development levy (SDL);
  • foreign worker levy (FWL).

** Medical expenses include:

  • maternity health care;
  • natal care;
  • preventive and therapeutic treatment expenses;
  • provision of a medical clinic by the employer;
  • cash allowance in lieu of medical expenses;
  • dental expenses;
  • premium incurred on medical and dental insurance; and
  • contributions made by a company to the employees' CPF medisave accounts, subject to a maximum deduction of $1,500 for that year for each employee (does not include employees who are holding a professional visit pass, an employment pass or a work permit).

Tax treatment of medical expenses for companies that are entitled to concessionary taxation

If your company:

  • derives trade income that is exempt from tax or subject to tax at a concessionary rate; and
  • incurs medical expenses that exceed the maximum allowable amount (i.e. 1% or 2% of total employee remuneration),

the excess of medical expenses incurred over the maximum allowable amount (i.e. 1% or 2% of total employee remuneration) will be deemed as income and subject to tax at the prevailing corporate tax rate. The excess should not be treated as a non-tax deductible expense in the company’s tax computation.

Motor vehicle expenses Revised!

Tax treatment of motor vehicle expenses incurred by a company are summarised as follows:

Private passenger cars (S-plated cars) Reimbursement of employees' S-plated car expenses Transport allowance to staff Foreign registered cars used exclusively outside Singapore Q-plated business passenger cars that were registered before 1 Apr 1998

Non-deductible

Non-deductible

Deductible

Note that the transport allowance is taxable as part of the employment income for your employees

From YA 2014:

Deductible in full

Before YA 2014:

Deductible subject to following cap:

$35,000/cost of vehicle x motor vehicle expenses relating to that vehicle

 

 

Deductible subject to following cap:

$35,000/cost of vehicle x motor vehicle expenses relating to that vehicle

Read the “Changes in Tax Treatment of Motor cars consequent to Vehicle Tax Rationalisation (126KB) for details

Private hire car

From 1 Apr 1998, private hire car expenses and hiring charges (SZ-plate or S-plate cars) are not deductible for income tax purposes. Deduction is not allowed regardless of whether the hired cars have been used for business purposes, except where the company is carrying on business of hiring out cars or providing driving instruction.

From YA 2014, motor vehicle expenses for foreign rental cars used exclusively outside Singapore are deductible in full if the cars are used for business purposes.

Before YA 2014, motor vehicle expenses for foreign rental cars used exclusively outside Singapore are deductible if the cars are used for business purposes but subject to the following cap:

      35,000    _ __   x motor vehicle expenses relating to that vehicle
Cost of vehicle

Read the "Changes in Tax Treatment of Motor cars consequent to Vehicle Tax Rationalisation" (126KB) for details.

Research & development (R&D) expenditure Revised! 

Who can claim R&D tax benefits
How to determine if a project qualifies for R&D tax benefits
R&D documentation
What is qualifying R&D expenditure
How the claim process works

Who can claim R&D tax benefits

Each taxpayer must assess for itself whether it is eligible to benefit from the R&D tax measures.
In general, only taxpayers who are the beneficiaries of the R&D activities can claim R&D deductions on the R&D expenditure incurred.

A beneficiary of R&D activities generally:
(a) bears the financial burden of carrying out the R&D activities; and
(b) effectively owns and can commercially exploit the know-how, intellectual property or other results of the R&D activities.

A taxpayer who is in the trade or business of providing R&D services will generally not be able to claim the R&D tax benefits, unless the R&D is performed on its own account such that it is the beneficiary of the R&D activities. Please refer to the e-Tax Guide "Research and Development Tax Measures (373KB)" for more details. 

How to determine if a project qualifies for R&D tax benefits 

A project qualifies for R&D tax benefits if it:
(i) meets the three requirements set out in Section 2 of the Income Tax Act; and
(ii) does not fall within the list of specified excluded activities.

The three requirements are as follows:

  • The objective of the project is to – 
    •  Acquire new knowledge;
    • Create new products or processes; or
    • Improve existing products or processes;
  • It involves novelty or technical risk; and
  • It involves a systematic, investigative and experimental (“SIE”) study in a field of science or technology.

 Please refer to the table below for a description of each requirement:

R&D requirements Description
Objective

The objective refers to the primary purpose of the project (i.e. why the project is undertaken). It has to be clearly set out before the project commences. The objective should be to overcome existing scientific or technological challenges to achieve one or more of the following outcomes:

  • to  acquire new knowledge;
  • to create new products or processes; or
  • to improve existing products or processes.

The desired outcome should be something that is not known or readily deducible before the project starts. 

