Corporate Tax Guide: Claiming Industrial Building Allowances (IBA)

For years, the Inland Revenue Authority of Singapore allowed companies to freely claim industrial building allowances (IBAS) on their capital expenditure. However, that ultimately changed, and now companies can’t proceed to file for the deductions, unless under specific circumstances. 

This guide comprehensively reveals those special scenarios, what industrial building allowances entail, how you can qualify for IBA, as well the procedure for calculating your applicable IBA. 

What is Industrial Building Allowances (IBA)?

Industrial Building Allowances (IBA), as the name suggests, are basically tax deductions that companies can claim on the capital they’ve spent on acquiring industrial buildings and structures. This covers both construction and purchase costs, and the industrial buildings themselves should have been acquired for the sake of facilitating business activities or trades. 

Unfortunately, however, IBA benefits were phased out, stopping companies from claiming the deductions on industrial building costs incurred from the 23rd of February 2010. Not entirely, though, as there are specific scenarios that allow you to file for allowances on such capital expenditure. 

Capital Expenditure Allowances under IBA IRAS

Generally, you can only apply for capital expenditure allowances under IBA if the industrial buildings you’ve acquired or purchased are: 

• Used for any of the qualifying activities or trades.
• Leased out to parties who subsequently use them for any of the qualifying trades or activities. 

Now, for sake of clarity, “qualifying trades” in this case refers to the following activities - as described in Section 18 of Singapore’s Income Tax Act: 

• Storage of goods or materials after they are brought into Singapore. 
• Storage of goods or materials intended to be used in the manufacture of other goods, or perhaps utilized in the course of other business trades. 
• Manufacture of goods or materials. 
• Electricity, water, dock, or transport undertaking. 

Transitional Rules for Existing Buildings

The IRAS allows you to proceed and apply for IBA tax deductions if the following rules apply to your existing industrial building: 

On Purchasing an Existing Industrial Building

You can claim IBA on capital expenditure spent on purchasing an existing industrial building if: 

• The purchase agreement was signed on or before the 22nd of February 2010, or 
• The purchase option was given on or before the 22nd of February 2010.

In that case, the qualifying capital expenditure should cover the purchase costs - including all the stamp duties and legal fees that were applied during purchase. 

On Constructing an Adjoined or a Separate Extension to an Existing Industrial Building

If you happen to construct an adjoined or a separate extension to an existing industrial building, you can apply for IBA provided: 

• A qualified construction professional - such as an architect or engineer - came into the project on or before the 22nd of February 2010.
• You sent in the development application to the Urban Redevelopment Authority (URA) on or before the 31st of December 2010. 

The capital expenditure here applies to the construction costs you incurred until: 

• You received a Temporary Occupation Permit, or
• The final day of the whole basis period for YA 2016. 

On Constructing an Extension to an Existing Building

For companies that constructed an extension to an existing building, the IRAS allows you to file for IBA if: 

• A qualified construction professional - such as an architect or engineer - came into the project on or before the 22nd of February 2010.
• You sent in the development application to the Urban Redevelopment Authority (URA) on or before the 31st of December 2010. 

In that case, the capital expenditure covers the construction costs you incurred until: 

• You received a Temporary Occupation Permit, or
• The final day of the whole basis period for YA 2016.  

On Renovating an Existing Industrial Building

Companies that end up renovating existing industrial buildings can proceed to apply for IBA if: 

• The renovation contractor was brought in on or before the 22nd of February 2010.
• The renovation works did not require a URA (Urban Redevelopment Authority) development permit. 

The capital expenditure taken into consideration here are the renovation costs incurred till:

• The project’s end, or
• The final day of the whole basis period for YA 2016. 
  

Transitional Rules for New Industrial Buildings

When it comes to new industrial buildings, the IRAS applies different rules on: 

• The construction of new industrial buildings, and 
• The purchase of new industrial buildings. 

Let’s look into each of them separately.

On Constructing a New Industrial Building

Companies that construct new industrial buildings can go ahead and claim IBA tax deductions if: 

• A lease, buy, or bid application for the land was forwarded to the government on or before the 22nd of February 2010, or
• If the land was privately-owned, the lease or purchase agreement was signed with the landowner on or before the 22nd of February 2010. 

What’s more, the development application should have been forwarded to the URA on or before the 31st of December 2010. 

If you happen to qualify, you should expect the IRAS to work out your allowances from the following forms of capital expenditure: 

• The construction costs incurred until you received the TOP, or
• The construction costs incurred until the final day of the basis period for YA 2016. 

On Purchasing a New Industrial Building

If your company acquired a new industrial building through purchase, you can file for IBA provided: 

• The purchase agreement was signed on or before the 22nd of February 2010, or 
• The purchase option was given on or before the 22nd of February 2010.

As such, the qualifying capital expenditure should cover all the purchase costs - including all the stamp duties and legal fees that were applied during purchase. 

Qualifying Expenditure under IBA

All in all, qualifying expenditure under IBA covers the costs that your company incurred during the construction or purchase of the industrial building. 

Examples include: 

• Architectural fees. 
• Building costs. 
• Administration costs. 

Please note, however, that the cost of the land is not considered part of the qualifying expenditure. 

Non-Qualifying Expenditure under IBA

As it turns out, the IRAS also disqualifies the costs incurred in constructing ancillary spaces. That means areas like offices, residential units, cafeterias, showrooms, retail shops are not considered part of the industrial building or structure. They are just support elements. 

On the flip side, though, you’re allowed to include them in your capital expenditure if the costs incurred are a tenth or less of the total costs of constructing the entire industrial building. 

How to Compute for IBA Claims

While there are many rules in the computation of industrial building allowance claims, we can summarize them as follows; 

• Basically, the initial allowance that you claim in the first year of assessment should account for about 25% of the qualifying expenditure. 
• Each of the subsequent annual allowance claims should account for about 3% of the total qualifying expenditure. 

All these claims should be submitted alongside your company’s tax computation. 

Need Professional Assistance? 

For the best possible outcome, we invite you to work closely with the real experts. Our consultations are completely free of charge. We’ll then advise you on your IBA status, plus help you with the whole computation, filing, and claiming process.