Enterprise Innovation Scheme (EIS): A Guide for Businesses

Qualifying R&D expenditure refers to the following expenditures that are attributed to qualifying R&D activities:

• staff costs (excluding directors’ fees)
• consumables, or
• such other item of expenditure which the Minister for Finance may prescribe by regulations.

A business that contracts with a R&D organisation to undertake qualifying R&D activities in Singapore on its behalf may also claim enhanced deduction on the fees payable to the R&D organisation to the extent the fees relate to qualifying R&D expenditure. For this purpose, up to 60% of all fees payable to the R&D organisation may be claimed as qualifying R&D expenditure. However, if the actual qualifying expenditure incurred exceeds 60% and can be substantiated, a higher percentage can be claimed. Similarly, 60% of the payments made under a R&D cost-sharing agreement is deemed as qualifying R&D expenditure for the purpose of claiming the enhanced deduction. In line with existing rules for R&D claims, the R&D claims under the EIS need not be related to the business’
existing trade or business since the qualifying R&D activity has to be undertaken in Singapore.

Qualifying IP registration costs refer to expenditure incurred by any person carrying on a trade or business in registering patents, trade marks, designs and plant varieties for the purposes of that trade or business. Registration costs that qualify for tax deduction are official fees and professional fees. The legal and
economic ownership of the qualifying IPRs must belong to the business entity in Singapore. The enhanced deduction is granted regardless of the outcome of the application of the registration of qualifying IPR. This means that even if an application for registration is rejected, the related registration costs
incurred are still eligible for the enhanced deduction. Businesses must own the related IPRs registered (or, where applicable, ensure the application for
registration or grant of the related IPR is not assigned to another person) for a minimum period of one year failing which, claw-back provisions apply

Under this qualifying activity of the EIS, businesses can either claim:
• enhanced WDA on qualifying IPRs acquisition expenditure incurred over a period of 5, 10 or 15 years, and/or
• enhanced deduction on qualifying IPRs licensing expenditure incurred.

The list of qualifying IPRs is defined under Section 19B(11) of the ITA. The enhanced WDA is applicable only where the qualifying IPRs are legally and economically owned by a company or partnership in Singapore.

To claim the enhanced WDA and/or deduction, the business must carry on a trade or business and:

• if the business is not part of a group: derive less than $500 million in revenue in the basis period for the
relevant YA
• if the business is part of a group: the group derives less than $500 million in revenue in the basis period
for the relevant YA.

The amount of qualifying IPR acquisition costs and qualifying IPR licensing expenditure eligible for the enhanced WDA and deduction is subject to a combined cap of $400,000 for each YA.

Enhanced deductions will not be given under the EIS if the qualifying IPR is licensed from a licensor which is a related party:

• who carries on a trade or business in Singapore, and
• the qualifying IPR is acquired or developed (in whole or in part) by the related party.

Subject to the prevailing rules, the related party licensor will be able to claim:

• enhanced WDA on qualifying costs incurred on the acquisition of qualifying IPRs
• enhanced deductions on qualifying R&D expenditure or qualifying IP registration costs incurred on the development and/or registration of IPs, or
• enhanced deduction on licensing expenditure on qualifying IPRs licensed from a third party.

If a business had been granted a WDA under section 19B of the ITA on a qualifying IPR previously, it cannot claim any enhanced deduction under the EIS for expenditure incurred on the licensing of the same IPR. The qualifying companies or partnerships must own the qualifying IPRs for a minimum period of one year failing which, claw-back provisions will apply

Businesses may claim enhanced deduction on qualifying training expenditure incurred on courses that are eligible for SkillsFuture Singapore (SSG) funding and aligned with the Skills Framework. Qualifying training expenditure refers to course fees, assessment fees and certification fees paid by the employer to training providers which are registered with the SSG.

Businesses may also claim EIS benefits on qualifying training expenditure incurred on individuals deployed under centralised hiring arrangements or secondment arrangements, subject to conditions.

To qualify for this tax deduction, the business must collaborate directly with the partner institutions on the qualifying innovation project and must be the beneficiary of the project.

Qualifying innovation projects with partner institutions refer to projects that predominantly involve one or more of the following innovation activities:
• research and experimental development activities
• engineering, design, and other creative work activities
• IP-related activities, and
• software development and database activities.

The relevant partner institutions will validate the project as a qualifying innovation project and issue the innovation project invoice. Expenditure incurred outside of the collaboration with the partner institution will not qualify for this tax deduction. Businesses will not be allowed to claim tax deduction under this qualifying activity if they have already claimed tax deductions or allowances on the same amount of qualifying innovation expenditure under other sections of the ITA.

Where an innovation project that is certified by the partner institution as a qualifying innovation project also meets the definition of R&D under section 2 of the ITA and the business chooses to claim tax deduction under this qualifying activity, any qualifying innovation expenditure incurred in excess of the $50,000 cap will not be eligible for R&D tax deduction under sections 14C and/or 14D of the ITA.