rd-tax-incentives

Singapore continues to refine its tax and incentive ecosystem to attract multinational corporations (MNCs) and high-growth companies. With global tax reforms such as OECD’s Pillar Two on the horizon, the landscape is evolving rapidly-but so are the opportunities for companies that know how to navigate it.

 

Singapore’s Forward-Looking Tax Environment

EDB’s approach is proactive: incentives are tailored to encourage substantive economic activity, innovation, and advanced manufacturing. As the government adapts to global tax changes, it ensures Singapore remains a premier base for regional headquarters and R&D centers. The merger of key investment arms and the launch of new platforms like SG Growth Capital further enhance the support available for companies investing in Singapore.

A range of strategic funding and incentive schemes are now available, including:

• R&D Tax Measure and Enterprise Innovation Scheme (EIS): Tax deductions and allowances for qualifying R&D activities, supporting companies that invest in innovation.
• Refundable Investment Credit (RIC): designed to attract and anchor large-scale investments in Singapore.
• Research and Innovation Scheme for Companies (RISC): designed to encourage companies to invest in technological development, innovation activities, and the establishment of centers of excellence in Singapore.

The FI Group Advantage 

FI Group Singapore is uniquely positioned to help MNCs and ambitious enterprises unlock these incentives. Our services include:

• Assessing eligibility for grants and R&D tax credits, including the Enterprise Innovation Scheme (EIS) or the Refundable Investment Credit (RIC).
• Structuring projects for maximum tax efficiency while ensuring compliance with international standards.
• Providing ongoing advisory as incentive schemes and regulations evolve, ensuring your business can fully capitalize on Singapore’s strategic tax environment-without the administrative burden.

Our team’s expertise in both local and global funding frameworks ensures that your business can fully capitalize on Singapore’s strategic tax environment, without the administrative burden.

Download our Handbook for International Companies

To help you navigate Singapore’s complex but rewarding incentive landscape, FI Group’s experts have created the Singapore R&D Handbook – Best Grants and Tax Incentives for International Companies in Singapore. This comprehensive guide reveals the most powerful R&D incentives available, offering a clear roadmap to maximize tax benefits, secure generous grants, and strategically position your company at the forefront of innovation in Asia.

Download the handbook today and unlock the full potential of Singapore’s innovation ecosystem for your business.

In Singapore, Research and Development (R&D) expenses are not only tax-deductible but also offer significant incentives for companies that invest in innovation. This article examines the tax benefits linked to R&D expenses in Singapore and how businesses take advantage of R&D Tax Measures and Enterprise Innovation Scheme to boost their innovation efforts.

R&D Tax Deductions in Singapore

The Singaporean government has established appealing tax measures to promote R&D activities within the nation. The tax deductions for R&D expenses are particularly generous, making Singapore an attractive destination for companies looking to invest in innovation.

Basic Deduction Rate

For R&D activities carried out in Singapore, companies can claim a 250% tax deduction on qualifying R&D expenses. This means that for every dollar spent on eligible R&D activities, businesses can deduct $2.50 from their taxable income.

Enterprise Innovation Scheme (EIS)

In 2023, the Singaporean government introduced the Enterprise Innovation Scheme (EIS) to further incentivize R&D investments:

• An additional 300% tax deduction is granted on the first $400,000 of qualifying expenditure for projects conducted in Singapore. This means that for every dollar spent on these projects, businesses can deduct $3.00 from their taxable income.
• This enhanced deduction is applicable for the Years of Assessment 2024 to 2028.

Overseas R&D Activities

While Singapore prioritizes local R&D, expenses for R&D conducted overseas are still eligible for a 100% tax deduction, as long as they are related to the company’s existing trade.

Qualifying R&D Expenses

To take advantege of these tax deductions, it’s essential to understand which expenses qualify. Eligible R&D expenses generally include:

• Staff costs (excluding directors’ fees)

• Consumables used in R&D activities

• Outsourced R&D services

Net Savings on R&D Expenses

The chart below illustrates the potential net savings on R&D expenses. These savings significantly reduce the effective cost of R&D investments, making it more financially viable for companies to engage in innovative activities.

