R&D tax incentives in Singapore
Singapore’s government has gone even further to promote the country’s growing international reputation as a base for research and development (R&D) by introducing huge tax incentives.
Tax laws had already been tweaked over the years to entice companies to jump onto the R&D bandwagon. R&D expenses were previously not deductible at all, based on conventional tax rules, as they were not incurred in the production of income. Since 2003, companies have been able to claim a 100% deduction for R&D expenses if they were in the manufacturing or services sectors.
To claim a deduction, the R&D expenditure had initially to be related to that trade or business and either be incurred by the company directly, or outsourced to any R&D organisation. To encourage even more companies to get into R&D, new rules have been brought in that apply to qualifying R&D activities in Singapore from 2009 to 2015.
Qualifying for tax deduction
Firstly, so long as the R&D is done in Singapore, a company can qualify for tax deduction regardless of whether the R&D expenses are incurred in respect of its company’s existing trade or business.
Secondly, for 2009 to 2015, the tax deduction has been raised from 100% to 150% of the actual qualifying R&D expenditure incurred on R&D done in Singapore. And for 2011 to 2015, the tax deduction is further raised to an unprecedented 400% of qualifying R&D expenses on the first $400,000 of expenditure. R&D costs (comprising staff costs and consumables) exceeding the cap will still enjoy 150% tax deduction if the R&D is done in Singapore. Any other R&D expenditure, including money spent on R&D done overseas, will enjoy 100% tax deduction.
To start with, a project is a qualifying R&D activity if it meets the definition under Section 2 of the country’s Income Tax Act and does not fall within the list of specified excluded activities. Under Section 2, 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 object of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce or processes.
Without doubt, R&D is an area which can create value for businesses in our current volatile and unpredictable global environment. It may involve an initial capital investment, but there are now generous tax breaks offered by the Singapore government which translate to a government subsidy of up to 68 cents for every $1 of qualifying R&D expenditure spent.
For further information, contact:
Nexia TS Public Accounting Corporation
Tel: +65 6534 5700