Budget 2023: Tax changes to encourage R&D and IP registration, acquisition and licensing
20 February 2023
Deputy Prime Minister and Minister for Finance Lawrence Wong delivered the Budget Statement for the Financial Year 2023 on 14 February 2023. A number of tax changes were announced including a new Enterprise Innovation Scheme to encourage research and development (“R&D”), intellectual property (“IP”) registration, IP rights acquisition and IP rights licensing. The IP Development Incentive will also be extended.
A summary of these changes is set out below.
New Enterprise Innovation Scheme
To encourage businesses to engage in R&D, innovation and capability development activities, the following suite of tax measures will be enhanced or introduced under a new Enterprise Innovation Scheme:
(a) Enhanced tax deduction for staff costs and consumables incurred on qualifying R&D projects: The current 250% tax deduction for staff costs and consumables incurred on qualifying R&D projects conducted in Singapore under sections 14C and 14D of the Income Tax Act 1947 (“ITA”) will be enhanced to 400% for the first S$400,000 incurred for each Year of Assessment (“YA”) from YA2024 to YA2028.
(b) Enhanced tax deduction for qualifying IP registration costs: The current 200% tax deduction for the first S$100,000 (and 100% for amounts exceeding S$100,000) of qualifying IP registration costs under section 14A of the ITA will be enhanced to 400% for the first S$400,000 of qualifying IP registration costs incurred per YA from YA2024 to YA2028.
(c) Enhanced tax allowance/deduction for acquisition and licensing of qualifying IP rights: The tax allowance/deduction for qualifying expenditure incurred on the acquisition and licensing of IP rights will be enhanced to 400% for the first S$400,000 (combined cap) incurred per YA from YA2024 to YA2028. This enhancement will only be available to businesses that generate less than S$500 million in revenue in the relevant YA. Currently, the tax deduction is 200% for the first S$100,000 (and 100% for amounts exceeding S$100,000) of qualifying IP rights licensing expenditure under sections 14 or 14C, and 14U of the ITA.
(d) Enhanced tax deduction for qualifying training expenditure: The tax deduction for training expenditure will be enhanced to 400% for the first S$400,000 qualifying training expenditure incurred on courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework per YA from YA2024 to YA2028. Currently, 100% tax deduction can be claimed for qualifying training expenditure incurred, subject to certain provisions under the ITA.
(e) New tax deduction for innovation projects carried out with polytechnics, ITE or other qualified partners: A 400% tax deduction will be introduced for up to S$50,000 of qualifying innovation expenditure incurred on qualifying innovation projects carried out with polytechnics, the Institute of Technical Education (ITE), and other qualified partners per YA from YA2024 to YA2028.
(f) Cash conversion: In lieu of tax deductions/allowances, businesses which have yet to turn profitable, or do not have sufficient profits to maximise the benefits from the tax deductions above, will be allowed to opt for a non-taxable cash payout at a cash conversion ratio of 20% on up to S$100,000 of total qualifying expenditure across all qualifying activities in (a) to (e) above per YA. The cash payout option will be capped at S$20,000 per YA, and will only be available to businesses which have at least three full-time local employees (Singapore Citizens or Permanent Residents with contributions to the Central Provident Fund) earning a gross monthly salary of at least S$1,400 in employment for six months or more in the basis period of the relevant YA.
The sunset dates for section 14A (deduction for costs of protecting IP), section 14C (deduction for qualifying expenditure on R&D), section 14D (enhanced deduction for qualifying expenditure on R&D), section 14U (enhanced deduction for expenditure on licensing IP rights), and section 19B (writing-down allowance for capital expenditure on acquiring IP rights) of the ITA will be extended till YA2028, in line with the above enhancements.
All other conditions under sections 14A, 14C, 14D, 14U and 19B of the ITA remain the same.
The Inland Revenue Authority of Singapore will provide further details of the changes by 30 June 2023.
Extend IP Development Incentive
The IP Development Incentive, which supports companies that use and commercialise IP rights arising from R&D in Singapore, will be extended till 31 December 2028. Under this incentive, recipients are eligible for concessionary tax rates of 5% or 10% on a percentage of qualifying IP income.
The Budget Statement 2023 is available on the Budget 2023 website www.mof.gov.sg/singaporebudget.