Enterprise Innovation Scheme

Enterprise Innovation Scheme | Bestar

Singapore Enterprise Innovation Scheme

The Enterprise Innovation Scheme (EIS) is a government initiative in Singapore designed to encourage businesses to engage in research and development (R&D), innovation, and capability development activities. The scheme provides enhanced tax deductions, allowances, or a cash payout option for qualifying expenditures.

Here is a summary of the key aspects of the EIS:

1. Scheme Period

The EIS is available for expenditures incurred during the basis periods for the Year of Assessment (YA) 2024 to YA 2028.

2. Eligible Businesses

The scheme is open to a range of business entities, including:

• Sole-proprietorships

• Partnerships

• Companies (including registered business trusts)

• Registered branches and subsidiaries of a foreign parent or holding company

To be eligible, businesses must be actively operating and carrying on a trade or business in Singapore.

3. Qualifying Activities and Benefits

The EIS offers enhanced tax deductions or allowances for five key activities:

• Qualifying R&D undertaken in Singapore: Businesses can claim a total of 400% tax deduction on the first $400,000 of qualifying expenditure.

• Registration of Intellectual Property (IP): A 400% tax deduction is available on the first $400,000 of qualifying IP registration costs.

• Acquisition and licensing of IP rights: Businesses can claim 400% tax allowances/deductions on the first $400,000 of qualifying expenditure. This is applicable to businesses with less than $500 million in revenue in the relevant YA.

• Training: A 400% tax deduction is available on the first $400,000 of qualifying training expenditure for courses that are eligible for SkillsFuture Singapore (SSG) funding and aligned with the Skills Framework.

• Innovation projects with partner institutions: Businesses can claim a 400% tax deduction on up to $50,000 of qualifying expenditure per year for innovation projects carried out with polytechnics, the Institute of Technical Education (ITE), or other qualified partners.

4. Cash Payout Option

In addition to tax deductions, eligible businesses can opt to convert a portion of their qualifying expenditure into a non-taxable cash payout.

• Conversion Rate: The payout is at a conversion rate of 20%.

  
  

• Expenditure Cap: This option is available for up to $100,000 of total qualifying expenditure across all five activities per YA.

  
  

• Maximum Payout: The maximum cash payout is capped at $20,000 per YA.

To be eligible for the cash payout, a business must also meet the following conditions:

• Have at least three full-time local employees (Singapore Citizens or Permanent Residents) for at least six months in the basis period of the relevant YA.

  
  

• File their income tax return for the respective YA before the statutory filing due date.

5. Application Process

• Enhanced Tax Deductions/Allowances: Businesses should declare the enhanced deductions/allowances in their corporate income tax return (Form C-S/C) or Income Tax Return for partnerships and sole proprietorships. They must maintain detailed records of all qualifying expenditures.

  
  

• Cash Payout: Businesses that choose the cash payout option must apply via the "Apply for EIS Cash Payout" digital service on the myTax Portal after filing their Income Tax Return. This election is irrevocable once exercised.

For the expenditures that your business incurs on the five qualifying activities, you can then claim the enhanced tax deductions or the cash payout. These qualifying expenditures include:

• R&D projects: Staff costs and consumables.

  
  

• IP registration: Official and professional fees.

  
  

• Acquisition and licensing of IP rights: Costs associated with acquiring or licensing IP rights.

  
  

• Training: Course fees paid to SSG-funded course providers.

  
  

• Innovation projects with partner institutions: Fees for projects carried out with polytechnics, ITE, or other qualified partners.

  
  

You would need to pay these costs upfront and then claim the EIS benefits when you file your company's income tax return. The scheme provides a way to reduce your tax payable or to get a cash rebate, but it doesn't offer a direct fee subsidy at the point of payment.

Professional fees can be claimed under the Enterprise Innovation Scheme (EIS), but only for specific, qualifying activities. You cannot claim professional fees for general business services like accounting or legal advice unless they are directly related to the following eligible categories.

Here's how professional fees fit into the scheme:

1. Registration of Intellectual Property (IP)

Professional fees paid to a patent agent, lawyer, or other professional for services directly related to the registration of patents, trademarks, or designs in Singapore are a qualifying expenditure. This is a crucial part of the IP registration costs that can be claimed under the EIS. The scheme offers a 400% tax deduction on the first $400,000 of qualifying IP registration costs.

2. Research and Development (R&D)

If you outsource R&D activities to an external R&D organization in Singapore, you can claim enhanced tax deductions on the fees you pay to that organization.

• You can claim enhanced deductions on up to 60% of all fees paid to the R&D organization.

  
  

• If you can substantiate that the actual qualifying expenditure incurred by the R&D organization is higher than 60%, you may be able to claim a higher percentage.

The R&D organization must undertake the qualifying R&D activities on your business's behalf. The enhanced deduction is granted on the fees to the extent they relate to qualifying R&D expenditure, which includes staff costs and consumables.

Fees

The Enterprise Innovation Scheme (EIS) itself does not have an application fee. It is a government scheme that provides tax benefits and a cash payout option for qualifying business expenditures.

Bestar Specialized EIS Advisory Services

The fees for Bestar specializing in schemes like EIS are usually charged on a project basis or an hourly rate due to the specialized nature of the work.

