Productivity and Innovation Credit (PIC)

The Productivity and Innovation Credit (PIC) was first introduced in Budget 2010. Its aim is to encourage businesses to invest in productivity and innovation activities, ultimately allowing these businesses to thrive. In this post, I will explain what you need to know about PIC and how it can help your business to grow.

To skip directly to PIC Cashout Option, click HERE! 

What is PIC and how will it help my business?

As said earlier, the PIC scheme was first introduced in Budget 2010. It was further enhanced in Budget 2011, 2012, 2013 and 2014. The objective of the scheme is to encourage businesses to invest in productivity and innovation activities by lowering their financial burdens. All businesses in Singapore will benefit by participating in the 6 activities of this scheme, especially the Small and Medium Enterprises (SMEs).

6 activities?? What are they??

I mentioned earlier that as long as these businesses participate in one or more of these 6 activities, they can apply for PIC. These 6 activities are:

1. Training in Employees
2. Purchase/Leasing of PIC IT and Automation Equipment
3. Acquisition/In-licensing of Intellectual Property
4. Registration of Intellectual Property
5. Research and Development (R&D)
6. Approved Design Projects

Click on the above links to find out about the activities.

You said so much, but what are the benefits??

Hey, chill! I’m just about to get to the good part! As I mentioned earlier, the aim of the PIC is to motivate businesses to invest in one or more of the 6 activities. In return, the government will also provide incentives to ease the financial burdens you may face through such investments.

These incentives are:

• 400% tax deductions/allowances on expenditure on each of the 6 activities for accounting years 2010 to 2017 [Years of Assessment (YAs) 2011 to 2018]
• Opt for cash payout to replace tax deductions/allowances for accounting years 2010 to 2017 (YAs 2011 to 2018)
• PIC Bonus (YAs 2013 to 2015)

Tax deductions/allowances?? What does it do?

Good question! Let me explain to you about it. The 400% tax deduction/allowance allows up to SGD$400,000.00 in expenditure each year in one of the 6 activities.

Below is a table to illustrate how you can maximise the the PIC benefits across Years of Assessment for each activity.

Illustration on maximising PIC tax deduction benefits.

 

Explanations

The expenditure cap for each qualifying activity only applies when you are carrying on a trade or business for the relevant YAs. If not, the combined cap is reduced accordingly. As for the newly-incorporated/registered businesses whose first YA is YA 2014, the combined expenditure cap for YAs 2014 and 2015 will be $800,000.00. The expenditure is net of grant or subsidy by the government or statutory board. Even if you do exceed the expenditure cap, you can still enjoy tax deductions based on existing rules.

Also, one thing to note is, if you participate on ALL 6 ACTIVITIES in YAs 2013 to 2015, the maximum tax benefits that you can get is up to $28,800,000.00 (or $28.8 million)!! The calculation works this way:

400% x $1.2M x 6 activities

You mentioned that we can still enjoy tax deductions even if we exceed the expenditure cap? How does it work??

Another good question! From YA 2015, which is the accounting year of 2014, qualifying SMEs that exceed their $1.2 million cap in investments for any of the 6 activities are still able to enjoy enhanced deductions/allowances for an additional amount of up to $200,000.00, for each of the 6 activities per YA. This is known as the PIC+ Scheme.

An illustration of the above is shown below:

 

 

 

 

 

 

 

 

As an example, let us look at the scenario below:

Company A spends $1,500,000.00 on staff training in YA 2015. It did not claim any PIC during YA 2013 and 2014. The combined cap ($1,400,000.00) in this case, is being exceeded by $100,000.00. This means that the total tax deductions/allowances will be:

400% x $1,400,000.00 = $5,600,00.00

The remaining $100,000.00 in this case, will be not be calculated into the tax deductions/allowances.

What do you mean by Qualifying SMEs?

There are 2 groups of businesses to take into consideration.

Group 1: If the business is not part of a group

• The business should not have a revenue of more than $100 million; or
• The employment size is not more than 200 emplyees

Group 2: If the business is part of a group

• The revenue earned by the group must not be more than $100 million; or
• The employment size of the group as a whole is not more than 200 employees

How do I determine the eligibility??

If a business is claiming PIC+ for YA 2015, it has to be a Qualifying SME in that same period. On the other hand, for YA 2016 to YA 2018, as long as the company  meets the criteria for any of the YAs, it will be able to enjoy the benefits from the YA onwards.

For example, Company B is qualified as a qualifying SME in YA 2016, but does not meet the requirement in YA 2017, it can still continue to enjoy the benefits of the PIC+ scheme in YA 2017 and YA 2018.

An illustration of how eligibility as a qualifying SME is determined, is shown below:

 

 

 

 

 

 What is are the revenue and employment size conditions?

