400% tax deduction for expenditure on business software

28 February 2022 | By Hiend Software Pte. Ltd.

The Productivity and Innovation Credit (PIC) scheme gives tax benefits to companies investing in IT systems. Thanks to the Singapore Budget 2012, PIC now comes enhanced with unprecedented benefits. From 2012 to 2023, you can enjoy tax deduction at 400% of the expenditure on IT systems. For example, by spending $50,000 on business software, you enjoy up to $200,000 tax deduction.

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¹ IRAS terms apply.
² Based on 17% tax rate.

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What is the Productivity and Innovation Credit?

The Productivity and Innovation Credit (PIC) provides significant tax deductions for investments in a broad range of activities along the innovation value chain. This includes qualifying expenditure incurred on prescribed automation equipment (including business software and IT systems), training of employees, acquisition of Intellectual Property Rights ("IPRs"), registration of certain IPRs, research & development ("R&D") and approved design projects.

1) 400% Tax Deduction/Allowances

PIC is available for five Years of Assessment (YA), i.e. from YA 2012 to YA 2023. Under the PIC, 400% tax deductions / allowances are applicable to qualifying expenditure incurred on each of the six qualifying activities, subject to a cap ("expenditure cap"):

For YA 2012 and YA 2013 - a combined cap of $800,000 of expenditure for each qualifying activity; and
For YA 2013 to YA 2023 - a combined cap of $1,200,000 of expenditure for each qualifying activity.

Businesses would therefore be able to enjoy a total tax deduction of up to $3.2 million for YAs 2012 and 2013 and up to $4.8 million for YAs 2013 to 2023 as summarised here:

Year of Assessment (YA)	Expenditure Cap per Qualifying Activity	Tax Deduction per Qualifying Activity
2012 and 2013 (Combined)	$800,000	$3,200,000 (400% x $800,000)
2013 to 2023 (Combined)	$1,200,000	$4,800,000 (400% x $1,200,000)

For newly incorporated/registered businesses whose first YA is YA 2013, the expenditure cap per qualifying activity for YA 2013 is $400,000.

2) Cash Payout Option

To support small and growing businesses which may be cash-constrained, to innovate and improve productivity, businesses can exercise an option to convert their expenditure into a non-taxable cash payout. The maximum cash payout is:

For YA 2012 and YA 2013 - $60,000 in total. This is based on 30% of the combined expenditure cap of $200,000 (but not less than $400 for each YA) for all six qualifying activities; and
For YA 2013 - $30,000. This is based on 30% of expenditure cap of $100,000 (but not less than $400) for all six qualifying activities.

For newly incorporated/registered businesses whose first YA is YA 2013, the expenditure cap for all six qualifying activities is $100,000 and the maximum cash payout is $30,000 for YA 2013.

Frequently Asked Questions

Below are some FAQs on PIC. For more information, please visit IRAS: Productivity and Innovation Credit.

Who is eligible for PIC?

All businesses are eligible for PIC, if they have incurred expenditure in any of the six qualifying activities. Branches and subsidiaries with the parent or holding company being a foreign incorporated company are also eligible for PIC.

What is the qualifying period for PIC?

The PIC is available for five years from YA 2012 to YA 2023.

For example, if you incurred qualifying expenditure in November 2009 and your accounting year ended on 30 June 2010, you are eligible to claim PIC in your tax return for YA 2012.

If I am a newly set up company, can I enjoy both PIC and the tax exemption scheme for new start-up companies?

Yes, if your company meets the conditions under PIC and "Tax exemption scheme for new start-up companies" respectively.

Does PIC apply to companies that are taxed at the concessionary rate?

Yes. Even though the income is taxed at concessionary rate, PIC will be applicable as long as the company incurs qualifying expenditure during the basis period for YA 2012 to YA 2023.

Does purchase of software qualify for PIC?

Yes, the cost of purchase will qualify for the enhanced allowances.

Will expenditure incurred on upgrading of software fall under automation equipment?

Expenditure incurred on purchase of office system software upgrades will qualify for enhanced allowance. Expenditure on other information technology software upgrades will also qualify for enhanced allowance if it is incurred on or after 15th Dec 2010.

Will expenditure incurred on leasing of office system software qualify for PIC?

Yes, expenditure incurred on leasing of office system software will qualify for enhanced deduction.

Can my business claim enhanced allowance on the development of software in Singapore?

If the software is an office system software that is developed for business use, enhanced allowance can be claimed on its development costs. Development of other information technology software for business use can also qualify for enhanced allowance under the PIC if the costs are incurred on or after 15th Dec 2010. If the software is developed for commercial sale to multiple customers, it will qualify for PIC as a qualifying R&D expenditure if it satisfies the R&D definition under Section 2 and conditions under Section 14DA of the Income Tax Act.

My business undertakes a number of software projects. Is the expenditure cap applied on each of the software project or on the entire amount incurred for the YA?

The cap is on the total amount incurred on qualifying software expenditure for the YA and is regardless of the number of projects handled by the business.

If I need to send my employees for training to use a software that I have recently purchased, will the training expenses incurred qualify for PIC?

The course fees paid to the external training service provider will qualify for the enhanced deduction under PIC.