Lapsing of Productivity and Innovation Credit (“PIC”) scheme
As you may be aware, the PIC scheme will lapse after Year of Assessment (YA) 2018. YA 2018 refers to the company’s financial year ended 2017. The financial year ended 2017 will be the final time frame for companies to claim incurred qualifying expenses for PIC benefits.
Under the Productivity and Innovation Credit (PIC) scheme, your business can enjoy benefits for investments in any of the Six Qualifying Activities relating to innovation and productivity improvements:
– 400% tax deductions / allowances and / or
– 60% or 40% cash payout
400% Tax Deductions/Allowances
Businesses can enjoy 400% tax deductions/allowances on up to $400,000 of their expenditure per year in each of the six qualifying activities, instead of the 100% deductions/allowances under the existing tax rules.
As announced in Budget 2014, from YAs 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600,000 (instead of $400,000 as mentioned above) of their expenditure per year in each of the six qualifying activities under the PIC+ scheme.
PIC cash payout
Conditions for cash payout
- incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;
- active business operations in Singapore; and
- at least 3 local employees (Singapore citizens or Singapore permanent residents with CPF contributions) excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company. A business is considered to have met the 3-local-employees condition if it contributes CPF on the payroll of at least 3 local employees in the relevant month(s).
From YA 2016, to qualify for cash payout on PIC IT and Automation equipment, businesses will need to show that the equipment is in use by the business at the point when they elect for cash payout. This condition reinforces the objective of encouraging businesses to increase their productivity by using automation equipment in their businesses. For businesses with genuine cash-flow difficulties and are not able to secure the delivery of the equipment before payment is made, IRAS may waive the requirement for the equipment to be “in use” on a case-by-case basis, subject to conditions.
The cash payout rate will be lowered from 60% to 40% for qualifying expenditure incurred from 1 August 2016. All other conditions of the scheme remain unchanged.
What to note when applying for cash payout
- Once the qualifying expenditure is converted to cash, it cannot be claimed as tax deductions/allowances.
- Election to convert qualifying expenditure to cash is irrevocable.
- The minimum qualifying expenditure for each application is $400.
- Qualifying expenditure to be converted to cash is the amount net of grant or subsidy by the Government or any statutory board, and includes grant or subsidy pending approval.
If your company incurred substantial PIC expenditure in 2017 and require our assistance, please contact us immediately.