For revenue condition, the income must come from the main source of income of the business. This is determined based on the revenue obtained during the relevant basis period for the YA. This need not be a 12-month period.

For employment size conditions, they are as below:

• An employee is an individual who enters into a contract of service with an employer, under which the employer will pay the employee a wage
• It also includes a director of a company and its part-time employees
• An individual deployed to work for an entity under a centralised hiring arrangement is also included
• Employment size is determined on the last day of the relevant basis period

What if my business is part of a group? How will the basis be determined?

If your business is part of a group, your parent company and its subsidiaries will be determined in accordance with the accounting standards (FRS 110), meaning based on control. This covers both Singapore and foreign entities. The reference is made on the last day of the relevant basis period to determine whether the SME is part of a group. Once the SME is found out to be part of a group, the revenue and employment size criteria will be applied at the group level.

How do I claim the 400% tax deductions/allowances?

The 400% Tax deductions/allowances are claimed in your income tax return. For companues to claim the tax deductions/allowances, you must submit the income tax return form by the filing due date by 30th November or 15th December if you are filing through e-file Form C-S. For sole-proprietors or partnerships, you can submit the income tax return form and a PIC declaration form by the filing due date, which is 15th of April.

 What happens to the unused tax deductions/allowances?

For companies who have leftover tax deductions/allowances, fret not! Your unused tax deductions/allowances can be used to offset income of the immediate preceding YA or to carry it forward to offset the income of future YAs. You can also transfer the unused tax deductions to other companies that are part of the same group (companies) or between spouses (individual). One thing to note is that the transfer between spouses will be phased out from YA 2016.

Cash Payout Option

 Here comes the juicy part! The Cash Payout Option allows businesses to convert their expenditure up to $100,000.00 in all 6 activities per YA. From YAs 2013 to 2018, businesses are able to claim 60% of their expenditure for CASH!!!! Also, they are non-taxable!!!!

Let’s say, for example, you want to maximise this benefit, and you spend all $100,000.00, you will get the maximum payout of:

60% x $100,000.00 = $60,000.00!

**Note that pooling of expenditure is not allowed. This means that YA 2014’s leftover expenditure cap cannot be brought forward to YA 2015.

Conditions for Cash Payout Option

As with all things to do with money, some terms and conditions apply.

From YAs 2013 to 2015, businesses must employ at least 3 local employees (Singapore citizens or Permanent Residents, with CPF contributions) in the last month of the quarter or combined quarters in the basis period for the relevant YA. They must also be carrying on their business operations in Singapore.

From YAs 2016 to 2018, businesses must employ at least 3 local employees (Singapore citizens or Permanent Residents, with CPF contributions) in the last 3 months of the quarter or combined quarters in the basis period for the relevant YA.

Take extra care to note that “employees” do not include sole-proprietors, partners under contract for service and shareholders who are also directors of companies. Also, the “3 local employees” rule does not apply for companies that wish to claim for the 400% deductions/allowances.

 How do I claim for cash payout??

Companies should submit a PIC cash payout form and a hire-purchase template, if applicable, after the end of every quarter or combined quarters in the accounting year but not later than the income tax filing due date.

When can we get the money??

If all required information is submitted, most businesses can expect to receive their cash payouts within 3 months from the date of receipt of the application.

 

PIC Bonus

What is PIC Bonus?

From YAs 2013 to 2015, companies are able to receive an equal amount in PIC bonus for every dollar spent on the 6 qualifying activities, up to a cap of $15,000.00!! PIC bonus is given on top of existing PIC benefits!!

So nice? There must be some terms and conditions behind this PIC bonus!

You are correct! There are some conditions that need to be satisfied in order to qualify for claiming PIC bonus (net of grant or subsidy by the Government or statutory board). Firstly, businesses must incur at least $5,000.00 in the PIC-qualifying expenditure during the basis period for the Year of Assessment in which a PIC Bonus is claimed.

Companies are also required to employ at least 3 local employees (Singapore citizens or PRs) in the last month of the basis period for the YA, if you are claiming for the 400% deductions/allowances. If you are claiming for the cash payout, it will be in the last month of the quarter or combined consecutive quarters.

Companies are also required to be operating their businesses in Singapore.

How do I claim for PIC Bonus and when can I get it??

Claiming for PIC Bonus is simple! Businesses are not required to submit any separate applications for PIC Bonus, as the Income Revenue of Singapore (IRAS) will proceed with the bonus automatically based on the information declared in the income tax return or PIC cash payout application form.

Businesses that opt for the 400% tax deductions/allowances can expect to receive their PIC Bonus within 3 months from filing the income tax return.

For the businesses that opt for the cash payout, they can expect to receive the PIC Bonus within 3 weeks after cash payout has been approved.

 

A Brief Overview of the 6 Qualifying Activities

As mentioned earlier, companies need to spend their investments in any of the 6 qualifying activities in order to claim for any PIC benefits. I will briefly touch on these 6 activities to enlighten whoever is reading this.

