Analysis of Singapore's R&D Incentives has been saved
Analysis of Singapore's R&D Incentives
2015 Global Survey
The general corporate tax rate is 17 percent with partial tax exemption granted for the first SGD 300K of otherwise taxable income.
Nature of incentives
Section 14D—100 percent base deduction: Section 14D provides an exception to the general rule that new product and process development costs are capital in nature and hence not tax deductible by allowing current deductions for R&D expenditure incurred by a taxpayer in the conduct of its trade or business (including payments made to R&D organizations).
Eligible expenses include: wages and salaries, materials, and utilities incurred directly for R&D activity. Capital expenditure on plant, machinery, land, or buildings, or on alterations, additions, or extensions to buildings, or in the acquisition of rights arising in or arising out of R&D are specifically excluded. For the tax years from 2009 to 2025, the R&D expenditure need not be related to the entity’s existing trade or business to qualify for the tax deduction, unless the R&D is performed outside Singapore.
Section 14DA(1)—50 percent additional deduction:
Qualifying expenditure incurred with respect to R&D conducted in Singapore during tax years from 2009 to 2025 may, in addition to qualifying for the Section 14D base deduction, qualify for an additional deduction of 50 percent of qualifying expenditure.
Qualifying expenditure have been defined to include only staff costs, consumables, and any other expense prescribed by the Minister. This is a narrower definition of qualifying expenses than under Section 14D. Expenditure incurred on R&D performed outside of Singapore do not qualify for the additional deduction of 50 percent.
Section 14DA(2)—250 percent/300 percent enhanced deduction under the Productivity and Innovation Credit scheme (PIC): The enhanced deduction under the PIC scheme is granted for tax years 2011 to 2018. Under this scheme, the tax deduction of qualifying R&D expenditure on R&D carried out inside or outside of Singapore is enhanced as follows:
- A 250 percent (for Singapore-based R&D) or 300 percent (for non-Singapore-based R&D) enhanced deduction is granted on the first SGD 400K of qualifying R&D expenditure incurred per year or SGD 600K for qualifying SMEs (effective from tax year 2015). This is in addition to the 100 percent base deduction under Section 14D and 50 percent additional deduction under Section 14DA(1) (for Singapore R&D only). With this enhancement, there will be 400 percent tax deduction available on the first SGD 400K of such expenditure incurred or SGD 600K for qualifying SMEs.
- The base deduction and additional 50 percent deduction, under Sections 14D and 14DA(1), respectively, remain applicable to qualifying R&D expenditure exceeding the SGD 400K or SGD 600K (for qualifying SMEs) expenditure caps per year.
- For the tax years 2013 to 2015, the PIC enhanced deduction is granted under a combined expenditure cap of SGD 1.2M or SGD 1.4M (for qualifying SMEs) over the three-year period. For the tax years 2016 to 2018, the combined cap is SGD 1.2M or SGD 1.8M (for qualifying SMEs) over the three-year period.
In addition, there is the option (in lieu of the tax deduction) to convert up to SGD 100K of qualifying expenditure into a non-taxable cash grant at the conversion rate of 60 percent (i.e., SGD 60K) for each tax year 2013 to 2018. There is also a dollar-for-dollar matching cash bonus (PIC bonus) for tax years 2013 to 2015, subject to an overall cap of SGD 15K for all three years combined and a minimum spending requirement of SGD 5K for each tax year.
Section 14E additional deduction: This provision allows an additional super deduction for R&D projects carried out in Singapore and approved by the Singapore Economic Development Board (EDB) before 31 March 2020.
The combined total claims under Sections 14D, 14DA and 14E, with respect to the approved project, are capped at 200 percent of the taxpayer’s actual R&D expenditure.
The Section 14E further deduction does not apply to expenditure for which the enhanced deduction under the PIC has been allowed.
Singapore offers super deductions under a complex multi-tiered system for R&D carried out both in Singapore and outside Singapore.
Eligible industries and qualifying costs
R&D means “any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology with the objective of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, or processes” but does not include:
- Quality control or routine testing of materials, devices or products;
- Research in the social sciences or the humanities;
Routine data collection;
- Efficiency surveys or management studies;
- Market research or sales promotion;
- Routine modifications or changes to materials, devices, products, processes or production methods; or
- Cosmetic modifications or stylist changes to materials, devices, products, processes or production methods.
Intellectual property (IP) and jurisdictional restrictions
The R&D expenditure need not be related to the entity’s existing trade or business as long as the R&D is performed in Singapore.
If the R&D payments are made by an entity to a R&D organization for R&D performed outside Singapore, a claim for deduction will be allowed to such entity, provided the R&D expenditure is related to the entity’s existing trade or business and that any benefit that arises from the R&D accrues to the entity itself. Moreover, qualifying R&D expenditure also includes payments made under any cost-sharing agreement.
With respect to the Section 14D base and Section 14DA(2) PIC enhanced deductions, R&D may take place outside of Singapore but must relate to taxpayer’s existing trade or business. The taxpayer must bear the financial risk of carrying out the R&D activities and effectively own and be able to commercially exploit the know-how, IP or other results of the R&D activities. No prior approval is required to claim these deductions.
Only R&D activities undertaken in Singapore qualify for the section 14DA(1) additional 50 percent deduction. The taxpayer must bear the financial risk of carrying out the R&D activities and effectively own and be able to commercially exploit the know-how, IP or other results of the R&D activities. No prior approval is required to claim the deduction.
For the Section 14E further deduction, the R&D project must be carried out in Singapore and must receive special approval from the Minister (advance application with the Singapore Economic Development Board is required).
When R&D expenses exceed taxable income, the excess may be carried forward and set off against future taxable profits, provided the shareholders of the company are substantially (50 percent or more) the same on the last day (i.e., 31 December) of the year of loss and on the first day (i.e., 1 January) of the year of assessment in which the loss is to be set off. A loss carry back for one year is allowed, but is restricted to a cap of SGD 100K.
Summary of key criteria
A summary of key criteria that distinguishes research tax incentives:
- Refundable research of tax credits
- Countries that allow some research to be performed outside the country
- Qualified contract research allowed
- Jurisdictions offering super deductions