How the Productivity and Innovation Credit (PIC) Scheme Benefits You

Businesses can enjoy tax savings in the form of deductions/allowances of up to 400% or opt for non-taxable cash payouts when they invest in any of the Six Qualifying Activities.

Tax Deductions/Allowances

Businesses can enjoy 400% tax deductions/allowances on up to $400,000 of their expenditure per year in each of the Six Qualifying Activities, instead of the 100% deductions/allowances under the existing tax rules. The 100% deductions/ allowances is usually termed "base deductions/ allowances", while the additional 300% deductions/ allowances is usually termed "enhanced deductions/ allowances".

Amount of Tax Deductions/Allowances

 

The annual expenditure cap of $400,000 may be combined as follows:

Year of Assessment (YA)

Expenditure Cap per Qualifying Activity*

Tax Deduction per Qualifying Activity

2016 to 2018
(Combined)

$1,200,000

$4,800,000
(400% x $1,200,000)

2013 to 2015
(Combined)

$1,200,000

$4,800,000
(400% x $1,200,000)

2011 and 2012
(Combined)

$800,000

$3,200,000
(400% x $800,000)

Tax Deduction under the PIC+ Scheme

 

As announced in Budget 2014, from YAs 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600,000 (instead of $400,000 as mentioned above) of their expenditure per year in each of the Six Qualifying Activities under the PIC+ Scheme.

How It Works

 

The annual expenditure cap of $600,000 may be combined as follows:

Year of Assessment (YA)

Expenditure Cap per Qualifying Activity*

Tax Deduction per Qualifying Activity

2016 to 2018
(Combined)

$1,800,000

$7,200,000
(400% x $1,800,000)

2013 to 2015
(Combined)

$1,400,000#

$5,600,000
(400% x $1,400,000)

Find out more about the PIC+ Scheme for SMEs.

* Only if you are carrying on a trade or business for the relevant YAs. Otherwise, the combined cap is reduced accordingly.
# The combined expenditure cap of $1,400,000 is only applicable for YA 2015 as the additional expenditure cap of $200,000 ($600,000 - $400,000) is not available for YAs 2013 and 2014.

Claiming Tax Deduction

 

Businesses claiming tax deduction in their Income Tax Return will have to claim it by the filing due date for the relevant YA.

 

Due Date for Paper Filing

Due Date for e-Filing

Sole-Proprietorships and Partnerships

15 Apr

18 Apr

Companies

30 Nov

15 Dec

  1. The qualifying expenditure for PIC benefits is the expenditure amount minus the grant or subsidy by the Government or any statutory board.
  2. For a GST-registered business, the qualifying cost incurred for the purpose of claiming PIC should exclude any GST that is claimable as input tax.
  3. However, for a non-GST registered business, the GST component can be included as part of the qualifying cost.

Sole-proprietors and partnerships also have to submit the PIC Enhanced Allowances/Deduction Declaration Form for Sole-Proprietors and Partnerships (105KB) together with their Income Tax Return.

PIC deductions/ allowances that cannot be fully utilised in any YA will form part of the unutilised trade losses/ allowances of a business, which may be offset against other income of the business. 

The unutilised trade losses/ allowances may be:

  1. carried forward to offset against the business income of future YAs subject to the current tax rules;
  2. carried back to the immediate preceding YA to offset against the prior year income under the loss carry-back relief system;
  3. transferred to and offset against the income of a related Singapore company under the group relief system or a spouse in the case of sole-proprietor or partner.

For more information, please refer to Unutilised Items (Losses, Capital Allowances and Donations).

Cash Payout Option

Eligible businesses  can apply to convert up to $100,000 of their total expenditure for each YA in all the Six Qualifying Activities into a non-taxable cash payout, instead of claiming tax deduction. The cash payout rate is at 60% of the expenditure incurred for YAs 2013 to 2018.

This option may be more beneficial for businesses that may be cash-constrained.

Amount of Cash Payout

 

The maximum cash payout is calculated as follows:

Year of Assessment (YA)

Expenditure Cap for All Qualifying Activities

Cash Payout Rate

Maximum Cash Payout

2016 to 2018
(Cap cannot be combined)

$100,000 per YA

60%

$60,000 per YA
(60% x $100,000)

2013 to 2015
(Cap cannot be combined)

$100,000 per YA

60%

$60,000 per YA
(60% x $100,000)

2011 and 2012
(Combined)

$200,000*

30%

$60,000
(30% x $200,000)

* Only if you are carrying on a trade or business for the relevant YAs. Otherwise, the combined cap is reduced accordingly.