Novelty Novelty exists when there is something new (first of its kind in Singapore) in relation to the creation or improvement of products, processes or knowledge. The creation or improvement must involve more than minor or routine upgrading.
Technical Risk

A project involves technical risk if there is scientific or technological uncertainty that cannot be readily resolved by a competent professional in the relevant field of science or technology at the start of the R&D project.

Scientific or technological uncertainty exists when there is a gap between the current state of scientific or technological knowledge and the intended outcome of the project.

A competent professional broadly refers to someone with the necessary knowledge, qualifications, experience and skills to participate in the relevant field of science or technology with a reasonable level of skill. He need not be an employee of the business.

SIE Study

An SIE Study refers to a series of planned activities to test or find out something that is not known or readily deducible in the field of science or technology, as set out in the R&D objective. The following elements are indicative of an SIE study:

  • a planned and orderly approach to conducting the study, which is set out before commencing the study;
  • activities undertaken to find out how to close the gap between the desired outcome and the state of scientific or technological knowledge prior to the commencement of the study; and
  • a series of structured steps to test out the potential solution for solving a technical problem or creating a new thing. An iterative process is often needed.

Non-qualifying activities

An activity will not qualify as R&D if it falls within the list of activities stated below.
(a) quality control or routine testing of materials, devices or products.
(b) research in the social sciences or the humanities.
(c) routine data collection.
(d) efficiency surveys or management studies.
(e) market research or sales promotion.
(f) routine modifications or changes to materials, devices, products, processes or production methods.
(g) cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods.
(h) development of a computer software that is not intended to be sold, rented, leased, licensed or hired to 2 or more persons who are not related parties to each other, and to the person who develops the software or on whose behalf the development of the software is undertaken [only applicable for YA 2009 to 2011].

For more detailed explanation of the R&D requirements, please refer to the e-Tax Guide "Research and Development Tax Measures (373KB)". The e-Tax Guide also contains useful examples of projects that qualify for R&D tax benefits, which illustrate how to apply the R&D requirements articulated above.

R&D Documentation  

A taxpayer must maintain proper documentation of its R&D projects, so that it can substantiate its R&D claims to IRAS when requested. Please maintain such documentation from the start of the R&D project, rather than as an after-event.

Some information that will help to substantiate R&D claims:

Examples of information/ documentation that can substantiate R&D claims
Objective
  • Explanation of how the R&D project goes beyond the current state of technology and knowledge
  • Records of enquiries/ research done on the current state of technology and knowledge and the results
Novelty
  • Press statements, marketing materials or website information that state that the product is new to Singapore
  • Award of a patent resulting from the R&D
Technical Risk
  • Explanation of the scientific or technological uncertainty involved and why it could not be readily resolved by a competent professional before the start of the R&D project
SIE Study
  • Records of challenges and why they could not be resolved without undertaking a SIE study
  • Design of your experimental process, including your potential solution
  • Test results
  • Record of steps taken to improve the chances of success for subsequent attempts

More examples of helpful documentation can also be found in the e-Tax Guide "Research and Development Tax Measures (373KB)" and Documents to be retained and submitted to IRAS upon request.

Smaller businesses may not always formally document the steps of their R&D projects. In such cases, IRAS is prepared to accept other forms of documentation that the business has to substantiate its claim. Such documentation may include (but are not limited to) working papers, email discussion, test result scripts etc. SMEs can contact IRAS if they need clarifications on the requisite documentation.

What is qualifying R&D expenditure

A taxpayer may: 

  • undertake R&D work directly,
  • outsource it to an R&D service provider, or
  • participate in a R&D cost-sharing agreement.

Such R&D work may be conducted wholly in Singapore or outside Singapore, or partly in Singapore and partly outside Singapore.

In general, the R&D tax benefits available on qualifying R&D projects are as follows:

R&D Activity
 R&D is conducted wholly in Singapore R&D is conducted wholly Overseas
 
In-House Outsourced/ Cost-sharing agreement
Related to trade
  1. 100% tax deduction*; and
  2. Additional 50% deduction^ on:
    • Staff costs (excluding directors' fees)
    • Consumables
  1. 100% tax deduction*; and
  2. Additional 50% deduction^ on:
    • 60% of fee paid; or
    • Actual staff costs (excluding directors’ fees) and consumables incurred it is more than 60% of fee paid)
100% deduction * #
Not related to trade Not applicable
Please note that the above applies only where the R&D project is conducted wholly in Singapore or wholly overseas.  Where it is a mixed R&D project i.e. the project is undertaken partly in Singapore and partly overseas, please refer to the e-Tax Guide "Research and Development Tax Measures (373KB)" for more information on the tax deduction rules.    

