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How Does the EIS Create Tax Savings From IP and R&D Costs?

How Does the EIS Create Tax Savings From IP and R&D Costs?

Innovation is a driving force behind the success and growth of businesses around the world. In Singapore, a dynamic business hub known for its pro-business environment and forward-thinking approach, innovation activities have taken centre stage.

Both the government and companies in Singapore recognise the crucial role that innovation plays in staying competitive and driving sustainable growth in today’s rapidly changing business landscape.

In this blog, we dive deeper into the new Enterprise Innovation Scheme (EIS) and how it can support companies’ innovation efforts.


What is the Enterprise Innovation Scheme (EIS)?

During the reveal of Budget 2023, the Deputy Prime Minister (DPM) and Minister for Finance Lawrence Wong introduced the EIS. This scheme aims to motivate companies to partake in research and innovation (R&D) and innovation and capability development activities.

Specifically, it applies to qualifying spend on these 5 activities:

  • Intellectual property (IP) registration – including all related expenses spent by companies for Singapore trademark and patent registration as well as International trademark and patent registration.
  • Acquiring and licensing IP rights
  • Eligible R&D activities performed in Singapore
  • Training
  • Innovation-related projects performed in partnership with local polytechnics such as Singapore Polytechnic and Republic Polytechnic, Institutes of Technical Education (ITE), or other eligible partners
Apply for the EIS

When is the Qualifying Period of the EIS?

The EIS will be effective from the Year of Assessment (YA) 2024 to YA 2028, for a total of 5 years.


What Are the Benefits of the EIS?

The EIS aims to aid small, developing companies defray innovation-related costs. It offers these 2 key advantages:

  • Tax deductions/allowances
  • Cash payout

Tax Deductions or Allowances

Businesses that continue a trade or business can claim enhanced deductions on up to S$400,000 of eligible spending incurred per qualifying activity.

They may also claim deductions on up to S$50,000 of qualifying spending per activity. These enhancements are in addition to base deductions or allowances under current income tax rules.

In total, the deductions or allowances given are in effect of 400% per S$ or eligible expenditure, per qualifying activity.

Related Read: Guide to Singapore’s Corporate Tax System

Comparing Tax Treatments Before and After the EIS

Eligible Activities Tax Deductions/Allowances Given Before YA 2024 Tax Deductions/Allowances After EIS From YA 2024 – 2028
Eligible R&D Performed in Singapore
  • 100% tax deduction on R&D spend, and;
  • Another 150% tax deduction on qualifying R&D spend, such as employee expenses and consumables
  • 100% tax deduction on R&D spend, and;
  • Another 300% tax deduction on 1st S$400,000 of eligible R&D spend, and;
  • Another 150% tax deduction on balance of eligible R&D spend in excess of S$400,000
IP Registration
  • 200% tax deduction on the 1st S$100,000 of eligible IP registration costs, and;
  • 100% tax deduction on the balance of eligible IP registration costs in excess of S$100,000
  • 400% tax deduction on the 1st S$400,000 of eligible IP registration costs, and;
  • 100% tax deduction on the remaining eligible IP registration costs in excess of S$400,000
IPR Acquisition and Licensing IPR Acquisition

  • 100% write-down allowance (WDA) on acquisition expenses of eligible IPRs

IPR Licensing

  • 100% tax deduction on eligible IPR licensing spend, and;
  • Another 100% tax deduction on the 1st S$100,000 of eligible IPR licensing spend
  • 400% allowances and/or deduction on the 1st S$400,000 (combined limit) of eligible IPR acquisition expenses and/or eligible eligible IPR licensing spend, and;
  • 100% WDA on the remainder of eligible IPR acquisition costs in excess of the claim for improved allowances, and;
  • 100% tax deduction on eligible IPR licensing costs in excess of the claim for improved tax deduction
Training
  • 100% tax deduction on training spend
  • 400% tax deduction on 1st S$400,000 of eligible training spend, and;
  • 100% tax deduction on remainder of eligible training spend in excess of S$400,000 and other training spend
Innovation Projects Performed With Polytechnics/ITEs/Other Eligible Partners
  • Non-tax deductible because expenditure is capital in nature and does not meet the R&D definition under the Income Tax Act 1947
  • 400% tax deduction on the 1st S$50,000 of eligible innovation spend

Under the EIS, companies can now benefit from a 400% tax deduction or allowance, compared to the current range of 100% to 250

This enhanced tax relief scheme encourages and supports innovation activities in Singapore companies by providing a more generous incentive.

Convert Eligible Expenditure to Cash Payout

Qualifying companies can also choose to convert up to S$100,000 of the total qualifying spend per YA into cash at a 20% conversion rate, and is not taxable.

The cash payout is capped at S$20,000 per YA, subject to a minimum spend of S$400. Both the deductions and cash conversion limit of S$100,000 cannot be combined across YAs.

After an amount of eligible spending is converted into cash, the same amount will be unavailable for any tax deduction or allowance. Once exercised, the option to convert cannot be revoked.


InCorp is Here to Help With Your EIS Application

Companies intending to apply for the EIS to manage costs may find the various conditions confusing. At InCorp, we have a professional tax team that can help you manage your entire application process to ease your troubles and provide the right advice.

Contact us today to find out more about how we can help you with a full suite of corporate taxation matters!

FAQs About Enterprise Innovation Scheme (EIS)

  • It is a more targeted scheme as compared to the PIC that was available from YA 2011 to YA 2018.
  • The enhanced tax deduction for eligible IP registration costs are:
    • 400% tax deduction on the first S$400,000 of expenses
    • 100% tax deduction on the remaining eligible IP registration costs in excess of S$400,000
  • It can provide monetary support to non-profitable businesses that do not qualify for the tax deductions.

Engage Experts

Our experienced taxation team can help you apply for the EIS with ease!

About the Author

Eric Chin

Eric comes from banking background. He provides consultancy to local and foreign entities on the ideal market-entry strategies for setting up or expanding operations in Southeast Asia. Eric also provides advisory to fund managers and family offices on structuring as well as applicable tax incentives. He has also set up many VCC structures for licenced fund managers.

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