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Singapore’s tax deductions on a company’s capital expenditure don’t stop at physical assets and machinery. It turns out you could also claim the benefits on your Intellectual Property Rights spending, under the Writing Down Allowances (WDA) program.
To find out how, we invite you to read along as we explore the entire WDA claims process. You get to find out what WDA entails, how to qualify for the allowances, how to calculate them, as well as how to claim them in Singapore.
Capital Expenditure in Acquiring IPRs
Writing Down Allowances, or WDA in short, are basically tax deductions that companies can claim on capital expenditure spent on acquiring intellectual property rights (IPRs), which are then put into use in a company’s business activities or trade.
Now, for the avoidance of doubt, “capital expenditure” in this case refers to just the funds spent on acquiring IPRs, excluding stamp duty, registration fees, and legal fees.
IPRs Covered under Section 19B
Generally, Section 19B of Singapore’s Income Tax Act describes intellectual property rights as:
- Plant varieties.
- Trade secrets or information with commercial value.
- Layout designs of integrated circuits.
- Geographical indications.
- Registered designs.
- Trademarks.
- Copyrights.
- Patents.
Please note, however, that there are exceptions.
For instance - when it comes to copyrights, “information that has commercial value” and trade secrets”, the act leaves out:
- Info that you acquire on work processes (like standard operating procedures), which is intended to help you in the manufacture or processing of goods or materials. This excludes info on industrial techniques and protected processes.
- The details of customers or clients of a business or trade - like customer lists and profiles compiled over a prolonged period of time in the course of carrying out that business or trade.
- Any other information that Singapore’s Minister of Finance may prescribe through various regulations.
The Requirements of Transfer of Ownership
To qualify for Writing-Down Allowances (WDA), an IPR transfer transaction should fundamentally have two participating parties - the transferor and the transferee. The former is the party that grants the intellectual property rights, while the transferee is the company that purchases them.
In essence, IPR transfer occurs when the transferee acquires economic and legal ownership of the IPRs from the transferor. Economic ownership grants the transferee all the financial benefits that come with the IPRs, while legal ownership - on the other hand - means the transferee gets the right of assigning the IPRs.
That said, you should keep in mind that the Income Tax Act gives the Economic Development Board the right to grant waivers from legal ownership.
How to Calculate Writing-Down Allowances
The value of your company’s annual WDAs substantially depends on the year of accounting that you happen to file for.
Before YA 2017
If you acquired the IPRs before YA 2017, for instance, the IRAS spreads out the WDA allowances over a continuous period of five years, starting with the YA that the capital expenditure was incurred. As such, you’ll end up getting equal annual deductions for five years straight.
Now, to put it into perspective, consider a company that purchased an IPR for S$300,000 in YA 2016. If it proceeds to claim WDA, the capital expenditure allowances will be assessed and spread out equally over a period of five years, starting with 2016. That means that eventually, the company would end up benefitting from an annual WDA allowance of S$60,000 in YA 2016, YA 2017, YA 2018, YA 2019, and YA 2020.
From YA 2017
For WDA claims on IPRs acquired from YA 2017, companies are given the option of choosing their writing down period. The IRAS is flexible enough to split the allowances into equal amounts spread out over a period of 5, 10, or 15 years.
Each company chooses the period it prefers via a Declaration Form, which should be filled and attached to the company’s income tax returns on the first YA of the WDA claim.
And while you’re at it, it’s worth noting that the WDA allowances apply consecutively through the years that you choose. If you settle for a 10-year period, for instance, your capital expenditure will be split into 10 equal amounts, which should then apply yearly for 10 years straight - starting with the first YA.
To put that into perspective, consider a company that acquires IPRs worth S$300,000 in YA 2020 (excluding the stamp duty, registration fees, legal fees, and other indirect acquisition costs). That gives it three options - it can settle for either:
- Writing-down allowances of S$60,000 per YA from YA 2020 to YA 2024. Or
- Writing-down allowances of S$30,000 per YA from YA 2020 to YA 2029. Or
- Writing-down allowances of S$20,000 per YA from YA 2020 to YA 2034.
The choice is yours.
How to Claim Writing-Down Allowances
To claim writing-down allowances, you should fill out and submit your company’s Form C or Form C-S, along with the following documents:
- A Declaration Form that confirms that you not only acquired the intellectual property rights, but also meet the accompanying ownership requirements. It should also state the YA that the IPRs were acquired - whether before or after YA 2017. In the case of acquisitions from YA 2017, you should further indicate your selected WDA period - 5 years, 10 years, or 15 years.
- A third-party independent valuation report that specifies the actual value of the intellectual property rights. This is usually necessary when the overall capital expenditure for a related party transaction hits S$500,000 or more. For unrelated party transactions, however, the minimum capital expenditure amount for which a valuation report should be attached is S$2 million.
Where to Start
Curious if your company qualifies for writing-down allowances? Perhaps wondering how best to file the claims?
Take advantage of our free consultations and get in touch with us today for professional assistance. We’ll assess your company and advise you on not only IPR acquisition benefits, but also planning and minimizing your Singapore corporate income taxes.