* Subject to specific restrictions under Section 15 of the Income Tax Act.

^From YA 2009 to YA 2025, both YAs inclusive.  From YA 2011 to YA 2018, an additional 250% of qualifying R&D expenditure on staff costs (excluding directors’ fees) and consumables can be claimed under the PIC scheme, subject to a certain expenditure cap. Alternatively, eligible businesses can apply to convert up to $100,000 of their total qualifying expenditure for each YA in all the six qualifying activities into a non-taxable cash payout. The cash payout rate is at 60% of the qualifying expenditure incurred. For more information, please refer to the Productivity and Innovation Credit scheme

# From YA 2011 to YA 2018, an additional 300% on qualifying R&D expenditure on staff costs (excluding directors’ fees) and consumables can be claimed under the PIC scheme, subject to a certain expenditure cap. Alternatively, eligible businesses can apply to convert up to $100,000 of their total qualifying expenditure for each YA in all the six qualifying activities into a non-taxable cash payout. The cash payout rate is at 60% of the qualifying expenditure incurred. For more information, please refer to the Productivity and Innovation Credit scheme.

How the claim process works 

The following shows what you need to do to make a R&D claim: 

RnD Claim Process

Please note that you need not submit any information/ supporting documents with the Income Tax Return (Form C/ Form C-S).  However, you need to prepare and retain proper documentation from the start of the R&D project.

*Companies filing Form C: Please submit the Research and Development (R&D) Claim Form (93KB) together with the company’s Form C.

Companies filing Form C-S: Please retain the completed R&D Claim Form and submit it to IRAS upon request.  The relevant documents/ information must be retained for a period of at least five years from the relevant YA. These documents/ information should be submitted to the Comptroller of Income Tax upon request. For more information on record keeping, please refer to Record Keeping Essentials for Businesses.

Assistance on how to complete the R&D Claim Form: Please view Specimen 1 (R&D project involving technical risk) (41KB) and Specimen 2 (R&D project involving novelty) (42KB).

#For more information, please refer to Technical Advisory Panel.

Section 14Q deduction for expenditure incurred on renovation or refurbishment works

Currently, capital expenditure incurred on renovation or refurbishment works (R&R costs) carried out on business premises is not allowable as a tax deduction (unless the R&R costs constitute expenditure on repairs or replacements with no element of improvement).

Such R&R costs also do not qualify for capital allowances (unless they form part of a building which qualifies for industrial building allowance or land intensification allowance) as they are incurred in relation to the business setting within which the business is carried on and not on the provision of  “plant or machinery”.

To help businesses, particularly small and medium enterprises, tax deduction will be granted on qualifying R&R costs incurred from 16 Feb 2008 under Section 14Q of the Income Tax Act.

Qualifying expenditure

The following items will qualify for Section 14Q deduction if they do not affect the structure of the business premises:

General electrical installation and wiring to supply electricity;
General lighting;
Hot/cold water system (pipes, water tanks etc);
Gas system;
Kitchen fittings (sinks, pipes etc);
Sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
Doors, gates and roller shutters (manual or automated);
Fixed partitions (glass or otherwise);
Wall coverings (such as paint, wall-paper etc.);
Floorings (marble, tiles, laminated wood, parquet etc.);
False ceilings and cornices;
Ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
Canopies or awnings (retractable or non-retractable);
Windows (including the grilles etc.);
Fitting rooms in retail outlets.

No deduction will be allowed on expenditure relating to:

Any designer fees or professional fees;
Any antique;
Any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation; or
Any works carried out in relation to a place of residence provided or to be provided to the company’s employees (applies to expenditure incurred from 18 Dec 2012).

Expenditure cap

Under Section 14Q, the amount of R&R costs that qualify for tax deduction is subject to an expenditure cap of $150,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred and a deduction is claimed by the company.

As announced in Budget 2012, from YA 2013, the expenditure cap of $150,000 will be doubled to $300,000 for every relevant three-year period.

Claim for Section 14Q deduction

Section 14Q deduction must be claimed over three consecutive YAs, starting from the YA relating to the basis period in which the R&R costs are first incurred (i.e 1/3 of the R&R costs can be claimed each YA over the three consecutive YAs). Any amount of qualifying R&R costs not claimed in the YA relating to the basis period in which they were first incurred, will not qualify for deduction in subsequent YAs.

If a company permanently ceases business in any of the three YAs, it will not be allowed a deduction on the balance of the R&R costs.

