What Qualifies for Writing-Down Allowances for IPRs
To enhance Singapore’s attractiveness as a location for businesses to hold and commercialise IPRs, companies can claim writing-down allowances on capital expenditure incurred to acquire IPRs for use in their trade or business, up to the last day of the basis period for the Year of Assessment (YA) 2020.
In Budget 2019, in recognition that IPRs are important creators of value in a knowledge-based economy, the Minister for Finance extended the granting of writing-down allowances on capital expenditure incurred for IPR acquisitions up to the last day of the basis period for YA 2025. All other conditions for claiming writing-down allowances remain unchanged.
[NEW!] As announced in Budget 2023, under the Enterprise Innovation Scheme (EIS), to encourage more firms to engage in IP-related activities and use innovations to improve their productivity and outcomes, the writing-down allowances under Section 19B will be extended to capital expenditure incurred in respect of qualifying IPRs acquired on or before the last day of the basis period for YA 2028.
For the purpose of claiming writing-down allowances, capital expenditure excludes legal fees, registration fees, stamp duty and other costs related to the acquisition of the IPRs.
For the purpose of claiming writing-down allowances, IPRs are:
- Registered designs
- Geographical indications
- Lay-out designs of integrated circuit
- Trade secrets or information with commercial value*
- Plant varieties
* In line with the policy intent of Section 19B of the Income Tax Act 1947, in the definition of IPR, the expressions 'trade secret' and 'information that has commercial value', and any work or subject-matter to which the expression 'copyright' relates, exclude the following:
- Information of customers of a trade or business, such as a list of those customers and requirements of those customers, gathered in the course of carrying on that trade or business
- Information on work processes (such as standard operating procedures), other than industrial information, or technique, that is likely to assist in the manufacture or processing of goods or materials
- Compilation of any information as described in paragraph (1) or (2); and such other matter as the Minister may by regulations prescribe
Learn more about the above IPRs at the Intellectual Property Office of Singapore’s website.
To be eligible for writing-down allowances, the transferee (i.e. company that acquires the IPRs) must acquire the legal and economic ownership of the IPRs from the transferor (i.e. person who sells the IPRs to the transferee), except for cases where approval for waiver of the requirement for legal ownership has been granted by the Singapore Economic Development Board (EDB) under Section 19B(2B) of the Income Tax Act 1947.
Legal ownership means that the legal rights to the IPRs are granted to the transferee.
Economic ownership means that the future economic benefits arising from the IPRs will accrue to the transferee.
How to Calculate Writing-Down Allowances
Before the Year of Assessment (YA) 2017, writing-down allowances were granted to the transferee on a straight-line basis over a 5-year period beginning from the YA of the basis period in which the capital expenditure is incurred in acquiring the IPRs.
From YA 2017, your company is allowed to make an irrevocable election to claim the writing-down allowances over a 5-year, 10-year or 15-year period (on a straight-line basis) beginning from the YA of the basis period in which the capital expenditure is incurred in acquiring the IPR.
The irrevocable election applies for IPRs acquired from YA 2017, and has to be made via a Declaration Form (PDF, 93KB) at the time of the filing of the Corporate Income Tax Return (Form C-S/ Form C-S (Lite)/ Form C) in the first YA of the writing-down allowance claim. Submit the Declaration Form through the Submit Document digital service at mytax.iras.gov.sg.
Company A acquired an IPR for $450,000 in YA 2016 (excluding legal fees, registration fees, stamp duty and other costs related to the acquisition). Company A can claim writing-down allowances of $90,000 ($450,000/ 5) for each YA from YAs 2016 to 2020.
Company B acquired an IPR for $450,000 in YA 2021 (excluding legal fees, registration fees, stamp duty and other costs related to the acquisition). Depending on the election made, Company B can claim writing-down allowances of:
- $90,000 ($450,000/ 5) for each YA from YAs 2021 to 2025; or
- $45,000 ($450,000/ 10) for each YA from YAs 2021 to 2030; or
- $30,000 ($450,000/ 15) for each YA from YAs 2021 to 2035.
