C
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D IRECTOR
A SCENTIA T AX S ERVICES P TE L TD
13 S EPTEMBER 2013
O VERVIEW OF P RODUCTIVITY AND
I
NNOVATION
C
REDIT
S
CHEME
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A broad-based tax grant first announced during Budget 2010 on 22 February
2010 and enhanced during Budget 2011, Budget 2012 and Budget 2013
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This PIC Scheme also applies to small medium enterprises and multinationals.
Law firms also benefit from this PIC Scheme regardless of whether you are a sole-proprietorship, partnership or corporation.
PIC expanded to include Cloud Computing.
9/17/2013
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O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C REDIT S CHEME
R&D 400% tax deduction for S$400,000 of qualifying expenditure on R&D conducted in
Singapore and overseas per year of assessment (YA) and 150%/100% for balance expenditure.
Acquisition of IP / In-house licensing
400% allowance for S$400,000 of qualifying cost from acquiring IP rights / in-house licensing incurred per YA and 100% allowance for balance expenditure.
Registration of IP Rights
Investments in IT and
Automation
400% tax deduction for S$400,000 of qualifying costs of registering patents, trademarks, designs and plant varieties incurred per YA and 100% tax deduction for balance expenditure.
400% allowance for S$400,000 of expenditure incurred on qualifying investments in automation per YA and 100% allowance for balance expenditure.
Investments in Design 400% tax deduction for S$400,000 of qualifying expenditure on eligible design activities done in Singapore per YA and 100% tax deduction for balance expenditure.
Training 400% tax deduction for S$400,000 of qualifying training expenditure for external training and Certified in-house training per YA and 100% tax deduction for balance expenditure.
9/17/2013
P RODUCTIVITY AND I NNOVATION C REDIT
S
CHEME
– C
LOUD COMPUTING
Which category does cloud computing fall under?
Answer: IT and Automation equipment.
How is cloud computing different from the rest of the PIC categories?
Answer: Cloud computing is a service and not an equipment.
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P RODUCTIVITY AND I NNOVATION C REDIT
S CHEME – C LOUD COMPUTING
Definition of Cloud Computing
Defined under section 14T of the ITA as:
“cloud computing service” means any information technology service delivered by means of cloud computing.
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P RODUCTIVITY AND I NNOVATION C REDIT
S
CHEME
– C
LOUD COMPUTING
Source: Wikipedia
Cloud computing providers offer their services according to several fundamental models:
- infrastructure as a service (IaaS),
- platform as a service (PaaS), and
- software as a service (SaaS)
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P RODUCTIVITY AND I NNOVATION C REDIT
S CHEME – C LOUD COMPUTING
Source: IRAS slide 38 of the Slide show “Productivity and Innovation
Credit Scheme &Budget 2013 Highlights for Businesses”
9/17/2013
O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C
REDIT
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CHEME
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Qualifying Persons or ‘Companies’?
Section 37I(21) defines "qualifying person" to be any company or firm (including a partnership) that —
(a) carries on a trade or business in Singapore; and
(b) employs and makes contributions to the Central
Provident Fund in respect of not less than 3 local employees based on the payroll for the last month (or such other month as the Comptroller may determine) of its basis period for the qualifying year of assessment in question.”
Point to note: A sole-proprietorship or partnership can claim for enhanced deductions for registration costs of IPRs but not WDA on acquisition of IPRs!
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Who can claim a tax deduction on cloud computing?
Answer: Everyone!
9/17/2013
Q
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C LOUD COMPUTING IS PART OF IT AND
AUTOMATION EQUIPMENT
Example: Cloud computing expenditure incurred for $500,000
Balance of expenditure incurred in excess of $400,000 will enjoy deduction at current level
Total = $1,700,000
$100,000
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$100,000
(100% deduction)
$400,000 $1,600,000
(400% * $400,000 )
Expenditure
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9/17/2013
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O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C REDIT S CHEME
Why convert when allowances/deductions are forfeited?
