The Enterprise Innovation Scheme (EIS)
As outlined in the 2023 Budget announcement, with the aim of fostering the participation of businesses in research and development (R&D), innovation, and capability enhancement initiatives, the Deputy Prime Minister and Minister for Finance have unveiled plans to introduce the Enterprise Innovation Scheme (EIS). This program will entail the enhancement of current tax incentives and the introduction of a fresh tax incentive. Furthermore, qualifying businesses will have the option to convert a maximum of $100,000 of their total eligible expenditure for each Year of Assessment (YA) into cash, at a conversion rate of 20%.
What is the qualifying period?
The Enterprise Innovation Scheme qualifying period is available for YA 2024 to YA 2028.
Benefits at a Glance of the Enterprise Innovation Scheme
Companies have the opportunity to take advantage of improved or fresh tax deductions and/or allowances for eligible expenses related to the following qualifying activities:
- Qualifying R&D undertaken in Singapore;
- Registration of intellectual property (“IPs”);
- Acquisition and licensing of IP rights (“IPRs”);
- Training; and
- Innovation projects carried out with polytechnics, the Institute of Technical Education (“ITE”) or other qualified partners.
| Qualifying Activities | Amount of Tax Deductions and/ or Allowances Granted From YA 2024 to YA 2028 |
|---|---|
| Qualifying R&D undertaken in Singapore | - 100% tax deduction on R&D expenditure plus |
| - Additional 300% tax deduction on first $400,000 of qualifying R&D expenditure plus | |
| - Additional 150% tax deduction on balance of qualifying R&D expenditure in excess of $400,000 | |
| Registration of IPs | - 400% tax deduction on first $400,000 of qualifying IP registration costs plus |
| - 100% tax deduction on balance of qualifying IP registration costs in excess of $400,000 | |
| Acquisition and licensing of IPRs | - 400% writing-down allowance (“WDA”) and/ or tax deduction on first $400,000 (combined cap) of qualifying IPR acquisition costs and/ or qualifying IPR licensing expenditure plus |
| - 100% WDA on balance of qualifying IPR acquisition costs in excess of claim for enhanced allowances plus | |
| - 100% tax deduction on qualifying IPR licensing expenditure in excess of claim for enhanced tax deduction | |
| Training | - 400% tax deduction on first $400,000 of qualifying training expenditure plus |
| - 100% tax deduction on balance of qualifying training expenditure in excess of $400,000 and all other training expenditure | |
| Innovation projects carried out with polytechnics, the ITE or other qualified partners | - 400% tax deduction on first $50,000 of qualifying innovation expenditure |
You have the choice to convert qualifying expenditure into a cash payout
The choice to convert qualifying expenditure into a cash payout is designed to assist emerging small businesses in offsetting the expenses associated with their innovation endeavors.
Instead of relying on tax deductions or allowances, eligible businesses have the opportunity to convert a portion of their total qualifying expenses, which encompasses all qualifying activities for each Year of Assessment (YA), into cash at a rate of 20%. The cash payout is capped at $20,000 per YA and is not subject to taxation.
An eligible business encompasses any entity, such as a company, partnership, sole-proprietorship, or registered business trust, that maintains a workforce of at least three full-time local employees (Singapore Citizens or Permanent Residents with CPF contributions) employed for a minimum of six months during the basis period of the relevant YA. These local employees must each earn a gross monthly wage of at least $1,400.
The $100,000 limit on total qualifying expenses applies differently depending on the type of eligible entity. For companies, sole proprietorships, and registered business trusts, it applies at the entity level, whereas for partnerships, it applies at the partnership level.
Partial cash conversion is permissible for qualifying R&D conducted in Singapore, licensing of intellectual property rights (IPRs), training, and innovation projects carried out in collaboration with polytechnics, the Institute of Technical Education (ITE), or other qualified partners. However, it is not permitted for the registration of IPs and acquisition of IPRs. In other words, the option to convert qualifying expenses into a cash payout for IP registration or IPR acquisition will be assessed on a per IP registration or IPR basis.
Once a portion of qualifying expenses is converted into cash, it becomes ineligible for tax deductions or allowances, and this conversion option is irreversible once exercised.
The opportunity to convert qualifying expenses into a cash payout is available annually. An eligible business seeking to exercise this option must do so irrevocably by submitting a specified election form along with its income tax return. The cash payout will be disbursed following verification by the Inland Revenue Authority of Singapore (IRAS).
How to apply for the Enterprise Innovation Scheme
Companies have the option to request increased deductions/allowances when filing their income tax returns. They are required to keep thorough records of their qualifying activities and expenses, which should be furnished to IRAS if requested.
For eligible businesses aiming to convert their qualifying expenses into cash, they must commit to this choice by submitting a specified election form simultaneously with their income tax return filings. This option must be executed by the income tax filing deadline for the corresponding Year of Assessment (YA).
If you need to find out more, feel free to reach out to further discuss.
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