Special provisions for YA 2010 and YA 2011

To help companies manage their business costs during economic uncertainty, companies with R&R expenses incurred to refit business premises in the basis periods relating to YA 2010 and YA 2011 may claim such expenses over one year instead of three years.

The accelerated write-down from three years to one year will reduce the income tax payable by companies, thereby easing the cash-flow pressures that companies may face.

Unutilised Section 14Q deduction

Section 14Q deduction is to be deducted from the adjusted profit/loss after all other deductions have been allowed. Any amount of Section 14Q deduction that cannot be fully utilised will form part of the company's adjusted trade loss, and can be offset against other income of the company.

The remaining unutilised Section 14Q deduction, if any, can be:

  • transferred under the group relief system from YA 2013 as announced in Budget 2012, subject to qualifying conditions. Prior to YA 2013, any unutilised Section 14Q deduction is not allowed to be transferred under the group relief system.
  • carried back to the immediate preceding YA to be offset against the assessable income under the loss carry-back relief, subject to the shareholding test.  For YA 2009 and YA 2010, the losses can be carried back up to three YAs immediately preceding that YA in which the losses were incurred.
  • carried forward to offset against the company’s assessable income for future YAs, subject to the shareholding test.

Claiming deduction for renovation or refurbishment expenses (Section 14Q)

Companies claiming Section 14Q deduction need not submit any supporting documents with their Income Tax Return. However, companies need to prepare and retain* the following documents/ information:

  • An itemised list (including the related costs incurred) of the renovation or refurbishment works done to the business premises.  Include the addresses of the premises;
  • Confirmation that the renovation or refurbishment works in the itemised list do not require the approval of the Commissioner of Building Control; and
  • Invoices and payment details of the relevant expenditures.

* The relevant documents/ information must be retained for a period of at least five years from the relevant YA. These documents/ information should be submitted to the Comptroller of Income Tax upon request. For more information on record keeping, please refer to Record Keeping Essentials for Businesses.

For more details of Section 14Q deduction, please refer to the:

Supplementary Retirement Scheme (SRS)

With effect from 1 Oct 2008, an employer can contribute to his employees’ Supplementary Retirement Scheme (SRS) accounts on his employees’ behalf. Such contributions, together with the contributions made by the employees themselves, are subject to each employee’s annual SRS contribution cap (which is $11,475 for a Singapore Citizen/Permanent Resident, and $26,775 for a foreigner), and are fully deductible as staff costs to the employer.

In Budget 2011, the Minister for Finance announced that the annual SRS contribution cap will be increased, in line with the higher CPF Salary Ceiling. The revised annual SRS contribution cap for contributions made from 1 Jan 2011 will be $12,750 for a Singapore Citizen/Permanent Resident and $29,750 for a foreigner.

Table showing the annual SRS contribution cap for each employee combined with the employee’s own contribution:

  1 Oct 2008 to 31 Dec 2010 From 1 Jan 2011

Employee who is a Singapore Citizen/Permanent Resident

$11,475

$12,750

Employee who is a foreigner

$26,775

$29,750

Topping-Up of Employees' CPF Minimum Sums

With effect from 1 Nov 2008, an employer who tops up his employees' CPF Minimum Sums on his employees' behalf, will enjoy tax deduction for such top-up.

The payment to the employee's Minimum Sum made by the employer constitutes income in the hands of the employee. However, the employee will be allowed a tax relief. Please see more details on the CPF Cash Top-up Relief for individuals.

Voluntary cash contributions to Medisave Account

As announced in Budget 2011, eligible companies that make voluntary contributions to Self-employed Persons’ CPF Medisave Accounts from 1 Jan 2011 will be given tax deduction with effect from YA 2012.

To qualify for the tax deduction, the contribution must meet the following conditions:

a. The contribution is made to the Medisave Account of a self-employed person (SEP);

b. The contribution is made in cash by a company;

c. There must be a valid contract between the eligible company and the SEP, which is in force when the contributions are made, and which provides for:

   (i) the rental or loan of assets by that company to the SEP, for the SEP to carry on his trade, profession, business or    vocation; or

   (ii) the provision of services by the SEP to that company, where the SEP and that company are in the same trade,    profession, business or vocation.

For any calendar year, tax deduction will be given for contributions not exceeding $1,500 per SEP, and within the CPF Annual Limit and Medisave Contribution Ceiling. If there is more than one company making contributions to an SEP’s Medisave Account, the tax deduction limit of $1,500 applies to the sum of the contributions made for the SEP.

For more details, please refer to the Frequency Asked Questions (FAQs) on the Voluntary Contribution - Medisave Account Scheme.

 

 

 

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Last Updated on 18 September 2014


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