Claiming R&D Tax Deductions

To take advantage of these tax benefits, companies need to follow to certain guidelines:

1. Claim Deadline: R&D tax deductions must be claimed by November 30th of each year of assessment.
2. Retrospective Claims: Companies are allowes to make retrospective claims for up to four years.
3. Documentation: It iIs essential to maintain proper documentation for R&D activities and expenses for successful claims.

Need help with your R&D tax deduction claims? The experts at FI Group can assist you in maximizing your benefits. Reach out to us today for a free assessment.

5. Partnerships for Capability Transformation (PACT)

• Benefits: Encourages collaboration between Singapore-based SMEs and larger companies, including multinational corporations, to develop innovative solutions and share expertise. This program helps SMEs access resources from established companies, accelerating growth and building strong industry relationships.
• Ideal for: SMEs seeking collaborative innovation and faster scaling through partnerships with larger companies and local enterprises.

Partner with FI Group for Funding Success

Navigating the complex public funding landscape can be challenging. FI Group offers expert guidance to help SMEs:

• Assess eligibility for various funding programs
• Prepare compelling funding applications
• Ensure compliance with funding regulations
• Full support during and after application

Contact FI Group today to unlock the potential of public funding for your SME.

Overview of the Enterprise Innovation Scheme

Net savings on R&D expenditure

The Enterprise Innovation Scheme (EIS) in Singapore is introduced in 2024, allowing for a 400% enhanced tax deduction of R&D expenditure spent by companies and resulting in substantial net savings of up to 68% on R&D expenditure. This enhancement brought by the Enterprise Innovation Scheme on top of the deductions that are previously allowed in the Income Tax Act under 14C and 14D (1) has sparked a growing interest among companies to leverage the R&D Tax Measures and the Enterprise Innovation Scheme to drive research and innovation.

Difficulties in Understanding Eligibility Criteria

However, assessing project eligibility under the R&D Tax Measures and Enterprise Innovation Scheme (EIS) is a challenging task. To ensure that the scheme is correctly applied, the Inland Revenue Authority of Singapore (IRAS) has laid out rigorous project eligibility criteria. Companies must clearly demonstrate that their projects qualify as R&D projects by submitting a project description to IRAS along with its R&D Claim Form when claiming the benefits of R&D Tax Measures and Enterprise Innovation Scheme.

For software development projects, eligibility assessment and justification are more demanding, as IRAS clearly states in the 7^th edition of IRAS e-Tax Guide for R&D Tax Measures that it “generally has to request for more information” on software development project claims. The complexity in project eligibility assessment is best illustrated with a total of 16 pages of guidelines in Annex G of the e-Tax Guide for R&D Tax Measures dedicated specifically to project eligibility for software development projects.

In this article, FI Group will help companies unveil the basics of project eligibility assessment for tax deductions under R&D Tax Measures and Enterprise Innovation Scheme based on the e-Tax Guide for R&D Tax Measures, while discussing key points to consider for eligibility assessment for software development projects.

Insights into eligibility requirements for Enterprise Innovation Scheme

The eligibility criteria for projects to qualify under the R&D Tax Measures and Enterprise Innovation Scheme comprises of three pillars: Objective, Novelty / Technical Risk, and Systematic, Investigative, and Experimental Studies. For a project to qualify under the R&D Tax Measures and Enterprise Innovation Scheme, the project must satisfy all three “pillars” shown in the figure below. We will look into the three pillars one by one.

Three Pillars of eligibility requirements for Enterprise Innovation Scheme

Objective Requirement Pillar

The “Objective” pillar requires the primary purpose of the project to be one or more of the following:  

1. Acquiring new knowledge.  
2. Creating new products or processes.  
3. Improving existing products or processes.  

The objective(s) of the project must be clearly stated at the beginning of the project. Additionally, companies must clearly identify the gap between existing scientific and technological knowledge and the desired outcome, and aim to close that gap with the project.

Novelty / Technical Risk Requirement Pillar

The “Novelty / Technical Risk” pillar requires projects to either create products or processes that are “first of its kind” in Singapore, or involve significant scientific / technological uncertainty that cannot be solved by a competent professional. Projects need only satisfy one out of the two characteristics described in this pillar. Nevertheless, a considerable number of eligible R&D projects satisfies both of them.

