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If you thought that capital allowance and industrial building allowance is as good as it gets for factories in Singapore, here’s yet another tax benefit that’ll knock your socks off. Land Intensification Allowance is the official name, but you could simply call it “LIA”.
This comprehensive guide goes beyond the basics to explain what LIA really entails, how to qualify for the tax benefits, how to work out the amounts you’re entitled to, as well as how to apply and claim the benefits.
What is LIA?
Land Intensification Allowance (LIA), for starters, was introduced by the 2010 budget as a means of encouraging industrial plants to boost their overall land productivity. It offers tax benefits on the capital that various businesses in the manufacturing and logistics sectors spend on generating value from their land.
You can, for instance, make a claim for LIA after spending money on constructing or renovating a qualifying industrial building or structure. If it’s granted, you get to reduce your company’s assessable income amount based on the total capital expenditure incurred.
All in all, such tax incentives are particularly tailored for industrial sectors with low Gross Plot Ratio (GPR) and huge land takes.
But, the government of Singapore doesn’t stop there. In 2016, it slightly amended LIA rules to further promote the co-location of activities, as well as establish a more efficient value supply chain. Then in 2017, the provision was changed yet again to accommodate the development of Integrated Construction and Prefabricated Hubs. (ICPHs).
What are the Qualifying Conditions for LIA?
If you’re seeking to leverage LIA to reduce your company’s tax bill, you’ll be required to meet the following qualifying conditions at the application level.
- Qualifying intensified land use: From the 23rd of February 2010 to the 21st of February 2014, land use is assessed to establish if it fulfills the stipulated Gross Plot Ratio (GPR) for each manufacturing activity. Then for applications running from the 22nd of February 2014 to the 31st of December 2025, land use should meet the prescribed GPR for both manufacturing activities and logistics operations. What’s more, it was established that buildings and structures that fulfill the stipulated GPR benchmarks will be awarded 10% incremental GPR.
- Qualifying business or trade: Between the 23rd of February 2010 and the 21st of February 2014, qualifying businesses and trades were limited to selected manufacturing activities. Then from the 22nd of February 2014 to the 31st of December 2025, it has been revised to include even logistics activities.
- Qualifying building or structure: For a building or structure to sail through between the 23rd of February 2010 and the 21st of February 2014, it had to be constructed on Singapore’s Industrial B1 / B2 land. Then for constructions completed between the 22nd of February 2014 to the 31st of December 2025, the structure has to be on either Industrial B1 / B2 land, or airport / port land.
- Minimum floor area requirement: At least 80% of the total floor area of the building or structure ought to be utilized by a single user to carry out the stipulated primary business or trade. This was later changed in 2016 to accommodate single users who carry out multiple businesses and trades, as well as multiple related users who happen to be engaged in one or multiple trades.
How to Apply for LIA
Although corporate income taxes in Singapore are regulated by the Inland Revenue Authority of Singapore (IRAS), management of the land intensification scheme is a completely different thing altogether.
So, in case you’re wondering, the answer is no. You won’t be sending your application to the IRAS. Instead, you’ll be expected to forward the application to Singapore’s Economic Development Board (EDB) and the Building and Construction Authority (BCA).
These are the two bodies mandated to administer the entire scheme plus approve applications. And to be specific, BCA deals with ICPHs approvals, while EDB handles applicants in the manufacturing and logistics fields.
Qualifying Capital Expenditure
Generally, you can make claims on the capital expenditure you’ve spent since the 23rd of February 2010, when LIA was first introduced. As for ICPHs, though, the period begins on the 8th of March 2017.
All in all, the funds should have been used up in the construction, extension, or renovation of a qualifying LIA building or structure to the point of meeting or surpassing the prescribed minimum GPR.
That said, some of the expenditure you can include in your LIA claims for the building or structure include:
- Stamp duties that you paid to acquire the title of the building or structure.
- Legal and other professional fees that you paid before or during the construction, renovation, or extension of the qualifying building or structure.
- Demolition costs of an existing building or structure.
- Actual piling, construction, renovation, and extension costs for the building or structure.
- Funds spent on drafting plans for acquiring approval for the building or structure.
- Design fees for the building or structure.
- Cost of the feasibility study carried out on the layout of the building or structure.
How to Compute Your LIA Amount
Once your LIA application is approved, you can go ahead and work out your claims as follows:
- Initial Allowance (IA): The initial allowance (IA) amount that you’ll be entitled to in the first year of assessment (YA) amounts to 25% of the qualifying capital expenditure.
- Annual Allowance (AA): An annual allowance of 5% of the qualifying capital expenditure should then follow in the subsequent YAs after clearing your initial allowance. Such tax benefits only come when you’ve completed the construction, renovation, or extension of a qualifying building or structure.
How to Claim Your LIA - Documents You Need
The best thing about claiming LIA in Singapore is, you don’t have to attach any supporting documents to your company’s income tax returns. Yes, that’s right - the IRAS allows you to make claims without the submissions.
But, don’t get us wrong. You won’t be let off entirely scot-free. The IRAS, instead, requires companies to prepare and retain the following documents for the long haul;
- In case the approved LIA building or structure is used by another user, you’ll need a certificate from a qualified quantity surveyor that spells out the total floor area used by the other user.
- A copy of the verification form that you previously forwarded to EDB or BCA after the completion of the construction, renovation, or extension of the building or structure.
- Details of all the qualifying capital expenditure incurred on the construction, renovation, or extension of the approved LIA building or structure
- Information on the computation of the initial allowance and the corresponding annual allowance that you intend to claim.
- A copy of the offer letter that you received from EDB or BC.
The Comptroller of Income Tax might, at some point, request you to submit these documents. But, not necessarily within the initial YA. Rather, you’re expected to retain the documents for up to five years, as the request could come in at any moment.
Where to Start
For a tax scheme with the capacity to pay you back the capital that you spend on developing your industrial premises, LIA is certainly something you might not want to miss out on.
So, tell you what. We’re willing to show you all the ropes, as well as help you with your entire tax filing. Just book a free consultation with us, and we’ll be happy to walk you through everything.