Conditions for Cash Payout

 

Businesses eligible to apply for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have:

  1. Incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;
  2. Active business operations in Singapore; and
  3. At least three local employees (Singapore Citizens or Singapore Permanent Residents with Central Provident Fund (CPF) contributions) excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company. This is also known as the "three-local-employee" condition.
  4. Put the PIT IT and Automation equipment to use, for PIC cash payout claims relating to YA 2016 onwards. This applies only to businesses making PIC cash payout claims on such equipment. This is also known as the "in-use" condition.

Incurring Qualifying Expenditure

 

An expense is incurred when the legal liability to pay has arisen, regardless of the date of actual payment of the money. For more information and examples of when an expense is considered incurred, please refer to Examples of When an Expenditure Is Considered Incurred (100KB).

Three-Local-Employee Condition

 

A business meets the three-local-employee condition if it makes CPF contributions for at least three local employees in the relevant month(s). However, a business will not qualify for PIC cash payout if the individuals are “employed” just for headcount purposes in claiming PIC cash payout, regardless of whether that individual is “employed” on a full-time or part-time basis from the business' perspective.  

From YAs 2011 to 2015, the CPF contributions must be made for three local employees in the last month of the relevant financial quarter/ combined financial quarters.

From YAs 2016 to 2018, the CPF contributions must be made for three local employees in the last three months of the relevant financial quarter/ combined financial quarters.

For more information, please refer to Applying for Cash Payout.

Local employees refer to Singapore Citizens and Singapore Permanent Residents with CPF contributions but exclude sole-proprietors, partners under contracts for services and shareholders who are directors of the company.

From YA 2014, for the purpose of fulfilling the three-local-employee condition, individuals deployed under a centralised hiring arrangement# will be regarded as employees of the business where these individuals are deployed, subject to the following qualifying conditions:

  1. The claimant is able to produce supporting documents on the recharging of employment costs by a related entity, in respect of employees working solely in the claimant entity.
  2. The corporate structure and centralised hiring practices are adopted for bona fide commercial reasons.
  3. The employee whose cost has been recharged will not contribute to the requisite headcount of the related party (which bore the upfront manpower costs).

# Some examples of centralised hiring arrangements include:

  1. Deployments where the HR function of a group of companies is centralised in a single entity, with the staff costs (including training expenditure) allocated to the respective entities.
  2. Or a secondment, where employees are seconded to work for a related company. Once seconded, the staff costs are fully recharged to the related company.

Equipment to be "In Use" on Electing for Cash Payout ("In-Use" Condition)

 

 

From YA 2016, businesses need to show that the equipment is in use by the business at the point of electing for cash payout to qualify for cash payout on PIC IT and Automation Equipment.

This condition reinforces the objective of encouraging businesses to increase their productivity by using automation equipment.

For businesses with genuine cashflow difficulties and who are not able to secure the delivery of the equipment before payment is made, IRAS may waive the requirement for the equipment to be "in use" on a case-by-case basis, subject to conditions.

Points to Note when Applying for Cash Payout

  1. Once the qualifying expenditure is converted to cash, it cannot be claimed as tax deductions/allowances.
  2. Election to convert qualifying expenditure to cash is irrevocable.
  3. The minimum qualifying expenditure for each application is $400.
  4. The qualifying expenditure to be converted to cash is the expenditure amount minus the grant or subsidy by the Government or any statutory board.

Applying for Cash Payout

 

YA

When to Submit

Relevant Month(s) for Determining Three-Local-Employee Condition

2016 to 2018

Quarterly Applications
After the end of each quarter or combined consecutive quarters in the business' financial year.

Not later than the filing due date of Income Tax Return.

Contributes CPF on the Payroll For:
All three months in the quarter or last three months of the combined consecutive quarters to which the cash payout option relates.

Please see Worked Examples for YAs 2016 to 2018.

2013 to 2015

Quarterly Applications
After the end of each quarter or combined consecutive quarters in the business' financial year.

Not later than the filing due date of Income Tax Return.

Contributes CPF on the Payroll For:
Last month of the quarter or combined consecutive quarters to which the cash payout option relates.

Please see Worked Examples for YAs 2013 to 2015.

  1.  PIC cash payout application form via the PIC Cash Payout e-Service; and
  2.  Hire-purchase template and/ or Research and Development claim form (where applicable)

If you apply for PIC cash payout via the e-Service, you will receive an instant acknowledgement if the application is transmitted to IRAS successfully. Hence there is no need to contact IRAS to ascertain if IRAS has received your application.

IRAS strives to distribute the cash payout within three months of receiving your complete application. In most cases, IRAS processes the applications within six weeks .If necessary, please check your application status via the PIC cash payout e-Service - this is the quickest and most convenient way, as you will be able to access the e-Service anytime.