For projects that look to satisfy the Novelty criterion, the creation or improvement of a product / process needs to be beyond minor or routine upgrading, and should not be a mere importation of existing knowledge outside of Singapore. For example, simple deployment of a software that existed in the US on a Singapore-based server will not qualify as R&D, even if this software did not exist in Singapore before this project.

For projects that look to satisfy the Technical Risk criterion, things could get a bit more complicated, and more ground is left for case-by-case considerations. In most cases, however, projects will need to create products / processes that exceed the performance of existing products / processes, approach existing problems in a new way, or raise new scientific / technical questions and aim to answer them.

Systematic, Investigative, and Experimental Studies Requirement Pillar

The “Systematic, Investigative, and Experimental Studies” (SIE studies) pillar is closely linked to the two previous pillars. It states that in order to qualify as a R&D project, a series of planned activities to test or find out something that is not known or readily deducible in the field of science or technology must be carried out in the project. A breakdown of the three characteristics of the required studies in this pillar can be found below:  

1. Systematic: A planned and orderly approach of the steps or activities to be taken in the study must exist. 
2. Investigative: Activities must be undertaken to explore and uncover information to help in the understanding of the problem.  
3. Experimental: A series of structured steps undertaken to test the potential solution for solving a technical problem. An iterative process is often needed. 

We can see that this pillar is closely related to the previous pillars, as it requires the study to investigate the scientific or technological gaps that are identified in the “Objective” pillar, and it requires the study to tackle the uncertainties brought about by potential solutions to challenges identified in the “Novelty/Technical Risk” pillar through experiments and tests.  

Complexities in identifying boundaries of R&D activities

But there is more than what we discussed about the pillars individually. When the pillars are combined, they also lay out rules for identifying the boundaries of R&D projects, as most of the time, the full process of product development will not all qualify as R&D activities even if some of them are eligible as R&D activity. Some good examples will be market surveys, which are carried out before the objectives are set for this project and thus do not satisfy the “Objective” pillar, and production activities, which are carried out after the technical uncertainties have been removed.

With the overview provided above, we can see that the rigorous rules that is implemented for the R&D Tax Measures in Singapore makes it a complex task to determine the eligibility of R&D activities under the R&D Tax Measures and the Enterprise Innovation Scheme, especially in identifying (1) what projects qualify as R&D projects, and (2) what activities in a project qualify as R&D activities and can thus have their cost claimed under the R&D Tax Measures, and people with expertise and experience in both the R&D Tax Measures and the Enterprise Innovation Scheme and the science and technology field are required to assess project eligibility and provide justification to IRAS.

Assessment of Software Development Project Eligibility

Assessment of software development projects is a task that is notoriously difficult, considering the intricate nature of software development and the evolving landscape of technological innovation, along with the rigorous eligibility criteria. A deep understanding of the eligibility criteria, the project, and state-of-the-art knowledge on the technology involved in the projects is often required to conduct such assessments.

Complexities in Eligibility Assessment of Software Development Projects

The most common misconception regarding project eligibility assessment of software development projects is that while software development is about developing a new product for the company, and Software Development Life Cycles often signify systematic development in the project, such characteristics do not automatically render all software development projects as eligible R&D projects for R&D Tax Measures and the Enterprise Innovation Scheme. Developing new software for the company itself does not justify the project under “novelty,” and the necessity of the project involving also an “investigative and experimental” study is often overlooked.

In this section, we will discuss some of the key pitfalls in project eligibility assessment and justification of software development projects for R&D Tax Measures and the Enterprise Innovation Scheme.

Misconception of the Objective criterion in eligibility assessment

As the name implies, this pitfall is closely associated with the Objective criterion that requires companies to clearly identify the scientific or technological objectives to be achieved prior to the commencement of the project.  

A common misconception is that business objectives of software development projects equal scientific or technological objectives. Business objectives focus on the business challenges that the final deliverables of the project will address. For example, for a software development project that aims to develop an HR system for tracking expenditure claims of employees, it aims to address the challenge of keeping track of various receipts and reimbursement slips, and thus the business objective is to make it easier for HR to track claims and supporting documents.  

