The Productivity and Innovation Credit scheme (PIC) is a scheme that was implemented by the Singapore government and administered by administered by the Inland Revenue Authority of Singapore (IRAS). With PIC, tax deduction is offered to Singapore small and medium enterprises (SMEs) to help them invest in several activities that are associated with innovations. As announced by the Singapore government in Budget 2016, the PIC scheme will lapse after YA (Year of Assessment) 2018. In order for businesses to claim the PIC Cash Payout, one should fulfill the following 6 qualifications:
- Lease or acquire IT (Information Technology) equipment.
- License/acquire IP (intellectual Property) Rights.
- Training fees.
- Registering of designs, patents and trademarks.
- Design projects.
- Research and development activities.
Leasing or acquisition of IT equipment is one of the activities that bring out the most expenditure when compared with the others on the list as an institution has to deal with computer software, computers, laser printers and training fees among many others.
PIC Cash Payout Option
The PIC scheme was introduced in YA 2011 & 2012 with a 30% cash rebate and a cap of S$200,000. Later, this was revised to 60% from YA 2013 to 31 July 2016 with a cap of S$100,000 per combination for all three years. After 1 August 2016, the cash payout rate will be at 40%.
For business to claim the PIC Cash Payout, one should fulfil the following 4 qualifications:
- Qualified expenditure has been incurred by the business during the basis period for the qualifying Year of Assessment.
- Has an active business operation in Singapore; and
- At least three employees must be local (Singapore Citizens or Singapore P.R. with Central Provident Fund (CPF) contributions) excluding sole-proprietors, partners under contract for service and directors who has shares in the company. This is also known as the “three-local-employee” condition.
- Put the PIC IT and Automation equipment to use, for PIC cash payout claims relating to YA 2016 onwards. This only applies to businesses making PIC cash payout claims on such equipment. This is also known as the “in-use” condition.
In regards to the expenditure of the business which has incurred, the 60% PIC cash rebate will be given back to the company. For instance, if the firm spends around S$10,000, S$6,000 will be given back to the company. However, it is important to note that a company needs to fulfil three conditions before beginning to claim the PIC.
There are documents that the company needs to send to the IRAS (Inland Revenue Authority of Singapore) which includes:
- PIC cash payout application form.
- CPF contribution statements.
- At least three copies of NRIC (Singaporean)
After the application has been submitted, the business has to wait about three months for IRAS to approve the claim. After approval, you will have to wait another 3 weeks for the cash to be processed by the institution.
In each of the six qualifying activities, there will be a 400% tax deduction of up to S$400,000 of spending each year.
PIC+ Scheme (Tax deductions)
From YA 2015 to 2018, qualifying businesses can enjoy 400% tax deductions on up to S$600,000 (instead of S$400,000 as mentioned above). Businesses which are eligible for the PIC+ Scheme are usually partnerships, sole-proprietorships, and also companies that conduct or run business in Singapore and whose:
- Revenue is not more than $100 million; or
- Employment size is not more than 200 employees.
These criteria will be applied at the group level if the business is part of a group. The qualifying expenditure for PIC benefits is the expenditure amount minus the grant or subsidy by the government. For a GST-registered company, the qualifying cost incurred for the purpose of claiming PIC should exclude any GST that is claimable as input tax. For a non-GST registered company, the GST component can be included as part of the qualifying cost.
Enhancing Financial Conditions of a Business
Claiming for PIC will help in the financial state of a business as the company will be able to claim back a considerable amount of cash or tax deductions.
This is a good scheme which helps them to reduce their expenses which gives room for growth and expansion which will help the business advance to the next stage.
This is ideal for small businesses that will encounter a huge cost in their business operation. Therefore, it is very important to look into all of the details of the PIC scheme especially how it will benefit your business.
It is important to the business requirements that a company needs to ensure that you have complied with the rules. This will make the process of applying for the scheme a much easier process.