Tax deductions are available for costs incurred in the registration, acquisition and licensing of intellectual property.
In an effort to support innovation and the secure commercialisation of intellectual property, the Singapore Budget 2018 (“2018 Budget”) has extended and enhanced certain aspects of the existing tax benefits for YA 2019 to 2025.
Income Tax Act
- Under the Income Tax Act (Cap 134), tax deductions are available for the costs of registering a trademark, patent, design, or plant variety. This encompasses registration not just with the relevant registry in Singapore but also with an equivalent registry overseas, which benefits businesses using a Singapore-incorporated company to hold and manage their international intellectual property portfolios.
- The 2018 Budget enhances the tax deduction rate from 100% to 200% for the first SGD 100,000 of such costs incurred for each YA between YA 2019 to YA 2025. A 100% tax deduction applies for all costs incurred beyond SGD 100,000 for each YA from YA 2019 to YA 2025.
- The types of registration costs which qualify for tax deductions include both official fees and professional fees. Official fees are those paid to the relevant registries, whereas professional fees include those paid to an agent (e.g. a lawyer, patent agent etc.) for overseeing the application, providing advice on registrability and infringement, and drafting the specifications (goods and services that protection is claimed for) or other details for the application.
- However, costs that have already been subsidised by a government grant do not qualify for tax deduction.
- Under the 2018 Budget, this tax deduction rate of 200% will also apply to the first SGD 100,000 of costs incurred for licensing intellectual property for each YA from YA 2019 to YA 2025, while a rate of 100% applies for all costs incurred in excess of SGD 100,000 for each YA.
- The types of intellectual property falling within the ambit of this provision are wider and include not only patents, registered designs, plant varieties, but also copyright (excluding rights to use software), geographical indications, layout designs of integrated circuits and certain kinds of trade secrets.
- However, costs incurred for the licensing of trademarks only qualify for a 100% tax deduction, and not the 200% rate that applies to the other types of intellectual property.
Productivity and Innovation Credit Scheme
- The Productivity and Innovation Credit Scheme (“PIC Scheme”) expires after YA 2018 and is set to be replaced by the Productivity Solutions Grant (“PSG”). In contrast to the PIC Scheme, the PSG focuses more on providing funding instead of tax deductions for qualifying costs.
- Nonetheless, businesses can still enjoy a 400% tax deduction under the PIC and PIC+ Scheme for the first SGD 400,000 to 600,000 of qualifying expenses incurred up to the end of YA 2018.
- Under the PIC Scheme, certain businesses operating actively in Singapore with at least three local employees can also opt to convert up to SGD 100,000 of total expenditure in YA 2018 into a non-taxable cash payout instead of claiming tax deduction. The cash payout rate will be 40% to 60% depending on when the costs were incurred. Companies can file applications on the myTax Portal for cash payouts in respect of expenditure incurred before 31 December 2017 before the relevant due date for income tax filing in YA 2018.
Qualifying Expenses under the PIC Scheme
- The PIC Scheme covers costs incurred in the registration, acquisition and licensing of intellectual property rights. This includes payment for the purchase or assignment of intellectual property, as well as costs incurred in overcoming any citations and objections from the relevant IP offices, or an opposition from a third party.
- For the purpose of the PIC Scheme, intellectual property rights also include non-registrable rights like copyright and certain types of trade secrets. For example, costs of obtaining a software license during YA 2018 may be eligible for tax deductions as there is copyright subsisting in the software and technical know-how related to the use of the software.
- The PIC Scheme also covers expenditure relating to training of employees, research and development, the acquisition and leasing of IT and automation equipment, and certain projects approved by the DesignSingapore Council. In many cases, these four other activities can also involve the acquisition and licensing of intellectual property, or the creation of intellectual property that businesses may wish to consider registering for protection.
The 2018 Budget introduces various tax and funding benefits for businesses using intellectual property assets from YA 2019 to YA 2025. In the meantime, businesses can take advantage of the significant tax deductions and cash payout options available under the Income Tax Act and PIC Scheme until the end of YA 2018.
This article was first published by Asia Law Network.