However, this is completely different from what is required as scientific or technological objectives for projects to qualify as R&D projects. Scientific or technological objectives focus on the level of science or technology that the project aims to achieve at the end of the project and identifies the gap that lies between the current level of science and technology and the level that it aims to achieve. In our previous example with the HR system, the level of science and technology that the project aims to achieve is unclear, and the gap between the current level of science and technology and the level that the project aims to achieve is not clearly defined. Therefore, the eligibility of the software development project that develops such a system is unclear with such description.  

Here is a better example of describing the scientific or technological objectives of a software development project: Our project aims to develop an HR system that helps expenditure claim tracking by automatically classifying scanned receipts from expenditure claims of employees. This autoclassification feature must achieve 98% accuracy. Our preliminary studies have shown that a mere combination of existing text classification algorithms and classification algorithms based on supervised learning can only achieve 92% accuracy, which indicates a gap between our objective and the existing level of technology.

Wrong Definition of Novelty / Technical Risks in eligibility assessment

The Novelty / Technical Risk pillar is by far the hardest to handle in project eligibility assessment and justification. It requires technical expertise in the relevant fields, since it is related to identifying the existing level of science and technology and comparing it with the targets of the project to justify why the targeted end results are novel / why technical uncertainty exists in reaching the end results.  

The nature of software development projects adds another layer of complexity to the eligibility assessment and justification, as at first glance, almost every software development project creates something “new” for the company’s business, it automatically satisfies the novelty criteria. This is untrue, as the product must be first-of-its-kind in Singapore to satisfy the Novelty criterion. It is also quite common for companies to claim that they are launching a new software with new features to the market and thus qualify under the Novelty requirement. For example, a new e-commerce platform that provides random cashback upon successful payment could be new in the Singapore e-commerce market. However, this feature itself will not satisfy the novelty criteria, as many apps with a cashback feature exist in Singapore, from banking apps to payment apps.  

It is well known that software development is never an easy task for your dev team, and thus people tend to fall into the trap that since working with code is something technical and it is challenging to develop the end product with the time and effort consumed, it is something that involves technical challenges and thus fulfils the Technical Risk requirement. In fact, this is one of the most common misconceptions that we have ever seen at FI Group.  

The key to understanding this requirement is to understand if any uncertainty arises from the lack of publicly available information about the scientific and technological specifications involved in the project. For example, designing a relational database management system (RDBMS) and implementing it in SQL may be challenging for your data team, as it takes time to understand the data to be kept in the DBMS and the schema to be used, as well as how the schemas should connect with each other. However, this is not considered technical uncertainty because there is plenty of information available on the internet about how to design a RDBMS from data requirement gathering to schema and relationship designing, and a competent individual, who might be an expert in RDBMS with 5 years of experience, can handle the design and implementation with certainty on the approaches and expected results. However, if your RDBMS project aims to develop certain indexing techniques that make the average query response time shorter than what is achievable with existing indexing techniques that are publicly available, then technical risks are involved because how to achieve a shorter query response time is uncertain.

Misidentification of R&D boundaries in software development projects

It is crucial to understand that even though various activities may be grouped under one single software development project, and that some activities in the project may qualify as R&D activities, it does not mean that the entire project is considered as an R&D project.  

We all know that there exist many functionalities in a software to be developed, and not all of them may satisfy the three pillars listed in our previous discussions. The development of functionalities that do not satisfy the three pillars, e.g. login and logout functions of an investment platform, will not qualify as R&D activities. The expenses incurred for developing these functionalities in the software application should be excluded from the R&D Tax Measures and Enterprise Innovation Scheme claims.  

On the other hand, a software development project may not qualify as an R&D project, but the development of certain functionalities in the software application may satisfy the requirements listed above and thus qualify as R&D activities. For example, developing a digital banking application is not considered as an R&D project in general, considering that numerous digital banking applications already exist in Singapore. However, if you aim to develop a smart contract system for investment management based on blockchain technology that is more secure and more reliable than existing smart contract systems in your digital banking application, then it involves technical risks because how to achieve the goals in security and reliability is uncertain, and it requires SIE activities to study potential solutions before producing the smart contract system with the desired specifications. Thus, this part of the digital banking application development project that is related to the development of the smart contract system is considered as eligible R&D activities, and expenses incurred for this part of the project can be claimed under R&D Tax Measures and the Enterprise Innovation Scheme.  

