FeaturesOutsourcingStrategy

Even as Singapore pushes towards a vibrant cloud computing ecosystem, businesses in the island republic have been given compelling reasons to invest in innovation and productivity improvements, including cloud services.

Under the government's Productivity and Innovation Credit (PIC) scheme, Singapore businesses enjoy 400% deduction on up to $400,000 of investment spending per year or choose to convert up to $100,000 of that spending into non-taxable cash payouts at a conversion rate of 30% in six qualifying activities.

The qualifying activities are acquisition or leasing of equipment listed in the PIC Automation Equipment List; training of employees; research and development; registration of intellectual property (IP) rights; acquisition of IP rights; and design.

According to its FAQs on PIC, the Inland Revenue Authority of Singapore (IRAS) states that spending on procuring cloud services qualifies for deduction under the scheme. Full cloud computing payment qualifies for PIC and businesses do not need to break down payments. However, the business will be subject to withholding tax if payments are made to non-residents even for services rendered in Singapore.

PIC benefits apply to both cloud computing customers and service providers for expenditures in acquiring or leasing qualifying automation hardware. For software acquisition and leasing, only cloud computing customers, who are the end-users of the software, can claim the PIC benefits.

The PIC Automation Equipment List refers to "prescribed equipment that enhances the productivity of businesses by automating core work processes or reducing manhours."

Nonetheless, businesses investing in equipment that automates processes and enhances productivity but not on the list may apply to the IRAS who will consider approving the equipment for PIC on a case-by-case basis.

First introduced in the government's budget for 2010 and enhanced in 2011 and 2012, the PIC tax benefits apply from Year of Assessment (YA) 2011 to YA 2015.

Under the PIC, 400% tax deductions and allowances are applicable to qualifying expenditure subject to a cap of $400,000 per year per qualifying activity. Businesses may pool their expenditures for a cap of $800,000 per activity over the period YA 2011 to 2012 and $1.2 million per activity over the period YA 2013 to YA 2015.

Expenditures exceeding the cap are subject to Singapore's current tax rules.

A feature of the PIC scheme that benefits small and growing businesses is the option to convert expenditure into a non-taxable cash payout. Businesses can convert into cash payout a minimum of $400 and up to $100,000 of total expenditure per year in the qualifying activities at a conversion rate of 30% and 60% in YA 2011-2013 and YA 2014-2015, respectively.

For example, businesses with $100,000 qualifying expenditure in YA 2014 will receive cash payouts of up to $100,000 x 60% or $60,000. As with the tax deduction and allowance, expenditures in the period YA 2011-2012 can be pooled for the cash payout conversion.

Sole-proprietorships, partnerships, companies, including registered business trusts, eligible for the cash payout must have active business operations in Singapore.

The business must also employ at least three Singapore citizens or PRs with contributions to Singapore's Central Provident Fund. This number excludes sole-proprietors, partners under contract for service and shareholders who are directors of the company.