Did you know that the R&D Tax Measures had an untold feature, allowing you to significantly expand the amount you could claim? Today, you will learn all you need to know about the R&D Tax Measures, its claim process, and an undisclosed mechanism: the retrospective claims.
In last week’s article, you learned about the R&D public funding strategies for foreign companies. This week, we will give a closer look at the R&D Tax Measures system of Singapore, with a specific close-up on a good practice that you cannot find in the guidebooks: how can you manage retrospective claims.
In Singapore, companies can support their R&D activities through the claim of tax incentives, tax credits and tax deductions. It can be very resourceful for companies investing large amounts in development activities, whether the company is fully held by a foreign group or through local shareholders. Especially, companies using the R&D Tax Measures scheme administrated by IRAS can obtain significant return of investment on their R&D activities held in or outside of Singapore. Initiated in 2018 to replace the previous incentive (Productivity and Innovation Credit, PIC), it enables companies to benefit from an annual tax saving proportional to the expenses incurred during the year.
However, many businesses do not take fully advantage of R&D tax deductions due to the broad nature of eligibility criteria set out in the incentive. As the incentive covers every sector where innovation can be achieved, it makes it hard for companies to determine whether their R&D activities are qualifying or not under IRAS’ definition of R&D. Moreover, to perform a successful claim, companies must prepare extensive documentation on a technical and financial level, requiring consequent resources internally.
First and foremost, it is essential to evaluate the eligibility of a given R&D project. IRAS defines R&D activities through the completion of 3 aspects:
If the project/activity qualifies for each one of the three criteria, its expenses can be considered for the scheme.
The ratio of R&D expenses that are deductible from your taxes relies on the location of said activity. With a base of 100% for all locations, you can claim an extra 150% deduction for your expenses incurred in Singapore. In terms of net savings, it can get as high as 42.5% of the initial expense directly deducted from your taxes.
While you must claim each year of assessment before November 30th of each year, it is still possible to claim the 4 previous years of assessment retrospectively.
|R&D Tax Deduction||R&D Expenses|
|Tax Deduction||100%||250% (100% + 150%)|
|Singapore Corporate Tax Rate||17%||17%|
|Net Savings on R&D expenses||17%||42.5% (250% x 17%)|
|Amount saved in payable tax for an example of S$ 500K of yearly R&D expenses||500K x 17% = S$85K||500K x 42.5% = S$212.5K|
|Maximum period for retrospective claims (backdate)||4 years||4 years|
(Current + past 4 years)
|5 years||5 years|
|Total of claimable net saving for the Total period|
Assuming S$ 500K yearly R&D expenses.
|5 x S$85K|
= S$ 425K
|5 x S$212.5K = S$ 1.0625M|
As mentioned in the beginning of the article and above, it is possible to claim retrospectively, though not clearly stipulated on the available documents given by IRAS.
The regular claim process requires companies to self-assess their R&D expenses of the previous fiscal year within their form C or C-S by November 30th each year. Although it is the general rule, IRAS allows companies to claim up to the last four Year of Assessment in addition to the current Year of Assessment. In other words, until December 31st, 2023, companies can claim their expenses for Year of Assessment 2019 to 2022. The following table will guide you on the claim periods for two given Fiscal Year End (FYE):
|Year of Assessment (YA)||Fiscal Year (FY)||Claiming period|
Fiscal Year End on 31/12
Fiscal Year End on 31/03
|YA2023||FY2022||01/01/2022 – 31/12/2022||01/04/2021 – 31/03/2022|
|YA2022||FY2021||01/01/2021 – 31/12/2021||01/04/2020 – 31/03/2021|
|YA2021||FY2020||01/01/2020 – 31/12/2020||01/04/2019 – 31/03/2020|
|YA2020||FY2019||01/01/2019 – 31/12/2019||01/04/2018 – 31/03/2019|
|YA2019||FY2018||01/01/2018 – 31/12/2018||01/04/2017 – 31/03/2018|
As the R&D Tax Measures is a self-assessment scheme, companies must identify the eligible project by themselves and consign it in R&D form, including the amount of expenses and technical description of the R&D activities performed. The R&D form is to be attached together with the Form C (Corporate Income Tax Return). The following table gives you a summary of the main milestones for a successful claim:
|R&D Tax Measures claim methodology|
|1st step: Identify the projects and activities that qualifies under IRAS’ definition of R&D (refer to the 3 eligibility criteria of this article).|
|2nd step: Identify the manpower, consumable and third-party companies employed for the project and deduct the grant received for this project to calculate the Tax Deduction to be claimed.|
|3rd step: Draft the technical description to justify that the project qualifies under IRAS’ definition of R&D.|
|4th step: Submit the R&D Form together with the Income Tax Return (form C)|
If you follow these main guidelines, your company should perform a successful application for R&D Tax Measures that can draw back up to the Fiscal Year 2019, granting your company a significant benefit from your R&D investment.
If you require any assistance for identifying the qualifying expenses, secure and optimize your claim, contact our experts today!