Despite the rules listed above, there is also a special guideline on the eligibility of software development projects. It states that if a company can demonstrate that the functionalities that involve scientific and technological uncertainties are the core functionalities developed for the software, then the entire project may qualify as an R&D project.  

This rule makes it extremely important to consider projects on a case-by-case basis. For example, if the software development project is to develop an ERP solution, and part of its functionality is to automatically recognize handwritten documents. It is technically challenging for handwriting recognition to achieve the level of accuracy laid out in the requirements. However, as the software application to be developed is an ERP system, this handwriting recognition functionality is not the core functionality, and therefore the project does not qualify as an R&D project as a whole under this special guideline. Conversely, if the software application to be developed is a scanner application that automatically reads handwritten documents and extracts the text from these documents, then the project may qualify under this special guideline as an R&D project.

Expert guidance for project eligibility assessment

With the complexities involved for assessing the project eligibility of software application development projects, nothing is more effective than a discussion with experts in project eligibility assessment for the Singapore R&D Tax Measures and Enterprise Innovation Scheme.  

FI Group offers a one-stop solution for companies to benefit from the R&D Tax Measures and Enterprise Innovation Scheme in Singapore, from project eligibility assessment to technical justification reports and claims. We have nearly 30 years of experience in partnering with companies to help them leverage R&D Tax Measures internationally.

FI Group methodology for Enterprise Innovation Scheme eligibility assessment and claims

Our experts look forward to discussing the eligibility of your projects for the R&D Tax Measures and Enterprise Innovation Scheme. The teams from FI Group consist of PhDs and engineers in various industries, including cutting edge IT fields like software engineering, machine learning, artificial intelligence, and the industrial applications of these technologies. Our expertise in both R&D Tax regulations and science and technology allows us to maximize the benefits that clients get from R&D Tax Measures, securing €2.5+ Billion R&D savings every year for over 20,000 clients around the world.

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Singapore is recognized worldwide as dynamic economy which particularly invest in R&D and innovation sectors. The country’s ability to foster innovation has been reflected in its ranking on the Global Innovation Index 2022, where it placed 7th, gaining one spot compared to the 2021 ranking. With generous R&D and innovation funding policies, the Singaporean innovative ecosystem is very favorable to make new technologies flourish in the country.

However, despite the fact that many innovations are held within foreign corporations established in Singapore, a lot of them are struggling to claim the public funding schemes. The burden of holding 30% of local shareholders within the company is weighing on many of them.

This raises the following question:

How foreign companies established in Singapore can successfully access public R&D funding?

In this article, we will address it through 2 complementary strategies: direct funding and indirect funding.

• Direct funding

The first thing that comes to company’s mind when talking about R&D public incentives is the grant & subsidy system.

In Singapore, like in many countries around the world, grants are provided by public agencies through call of projects. They announce, evaluate, and allocate the grant depending on specific objectives and requirements defined depending on the government and agency’s agenda.

As a company, you will not qualify for every grant available at a given period. The first step in establishing a winning strategy on direct public funding is to find the right type of grants for your project and establish a contact with the public agency in charge. You will find below a non-exhaustive list of main actors that can provide foreign companies with adequate direct public fundings:

• The Singapore Economic Development Board (EDB) with Innovation Scheme for Companies (RIS(C)): this government agency under the Ministry of Trade and Industry is responsible for strategies that enhance Singapore’s position as a global center for business, innovation, and talent. One of their missions is to attract foreign investment into Singapore. The scheme that aims at financing innovative projects is Research Innovation Scheme for Companies (RIS(C)). It supports company’s developments of technologies, product and processes, innovation activities from Singapore.
• Monetary Authority of Singapore (MAS) and their Financial Sector Technology and Innovation Scheme: It seeks to attract financial institutions to set up innovation centers of excellence or laboratories in Singapore. Financial companies looking to establish or expand its R&D efforts in Singapore, especially by testing innovative ideas and roll out market solutions can benefit from this direct funding scheme.
• Marine and Port Authority (MPA) with their MINT Fund Call for Proposals: This fund aims at developing a competitive edge for the port of Singapore, transform the Singaporean maritime sector in an innovative cluster and build up technological capabilities locally in key niche areas.
• Energy Market Authority (EMA) with their Research Innovation, Enterprise and Deployment plan: This plan focuses on catalyzing research and innovation, supporting enterprise development and facilitating deployment of promising solutions in the energy sector. The decline of costs for clean energy have spurred investments, which EMA tries to include in a sustainability strategy.