The election to claim the writing-down allowances over a 5-year, 10-year or 15-year period should be submitted via the Declaration Form (PDF, 93KB) at the time of the filing of its YA 2021 Form C-S/ Form C-S (Lite)/ Form C.
Under the 2-Year Write-Off Scheme for Approved Media & Digital Entertainment (MDE) Companies
An approved MDE company can claim writing-down allowances over 2 years on the acquisition of the following IPRs for the purpose of its trade from 22 Jan 2009 to the last day of the basis period for YA 2018:
- Television programmes
- Digital animations or games
- Other media and digital entertainment contents
An approved MDE company is one that has been approved by the Singapore Economic Development Board (EDB) to claim accelerated writing-down allowances. The acquisition cost of IPRs acquired qualifies for the shorter writing-down period only upon approval by EDB. This applies whether the applicant acquired both legal and economic ownership of the IPR or the applicant only acquired economic ownership but not the legal ownership of IPR.
The scheme has expired after the last day of the basis period for YA 2018. With the lapse of the scheme, an approved MDE company may elect to claim writing-down allowances over a writing-down period of 5 years, 10 years or 15 years on the capital expenditure incurred to acquire the qualifying IPRs under Section 19B of the Income Tax Act 1947.
Under the Productivity & Innovation Credit (PIC) Scheme
As part of the PIC scheme, capital expenditure incurred to acquire IPRs from YAs 2011 to 2018 can qualify for:
- 400% writing-down allowances instead of 100% allowances subject to an expenditure cap
- 100% writing-down allowances on the balance expenditure exceeding the cap
This excludes IPRs that are granted waiver of the requirement for legal ownership by the Singapore Economic Development Board (EDB) and IPRs pertaining to films, television programmes, digital animations or games or other media and digital entertainment contents approved by EDB for writing-down allowances over 2 years.
The PIC scheme has expired after YA 2018. With the lapse of the scheme, businesses may only claim 100% writing-down allowances on the capital expenditure incurred to acquire the qualifying IPRs under Section 19B of the Income Tax Act 1947.
Under the Enterprise Innovation Scheme (EIS)
[NEW!] As announced in Budget 2023, under the EIS, to encourage more firms to engage in IP-related activities and use innovations to improve their productivity and outcomes, capital expenditure incurred in respect of qualifying IPRs acquired can qualify for:
- 400% writing-down allowances instead of 100% allowances subject to a combined cap1 of $400,000 qualifying expenditure incurred in each basis period from YA 2024 to YA 2028
- 100% writing-down allowances on the balance qualifying expenditure exceeding the combined cap of $400,000
In lieu of tax deductions and/ or allowances, eligible businesses may opt to convert up to $100,000 of the total qualifying expenditure across all the qualifying activities under the EIS for each YA into cash at a conversion rate of 20%. The non-taxable cash payout is capped at $20,000 per YA from YA 2024 to YA 2028.
For the acquisition of IPRs, the option to convert qualifying expenditure into a cash payout is on a per IPR basis, subject to a cap of $100,000 of qualifying expenditure across all the qualifying activities for each YA. Where the capital expenditure incurred on a qualifying IPR is in excess of the cap of $100,000, the excess is forfeited upon conversion and will not be available for deduction as WDA against the income of the company or partnership concerned.
2 Revenue refers to income that arises from the ordinary activities of a business. It refers to the business' main source of income, excluding separate source income such as interest. The revenue criterion will be applied at the group level if the entity is part of a group.
For acquisition of IPRs, in order to qualify for the enhanced writing down allowances and the option to convert qualifying expenditure into a cash payout, companies and partnerships must own the relevant qualifying IPRs for a minimum period of one year (“one-year ownership period”). Claw-back provisions shall apply if the one-year ownership period requirement is not complied with.
