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R & D Incentives for Singapore Startups That Everyone Should Know

Dave Corbin, Catalyst Solutions Singapore, Managing Director works with businesses to identify which programs are relevant to them for the technology they are developing. Where is the best location to do it? What’s their chances of success? Then if they will be applying, they help them with that process.

After completing a science degree, he immediately went to work assisting businesses to access government funding to pursue their technological innovations and hasn't been able to pull away from this exciting space. For the past decade and across 3 continents he has seen some amazing developments, from robotics startups to multinational biotechs. He now manages the ASPAC offices of Catalyst Solutions, a specialist consultancy dedicated to raising funding for innovators. Dave sits down with SheWorx to discuss the tax incentives that most startup founders miss.

Government incentives for technology are all fairly standard. Generally if you are doing an R & D project or a commercialisation, you have options on where you want to take on some of these projects. This is great for larger companies because where you want to do the R & D might actually be where they have the best tax incentive programs.


Are there many cross-border tax incentive schemes? Typically not.

This is something that is coming up a lot more. Some of the country alliances like German-Singapore where they are assisting companies who are working together or research institutions to be working together. But this is not typical.  


A Research and Development tax incentive exists in a lot of countries globally. It started in Canada back in the 1980’s, now most countries have one. The idea was to attract technology companies to set up in that country. So a country could say, “We have this great incentive scheme, so come here rather than go to another country.” It’s about countries trying to establish themselves as tech countries. Governments are always looking out for it’s best interests. It wants to have the best companies, the most profitable companies with high employment so it makes sense that they only want to provide these types of funding to businesses that operate within their country.


What is the main tax incentive that startup businesses should tap into in Singapore if they are developing Technology? Research and Development Tax Incentive.

Singapore is actually quite generous with R & D. They don’t care where the work is done as long as it is paid by the Singaporean company and the Singaporean company ultimately owns the I.P. If you want to ship some development work off to Manila or India, that’s fine as long as you are paying.


R & D falls under one of the categories for the Productivity and Innovation Credit Scheme. (PIC) and it’s not well accessed by a lot of companies. The benefit of the R & D which is different than the other 4 categories of the PIC is that you can claim staff expenses. When you are developing a new technology, the salaries of your staff can be claimed and therefore you can get a reimbursement. The reimbursement amount that you can get is between 40% and 60%. There is a cap on how much you can claim and that is S$100,000 of expenditure per year.


That’s 1 or 2 developers working full-time on whatever it is that you are doing and you’ve got your S$100,000 of salary costs, therefore you can get either S$40,000 or S$60,000 back.


What are the requirements to get tax benefits Research and Development (R&D) Activities under the PIC Scheme?


  1. There must be 3 local employees or PRs and you have to be making CPF contributions for at least 3 employees. It doesn’t have to be the 3 people who are doing the engineering but just need 3 local employees.

  2. They are looking for some sort of experimentation, something new, designing or testing. Is there some sort of unknown in what they are doing?

  3. Has to be something novel or a first for Singapore. It doesn’t need to be a world first, just needs to be a first time done in Singapore.


Make a submission for each R & D project. Then there is an approval process for each submission to make sure it qualifies as innovative. It doesn’t have to be that it is a patent but marketing materials can be used to show it’s the first, best, etc. That provides evidence to the tax office that you are who you say you are and the only way for them to deny that is to go out and find someone who is doing the same thing in Singapore.

Can I claim staff salary if they are developers? Yes.

In-house and outsourced staff salaries are claimable. You can claim up to 100% in staff costs as they are attributed to R & D. So if they are doing 50% R & D and 50% other things with their time, you can only claim 50% of their salary. You can claim any outsourced projects but only 60% of those costs. The IRS is trying to strip out the profit component with outsourced work.

If you have time-sheets this is great data to support your claim.


What is the drop-off of an R & D project? When you go from developing the main tech to bug fixing.

Essentially all tech startups would qualify for the R & D activity under PIC. When you are officially no longer doing the R & D, new features or upgrading to an A.I. feature, then your maintenance of the tech does not qualify.

What about reduction in tax bills? For startups not so much, since you only have a tax bill after you turn profit.

As with any of the 6 activities under the Singapore PIC (R & D Activities, Staff Training, IT & Automation Equipment, Purchase of IP, Registration of Trademarks, Registered Design Projects) you don’t need to be doing all 6 to qualify and anything you are doing shouldn’t overlap into any other area. The benefit for the PIC is proportional to the amount of money you spend of up to S$100,000.


What is claimable with IT & Automation equipment? Hardware and software.

There is a list of claimable equipment for hardware available and most office equipment falls under this. Many people don’t know that software is claimable like invoicing, hosting services, AWS payments, data storage.

The bad news? These schemes are only available until end of 2017 financial year.

Singapore is going away with the PIC program. There is a potential there will be another program in place with this. Singapore has noticed people were taking advantage of this so they are looking at new tax incentives for Startups.


Resources:

https://www.spring.gov.sg/

http://catalystsolutions.global/news/



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