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Budget 2023: Tax deduction on innovation activities

Finance Minister Lawrence Wong announced during the Budget speech on February 14th that the government is launching a comprehensive Enterprise Innovation Scheme aimed at boosting innovation among businesses. The scheme will significantly raise tax deductions for key activities that drive innovation.

Currently, businesses are eligible for tax deductions of up to 250 percent of their qualifying expenditure on certain activities.

Under the new scheme, tax deductions will be increased to 400 percent of qualifying expenditure for five specific activities, providing a significant incentive for innovation. These activities include:

1. Research and development conducted within Singapore.
2. Registration of intellectual property (IP), encompassing patents, trademarks, and designs.
3. Acquisition and licensing of IP rights.
4. Innovation initiatives carried out in collaboration with polytechnics and Institutes of Technical Education (ITEs).
5. Training through courses that have received approval from SkillsFuture Singapore and align with the Skills Framework.

For each of these activities, the qualifying expenditure will have a cap of S$400,000, except for innovation projects conducted in partnership with polytechnics and ITEs, which will have a cap of S$50,000.

Tax Deductions and Allowances for Qualifying Activities

Qualifying Activities	Amount of Tax Deductions and/or Allowances Granted Before YA 2024	Amount of Tax Deductions and/or Allowances Granted From YA 2024 to YA 2028
Qualifying R&D undertaken in Singapore	100% tax deduction on R&D expenditure (Section 14C) plus Additional 150% tax deduction on qualifying R&D expenditure (i.e., staff costs and consumables) (Section 14D)	100% tax deduction on R&D expenditure plus Additional 300% tax deduction on first $400,000 of qualifying R&D expenditure plus Additional 150% tax deduction on balance of qualifying R&D expenditure in excess of $400,000
Registration of IPs	200% tax deduction on first $100,000 of qualifying IP registration costs (Section 14A) plus 100% tax deduction on balance of qualifying IP registration costs in excess of $100,000 (Section 14A)	400% tax deduction on first $400,000 of qualifying IP registration costs plus 100% tax deduction on balance of qualifying IP registration costs in excess of $400,000
Acquisition and licensing of IPRs	Acquisition of IPRs: 100% writing-down allowance (“WDA”) on acquisition costs of qualifying IPRs (Section 19B) Licensing of IPRs: 100% tax deduction on qualifying IPR licensing expenditure (Section 14 or 14C) plus Additional 100% tax deduction on first $100,000 of qualifying IPR licensing expenditure (Section 14U)	400% allowances and/or tax deduction on first $400,000 (combined cap) of qualifying IPR acquisition costs and/or qualifying IPR licensing expenditure plus 100% WDA on balance of qualifying IPR acquisition costs in excess of claim for enhanced allowances plus 100% tax deduction on qualifying IPR licensing expenditure in excess of claim for enhanced tax deduction
Training	100% tax deduction on training expenditure (Sections 14 and 15)	400% tax deduction on first $400,000 of qualifying training expenditure plus 100% tax deduction on balance of qualifying training expenditure in excess of $400,000 and all other training expenditure
Innovation projects carried out with polytechnics, the ITE, or other qualified partners	Not tax deductible as expenditure is capital in nature (Section 15) and does not meet definition of R&D under Section 2 of the Income Tax Act 1947 (“ITA”)	400% tax deduction on first $50,000 of qualifying innovation expenditure