“Per IPR basis”/ “Per equipment basis”/ “Per application basis”
Amount ($)
Qualifying expenditure incurred for a server (automation) 168,000
1,200,000 Cap on qualifying expenditure
Amount of deductions/allowances
400% x $168,000
672,000
Less: Amount converted to cash grant
Balance of deductions/allowances for the YA
Total cash grant
($100,000 x 60%)
100,000
(capped)
Forfeited
60,000
(capped)
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O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C
REDIT
S
CHEME
Partial conversion
Illustration on cash grant conversion (YA 2013)
Qualifying expenditure incurred cloud computing services
Cap on qualifying expenditure
Amount of deductions/allowances
400% x $10,000
Less: Amount converted to cash grant
Balance of deductions/allowances for the YA
Total cash grant
($10,000 x 60%)
Amount ($)
20,000
1,200,000
40,000
10,000
40,000
6,000
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O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C
REDIT
S
CHEME
Food for thought
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Company spending $100 on cloud computing services can enjoy $68
in tax savings
400% deduction on $100 = $400
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Tax savings = 17% x $400 = $68 OR should this be effective tax rate x $400?
$100 $400
$68
Cash conversion saving = 60% x $100 – (17% x $100) = $43
O VERVIEW OF P RODUCTIVITY AND I NNOVATION
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REDIT
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CHEME
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1.
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3.
4.
Cash Conversion
Conditions: Businesses with at least 3 local (Singapore citizens and SPRs with CPF contribution) employees may convert up to $100,000 (not less than $400) of the expenditure under the scheme into non-taxable maximum cash grant of $60,000 ($100,000 at 60%) per YA
For YA 2013 to 2015, businesses cannot convert up to a combined total
Hire purchase equipment with repayment period over 2 basis period do not qualify but will qualify with effect from
YA 2012
Only arm’s length transaction between related parties are eligible for the cash payout.
9/17/2013
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O VERVIEW OF P RODUCTIVITY AND I NNOVATION
C REDIT S CHEME
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Administrative Procedures (2013)
Submit PIC Cash Payout Application Form and relevant Annexes (+ CPF record of payment for 10 or less employees businesses)
Current year quarterly claim available
Revenue figure for the qualifying period Cash = $250 x 60%
= $150
$1000
$250
Expenditure
$150
Cash
Tax Deductions
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D
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Faq 15
Do I need to give a breakdown of the cloud computing payment?
IRAS reply: No. The full cloud computing payment will qualify for
PIC.
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In practice, we have received the following queries:-
A. Copies of the invoice
B. Copy of the agreement contract signed between company and supplier
C. Function and features of the expenditure and flowchart for the automation process
D. How has cloud computing improved your Company’s productivity
PIC
IT
A
E
Definition of ‘Prescribed Automation Equipment’
Prescribed automation equipment listed in “Income Tax (Automation Equipment) Rules 2004,
2010”.
PIC Automation Equipment List
List includes existing Section 19A(2) Prescribed Automation Equipment with further additions, including:
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1. Computers and peripherals;
2. Software etc
3. IRAS now allows taxpayers to submit application for approved automated equipment on a case-by-case basis, subject to conditions.