Once the right grant has been identified, you must enter the application process in the right period, which can be difficult for companies with limited resources allocated to claim such incentives.

In conclusion, your strategy on public fundings will rely on the availability of subsidies in your sector at a given time, which can be anticipated correctly if you establish a good contact with the appropriate administration.

 

• Indirect funding

Though less popular than subsidies and grants, indirect funding can make up for a significant amount of companies’ R&D funding if correctly claimed and done.

It refers to all tax incentives, tax credits and tax deductions that a company can benefit from running R&D activities. The Singaporean government has been supporting companies in that sense in the past already through the Productivity and Innovation Credit (PIC) scheme, which has ended and been replaced in 2018 by a generous R&D Tax Incentive. This scheme enables a tax a deduction of 250% of R&D expenses incurred during the year, corresponding to a net saving of 42.5% (when applying the 17% corporate tax rate). Moreover, it is accessible to any company registered in Singapore, regardless of the nationality of shareholders.

As a counterpart to this generous and open tax incentive, the claiming company has to be the beneficiary of the R&D work. In other words, no re-invoicing to other companies in the group is possible, and the IP must be located accordingly. When deciding on a funding strategy for your R&D activities, this is an important matter to consider if you are an international group with already constituted financing and IP policies that are hard to modify.

 

In conclusion, a well-thought-out strategy for R&D public funding must rely on these two components: direct and indirect funding. These two types of funding intervene at different moments of the project: before the start of expenses for the grants and each year at the time of the tax return for the R&D tax deduction. Although grants are generally preferred by companies as they limit initial investment to launch a new R&D activity, the R&D Tax Deduction ensures stability and predictability of the financial support received by the government.

FI Group as an expert in public R&D funding strategy can assist you in the definition and execution of your strategy, customizing it to your company needs and specific challenges.

Contact our experts!

 

 

If you are an R&D service provider based in Singapore, the R&D Tax Deduction scheme may be an incentive you know of, but may not know how to benefit from. Designed to fully accompany the companies that you are rendering services to, there is nothing for you to gain from this incentive for your own benefit. But what if we show you how you can effectively use the scheme and collect up to 42.5% of your R&D expenses back?

The R&D Tax Deduction scheme, outlined under provision 14C/14D of the Income Tax Act, can be claimed each year to alleviate the R&D expenses of a company. To be eligible for such an incentive, the IRAS states that you need to be the beneficiaries of the R&D activities, which can be achieved by the following requirements:

• Bear the financial burden of carrying out the R&D activities; and
• Effectively own and be able to commercially exploit the know-how, intellectual property, or other results of the R&D activities.

By that definition, any company that undertakes an R&D project on behalf of a third party (whether the two parties are related or not) on a cost-plus basis or under any other fee arrangement is an R&D service provider. As you are not the beneficiary of the R&D activities, you will not be able to claim R&D Tax benefits on that project.

But there is still a way for you to benefit from the R&D Tax Deduction scheme in this scenario. Your client, as the beneficiary of the project, can include your fees in their R&D Tax Deduction claim. When you establish and negotiate contracts with your client, informing them about the scheme and tailoring the activity so that it is eligible can be a valuable negotiating point for you as an R&D service provider, allowing you to potentially increase your fees or expand the scope of your services.

Moreover, if you undertake an R&D project on your own account and meet the eligibility requirements, you can claim the relief on your expenses. Bookkeeping precisely what expenses are incurred for your client’s benefit and your own benefit will allow you to claim the R&D Tax Deduction safely, while being recognized as a valuable R&D player by your clients, prospects, and the administration.

If you’re interested in learning more about how to take advantage of and secure these financial incentives as an R&D service provider, FI Group can help. We are experts in navigating the complex world of R&D funding and can assist you in understanding how to optimize your R&D investment and grow your business. Contact us today to learn more.