Please note that IRAS may select PIC applications for further review, even after disbursing the cash payout.

For more details on how to log in to myTax portal to apply for PIC cash payout, check PIC cash payout application status and view PIC cash payout notices, refer to PIC Cash Payout e-Services.

Measures To Curb PIC Abuse

IRAS takes a serious view of any non-compliance or abuse of the scheme. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or face imprisonment of up to five years. This includes any person who wilfully assists another person to obtain a cash payout or PIC bonus which he is not entitled to.

Anti-Abuse Measures

IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following anti-abuse measures have been introduced to target abusive arrangements and intermediaries that promote or facilitate such arrangements:

  1. Deny PIC benefits arising from abusive arrangements as follows:
  2. Description of Abusive ArrangementAmount of PIC Benefits Disallowed

    It consists of or uses artificial, contrived or fraudulent means.

    That part of PIC benefits arising from the use of the artificial, contrived or fraudulent means.

    The amount paid for the goods/ services exceeds their open market value for no bona fide commercial reason.

    PIC benefits computed based on the difference between the amount paid by the business and the open market value.

    There is no bona fide commercial reason for entering into the arrangement.

    Full amount of PIC benefits.

  3. Impose penalties on intermediaries (including vendors and consultants) who know or have reasonable grounds to believe that the arrangements they are promoting are abusive PIC arrangements. Convicted offenders need to pay a fine of up to $10,000 and/or face imprisonment of up to three years.

A promoter of PIC arrangement is a person who:

  1. Designs, facilitates, organises or manages that arrangement; or
  2. Publishes, disseminates or communicates any information for the purpose of inducing or encouraging any other person to enter into the arrangement.

Examples of Abusive PIC Arrangements

IRAS adopts a commonsensical approach towards interpreting the law on the anti-abuse measures. When ascertaining whether an arrangement is abusive and/ or an offence has been committed, we will consider all relevant facts and circumstances and conduct in-depth investigations where necessary. Please refer to the following scenarios which, in our view, contain abusive features:

An individual who is not carrying out an active business takes the following action(s) to make PIC cash payout claims with IRAS:

  1. Incorporate sole-proprietorships or companies with ACRA;
  2. Make minimum/low CPF contributions for persons who are not employees, such as parents, siblings, friends or other persons. This is done so that they appear to be employees of the claimants for PIC claims when in fact no work was done or that the works which were purportedly done were not for bona fide commercial reason; and/or
  3. Sign agreements with related/friendly parties to purchase items or services such as mobile apps or websites at inflated prices.

The claims will be disallowed as the PIC arrangements are abusive. The actions are contrived, overvalued and put in place so as to make PIC cash payout claims without bona fide commercial reason. IRAS will consider whether these claims should be subject to criminal investigations.

In some abusive PIC arrangements, a group of individual sets up multiple businesses and sells PIC-qualifying products or services among them typically at inflated prices. There is no bona fide commercial reason for such sales aside from obtaining a PIC cash payout.
Such an arrangement may include the following:

  1. Two individuals arrange to set up a company each, Company A and Company B. Both companies provide identical services (e.g. training).
  2. Company A engages Company B to conduct training to Company A's employees for $15,000; while Company B also engages Company A to conduct similar training to their employees for $15,000.
  3. The cost for delivering both sets of training is negligible since the companies could have provided the training services to their own employees.

Companies A and B both seek to benefit from PIC cash payouts and bonus of $24,000 each. The claims will be disallowed as the PIC arrangements are abusive. Aside from deriving PIC cash payouts, there is no bona fide commercial reason for the arrangements. IRAS will consider whether these claims should be subject to criminal investigations.

An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (e.g. ten times the revenue) and claim PIC cash payouts and bonus. For example:

  1. A director sets up Companies X, Y, and Z to sell baby products through mail order - Company X sells clothes, Company Y sells toys and Company Z sells diapers.
  2. All companies derived $1,000 in sales in the relevant period.
  3. All companies engaged an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurred $15,000 on the software.
  4. All companies would claim PIC cash payouts and bonus of $24,000 each. The net receipt of the companies would be $9,000 each after subtracting $15,000 paid to the software vendor.
  5. In participating in this arrangement, the director of Companies X, Y, and Z would benefit $27,000 in total.

The claims will be disallowed as the PIC arrangements are abusive. Apart from the purpose of obtaining PIC cash payouts, there is no bona fide commercial reason to incur such disproportionate expenditure and to duplicate three sets of website and inventory management software for this scale of business activity. IRAS will also consider whether these claims should be subject to criminal investigations.

For more examples of abusive PIC arrangements, please refer to Annex H of the e-Tax Guide " Productivity and Innovation Credit (736KB)".

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