Purchased Equipment
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Given on due claim
Partial claim allowed on 1 equipment so as to cap $300,000
Taxpayer can choose to claim 100% accelerated allowances, 3 years/ 2 years (for YA 2011)/ tax useful life or defer the claim
No enhanced allowances shall be made if equipment is leased out
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PIC FOR IT AND A UTOMATED E QUIPMENT FOR
LAW FIRMS
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MS Office, Acrobat - Yes
Practice Management / Accounting Software - Yes
LEAP, Legalpac, Hotdocs, Lawdocs, Worldox - Yes
Specialist practice software - Yes
Litigation Support Software eg –Evidence Organiser, Caseroom, Nextpoint, Nuix - Yes
Corp Sec Software - Yes
Trademark case Management Software - Yes
Cloud Software Subscriptions - Yes
Gmail – Yes | Singnet Email No
Dropbox, Box, Egnyte, Microsoft 365 - Yes
Cloud Calendaring system - Action-IT - Yes
Subscription to Justice Online - Yes
Subscription to Court e-Filing Systems - No
Computers, Servers, Backup Software, Email (eg MS Exchange) - Yes
Scanners, 3 in one copier, scanner, printer - Yes
Ipads, Smartphones - Yes
9/17/2013
PIC
IT
A
E
Leasing of software
Prior to public consultation of the Income Tax (Amendment) Bill 2010, leasing of software would not have qualified unless it is installed in a qualifying equipment to be leased.
Condition to qualify
The enhanced deduction is limited to payments where the end-user has no rights to reverse engineer, decompile, or disassemble the software, or exploit the copyright of the software. Only rights to use the software.
Points of consideration
(1) Does this apply to situation whereby MNCs’ headquarters sublicence software rights to Singapore related entities on a pay as you use charging basis per annum?
(2) Note that maintenance of software (e.g. debugging, helpdesk support) does not qualify for PIC
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PIC FOR IT AND A UTOMATED E QUIPMENT
Base allowances
Claim deduction
Disposed within 1 year
Disposed after 1
Compute BA/BC year
Cash conversion
Disposed within 1 year
Disposed after 1 year
Enhanced allowances
Deemed as income
Remaining balance forfeited
Adjustments not required
(note)
Full recovery subject to waiver
(refer to scenarios)
No recovery
Note: For PIC equipment written off over 3 years or over working life, any enhanced allowances that has yet to be drawn down is fully available to the taxpayer as balancing allowances.
9/17/2013
PIC B
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Businesses will get a dollar to dollar matching for expenditure in qualifying expenses, subject to a qualifying cap of S$15,000 for the combined YAs 2013 to 2015.
This is on-top of the existing PIC benefit.
The qualifying conditions are as follows:-
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Incurred at least S$5,000 in each relevant YA.
Have active business operations in Singapore (i.e. Dormant companies are not entitled);
You need to contribute CPF to at least 3 employees (excluding SP, directors
 who are also shareholders and partners); a.
At the last month of the relevant YA for businesses claimed the enhanced tax deduction; and b.
At the last month of the relevant quarter(s) for PIC cash payout.
Disbursement will only take place after July 2013 and October 2013 for cash conversion option and enhanced tax deduction cases respectively.
Please note that the PIC Bonus is taxable.
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9/17/2013
PIC B
– N
Qualifying PIC Expenditure
PIC Cash Payout
PIC Bonus
Total PIC Benefits
YA 2013 YA 2014 YA 2015
$6,000 $3,000 $12,000
$3,600 $1,800 $7,200
($6,000 x 60%) ($3,000 x 60%) ($12,000 x 60%)
$6,000 $0 $9,000
$9,600 $1,800 $16,200
Extracted from IRAS website
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Capping of Expenditure and Cash Conversion
Cap on
Applied at
Expenditure Cap
Qualifying expenditure for each of the 6 categories
Sole-proprietorship/ partnership/ company level
$800K
Cash Conversion Cap
Expenditure from all the 6 categories
YA 2011-12
YA 2013
YA 2014
YA 2015
$1,200K
$60K
$60K
$60K
$60K
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S
Prescribed Automation Equipment
Purchase
100% CA Tax treatment
(Before YA 2011)
PIC (YAs 2011 to
2015)
Qualifying costs
Ownership period
Cash conversion basis
Cloud computing
100% deduction
400% of first $400K incurred
Costs of equipment
(incl. HP asset)
100% on balance
1 year from date of acquisition
Per “equipment” basis
Cloud computing service payments
NA
NA
9/17/2013
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