How to Claim Writing-Down Allowances
If your company is claiming writing-down allowances, you are required to file the following documents/ information together with its Form C-S/ Form C-S (Lite)/ Form C for the Year of Assessment (YA) relating to the basis period in which the IPR is acquired:
- Declaration Form (PDF, 93KB):
- To confirm that the ownership requirements of the acquired IPRs have been met; and
- For IPRs acquired in or after YA 2017, to make an irrevocable election to claim the writing-down allowances over a 5-year, 10-year or 15-year period at the time of lodgment of the Form C-S/ Form C-S (Lite)/ Form C in the first YA of the writing-down allowance claim.
Submit the Declaration Form through the Submit Document digital service at mytax.iras.gov.sg.
- Third-party independent valuation report on the value of the IPRs acquired where:
- The capital expenditure incurred in acquiring the IPRs is ≥ $0.5 million for a related party transaction; or
- The capital expenditure incurred in acquiring the IPRs is ≥ $2 million for an unrelated party transaction.
For the purpose of this requirement to submit a valuation report, your company and the transferor (i.e. person from whom the IPRs are being acquired) are considered to be 'related parties' where one person, whether directly or indirectly, can control the other or where both of you, whether directly or indirectly, are under the control of a common person.
The Comptroller of Income Tax requires a valuation of the IPRs to be made by an appropriate valuer to determine the Open Market Price (OMP) of the qualifying IPRs where the value of the capital expenditure exceeds the above-mentioned thresholds.
The valuer should be an independent party and has the relevant qualifications and experience as follows:
- Independence - The valuer and the firm that the valuer belongs to are not related to the transferor or transferee, and have no interest in the acquisition/ disposal of the IPRs. If the valuer is also undertaking other assignment(s) or had undertaken other assignment(s) for the company within the past 2 years of the date of the valuation report, the valuer must disclose the relationship, and demonstrate that there is no conflict of interest between the valuation assignment and the other assignment(s) undertaken.
- Qualification - The valuer must possess the relevant qualifications. Full particulars of the qualifications and the professional institute that awarded the qualifications have to be provided in the valuation report. Examples of a qualified valuer are Chartered Valuer and Appraiser, Chartered Financial Analyst and Chartered Accountant.
- Experience - The valuer has experience in valuing similar types of IPRs or IPRs in similar industries.
Where a valuation report is submitted, the amount that is eligible for writing-down allowances is the actual capital expenditure incurred on acquiring qualifying IPRs, where it does not exceed the OMP of the qualifying IPRs on the acquisition date. The Comptroller of Income Tax can make adjustments to restrict the writing-down allowances granted on the OMP of the qualifying IPRs if the acquisition price of the qualifying IPRs is higher than the OMP.
The Comptroller of Income Tax reserves the right to require a second independent valuation or to adjust the amount eligible for the writing-down allowances, if there is reason to believe that the true value of the IPRs (on an arm's length basis) is materially different from the value stated in the valuation report.
Learn more about the information to be provided in the Intellectual Property Rights Valuation Report for Purposes of Section 19B of the Income Tax Act 1947 (PDF, 535KB).
Disposal of IPRs
Where the IPRs come to an end without being subsequently extended, or your company permanently ceases to carry on the trade or business for which the IPRs were acquired, no writing-down allowance is granted to your company for the year in which the event occurs or any subsequent year.
Any writing-down allowance granted previously is not deemed as income in the year in which the event occurs.
Where your company sells, transfers or assigns all or any part of the IPRs, the transaction may result in a balancing adjustment:
|Proceeds from disposal of IPRs are greater than tax written down value (TWDV)||Proceeds from disposal of IPRs are less than or equal to the TWDV|
|Balancing charge is computed.||No balancing allowance is granted.|
|The difference between the sale price and the TWDV of the IPRs is deemed as income (i.e. a balancing charge) and brought to tax in the year of disposal. The balancing charge is capped at the amount of writing-down allowances granted previously.||The difference between the sale price and the TWDV of the IPRs is not available to your company as a balancing allowance in the year of disposal.|
In computing the charge on disposal of a qualifying IPR, where the disposal value is lower than the Open Market Price (OMP) of the IPR on the date of disposal, the Comptroller of Income Tax may treat the OMP as the price at which the IPR is disposed of.