1. Training of employees

Let’s talk about external training first. All expenditures on external training qualify for PIC benefits. However, some activities during external training are not included. Let us look at what are included and excluded in external training.

Included

• Course fees to any external training service provider (registration fees, exam fees, tuition fees, aptitude test fees)
• Rental of external training premises
• Meals and refreshments provided during the courses
• Training materials and stationery

Excluded

•  Accommodation, travelling and transport expenses of employees attending the training
• Overheads like imputed rental and utilities

Now, let us talk about in-house training, which is a tad more complex. To qualify for PIC claims, these are the requirements:

• Workforce Skills Qualification (WSQ) training courses accredited by the Singapore Workforce Development Agency (WDA) and provided by a WSQ in-house training provider
• Courses approved by the Institute of Technical Education (ITE) under the ITE Approved Training Centre scheme
• On-the-job training by an on-the-job training centre certified by ITE
• Non-certified in-house training courses, subject to a $10,000.00 expenditure cap per YA, which cannot be combined across YAs

Some examples of in-house training include:

• Training sessions conducted on operation of specialised equipment with the help of instruction manual
• Training on a business’ operating processes and functions in a group setting, with prepared materials and handouts

Informal sessions such as spontaneous consultation, day-to-day problem-solving and coaching sessions do not count as in-house training.

Similar to external training, there are also activities that are do not count as expenditure for training of employees. 

Included

• Salaries and other remuneration (excluding director fees) paid to in-house trainers for course delivery
• Rental of external training premises
• Meals and refreshments provided during the courses
• Training materials and stationery

Excluded

• Salaries and other remuneration paid to in-house trainers for other duties including preparation of training material
• Salaries and other remuneration paid to employees providing administrative support
• Absentee payroll
• Accommodation, travelling and transport expenses
• Overheads like imputed rental and utilities

2. PIC IT and Automation Equipment

To qualify for this category, companies have to purchase and/or lease PIC IT and automation equipment only for their own use. An expenditure cap applies for both purchase and lease payments.

Below are some of examples automation equipment under this category:

• Fax machine
• Laser printers
• Interactive shopping cart (find me!)
• Automated housekeeping equipment
• Mainframe/Computers
• Office system software
• Automotive navigation systems
• Automated seating systems for convention or exhibition centre
• Self-climbing scaffold system
• Websites (find me!)
• and more

(^^ Notice what I did there?)

There are more in the list, and I just stated a few of them. 

Wait! What if what I want to purchase is not in the list?? What should I do??

Even if your business intends to purchase something that is not in the PIC IT and Automation Equipment list,, it doesn’t mean that it’s the end! You can still try to apply to IRAS to have the equipment assessed on a case-by-case basis.

Minimum ownership period

Companies are required to hold onto their purchased equipment for at least a year from date of purchase. If the equipment is disposed of or leased out within a year of its purchase, then there might be a claw-back.

3. Acquisition/In-licensing of Intellectual Property

To qualify for this category, businesses must provide proof of their acquisition cost on patent, copyright, trademark, registered designs, geographical indication, layout design of integrated circuit, trade secret and information with commercial value and plant variety.

Do note that customer-based intangibles and documentation of work processes do not fall within the scope information with commercial value. Businesses must also have legal and economic ownership of the intellectual property.

There is a minimum holding period of one year. 

4. Registration of Intellectual Property

The qualifying expenditure for this category includes official fees like filing application/registration paid to the respective Registry and professional fees for registration of the inttelectual properties. The expenditure claim will apply regardless of the application outcome.

5. Research and Development (R&D)

What falls under R&D?

Based on Section 2 of the Income Tax Act, R&D refers to “any systematic, investigative and experimental study that involves novelty and 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”.

What is covered by PIC in this category?

The R&D may be conducted in or outside of Singapore, as long as it is related to the trade or business. R&D conducted on a cost-sharing basis is also covered.

What is excluded?

The following are excluded from PIC under the R&D category:

• 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
• cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods

 

6. Approved Design Project

 To get qualified for this category, businesses must first get approval from the approving agency, the DesignSingapore Council (DSg). Then they must make sure they fulfill the following conditions:

• the design activities are done or primarily done in Singapore
• the resultant intellectual property is registered with the Intellectual Property Office of Singapore (IPOS)
• be the eventual owner of the design
• project must be completed within the 2 years, which includes the registration of intellectual property with IPOS

End!

There! I’m finally done after spending days on this lengthy article! I hope this will be beneficial to current business owners and those who want to start a business in Singapore have a good idea of this wonderful benefit! If there are any questions, feel free to send me a fan mail below or leave a comment. If there are many questions to a certain topic on PIC, I may jolly well just write a post addressing the concerns.

Till next time!

 

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