• R&D Tax Incentives: For Bestar to help you identify and substantiate qualifying R&D activities, prepare the necessary documentation, and optimize your claim, our fees can be a one-time project fee or an hourly rate. These specialized services can range from S$200 to over S$1,200 per hour, depending on the consultant's seniority and the complexity of your R&D projects.

  
  

A one-time project fee for Bestar to help with R&D tax incentives under the Enterprise Innovation Scheme (EIS) in Singapore can vary significantly. The fee is highly dependent on the complexity of your projects, and the amount of expenditure you are claiming.

Here is a breakdown of what you can expect:

Fee Range

• Small to Mid-sized Local Firms: For a relatively straightforward claim for a small to medium-sized enterprise (SME) with a few R&D projects, a one-time project fee might range from S$3,000 to S$15,000.

  
  

• Specialized and Larger Firms: For more complex cases, such as those with multiple large-scale R&D projects, or novel or high-tech activities, the project fee can start from S$10,000 and go up to S$50,000 or more.

Factors That Influence the One-Time Project Fee

1. Complexity of R&D Activities: The core of Bestar's work is to determine if your activities meet the strict definition of R&D in Singapore. If your projects involve significant scientific or technological uncertainty and require detailed technical write-ups, the work (and the fee) will be higher.

   
   

2. Number of Projects and Amount of Claimed Expenditure: A higher volume of R&D projects and larger claim amounts will require more work in terms of identifying, documenting, and substantiating the qualifying expenditures.

   
   

3. Required Documentation: Bestar will help you gather and organize the necessary evidence, which includes technical project reports, staff time allocations, and expenditure records. If your internal documentation is disorganized or incomplete, more time will be needed, potentially increasing the fee.

   
   

4. Firm's Expertise and Reputation: Bestar has deep knowledge of the rules and can provide a higher level of assurance and optimization. Our fees reflect this specialized expertise.

   
   

5. Scope of Work: The fee will depend on whether you need a full-service engagement (from project identification to final submission) or a more limited scope, such as a technical review of your own documentation.

What Our One-Time Project Fee Covers

A one-time project fee for this type of service includes:

• Initial Scoping and Feasibility Study: A meeting or workshop to review your projects and determine which ones are likely to qualify for the EIS.

  
  

• Technical and Financial Substantiation: Assisting you in preparing the necessary documentation, including technical reports that describe the R&D process and financial breakdowns of eligible expenditures (staff costs, consumables, etc.).

  
  

• Claim Optimization: Advising on how to maximize your claim by correctly categorizing expenditures and choosing between the tax deduction and cash payout options.

  
  

• Final Claim Preparation: Preparing the required forms and documentation for submission with your company's corporate income tax return.

  
  

• IRAS Queries: Handling any queries from IRAS related to the R&D claim.

How Bestar can Help

Bestar can play a crucial role in helping businesses leverage the Enterprise Innovation Scheme (EIS) effectively. While the scheme is designed to be straightforward, navigating its intricacies and maximizing the benefits can be complex.

Here's how Bestar can help:

1. Eligibility Assessment and Strategy

• Initial Review: We can conduct a thorough review of your business's activities to determine which expenditures are likely to qualify for the EIS. This includes analyzing your R&D projects, intellectual property portfolio, training initiatives, and collaborations with partner institutions.

  
  

• Strategic Planning: Bestar can help you develop a long-term strategy to maximize your EIS benefits. This involves planning your innovation and R&D activities to ensure they fall within the qualifying periods and meet the specific criteria of the scheme.

2. Documentation and Compliance

• Record-Keeping: The Inland Revenue Authority of Singapore (IRAS) requires businesses to maintain detailed records of all qualifying expenditures. Bestar can advise on the proper documentation required, such as project reports, invoices, agreements, and staff cost breakdowns, to ensure your claims are well-supported.

  
  

• Compliance with Rules: We can ensure that your claims comply with all the specific rules of the EIS, such as the revenue cap for IP acquisition, the percentage-based deduction for outsourced R&D, and the criteria for the cash payout option (e.g., the three-employee condition).

3. Claim Submission and Optimization

• Claim Preparation: We can prepare and submit the necessary forms and documentation as part of your annual corporate income tax return. This includes correctly calculating the enhanced deductions and allowances.

  
  

• Deduction vs. Cash Payout: A key decision for businesses, especially those that are not yet profitable, is whether to take the enhanced tax deduction or the cash payout. Bestar can perform a financial analysis to determine which option is more beneficial for your company's unique situation. This is particularly important because the cash payout option is a non-taxable, non-refundable rebate, while the tax deduction can be carried forward to offset future profits.

  
  

• Clawback Prevention: We can advise on the conditions that could lead to a "clawback" of deductions, such as failing to maintain ownership of registered IP for the required period, and help you take steps to prevent this.

4. Specialized Expertise

• R&D Tax Incentives: R&D is a complex area with a specific legal definition under the Income Tax Act. A tax consultant with expertise in R&D tax incentives can help you accurately identify and substantiate qualifying R&D activities, ensuring that your projects meet the criteria for the enhanced deduction.

  
  

• Intellectual Property: For the IP-related aspects of the EIS, Bestar can assist with the correct valuation of IP rights and the proper categorization of expenditures (e.g., registration vs. acquisition fees).

In short, while you can file for the EIS benefits yourself, engaging Bestar can significantly reduce the risk of errors, optimize your claims, and ensure you are fully compliant with IRAS regulations, ultimately helping you maximize the financial benefits of the scheme.

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