The ‘Productivity and Innovation Credit’ (“PIC”) was introduced in the Singapore Budget 2010 to provide significant tax deductions for investments in a broad range of activities along the innovation value chain. It covers six activities, one of which is ‘Investments in Design’.

The component of the PIC that is related to Investments in Design (“PIC for Design”) aims to encourage pervasive and continuous design innovation in companies in Singapore. It will be administered by the DesignSingapore Council (“DesignSingapore”).
 

Tax Deduction

All businesses will be eligible for the PIC, which will be available for 5 years. The qualifying expenditure must be incurred during the basis periods for Years of Assessment (YA) 2011 to 2015.

Businesses can deduct 400% Tax Deductions for the first S$400,000 invested on qualifying Product and Industrial Design Projects (“Design Projects”) from their income, subject to:

  1. For YA 2011 and 2012 - a combined cap of S$800,000 of expenditure; and
  2. For YA 2013 to 2015 – a combined cap of S$1,200,000 of expenditure.
     
Cash Payout Option REVISED
To support small and growing businesses which may be cash-constrained, to innovate and improve productivity, businesses can exercise an option to convert their expenditure into a non-taxable cash payout. They can convert up to $100,000 (subject to a minimum of $400) of their total expenditure in all the six qualifying activities into cash payout.

This PIC cash payout option is available from YA 2011 to YA 2015 at a conversion rate of 30% for YA 2011 and YA 2012; and 60% for YA 2013 to YA 2015.  The higher cash conversion rate of 60% was announced in Budget 2012 to further support businesses in investing in innovation and productivity.

For YA 2011 and YA 2012, businesses can opt to convert up to a combined cap of $200,000 qualifying expenditure for all six qualifying activities, into cash payout. The total cash payout for YA 2011 and YA 2012 is therefore a maximum of $60,000 ($200,000 x 30%).

For newly incorporated/registered businesses whose first YA is YA 2012, the expenditure cap for all six qualifying activities is $100,000 and the maximum cash payout is $30,000 for YA 2012.

For YA 2013 to YA 2015, businesses can receive cash payout up to $60,000 ($100,000 x 60%) each year with the higher conversion rate of 60%.

Businesses eligible to opt for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have: 

  1. incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;
  2. active business operations in Singapore; and
  3. at least 3 local employees (Singapore citizens or PRs with CPF contributions excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company).  A business is considered to have met this three-local-employees eligibility if it contributes CPF on the payrolls of at least three local employees in the last month of its basis period for the qualifying YA.

For more information about the application for cash payouts, please refer to IRAS’ website: www.iras.gov.sg
 

Application for Cash Payout REVISED

For YA 2011 and YA 2012
Businesses opting for cash payout have to submit the completed PIC Cash Payout Application Form and relevant annexes to IRAS. They can submit the application anytime after the business’ accounting year-end, but no later than the filing due date of income tax return for that YA.

The cash payout will be made by IRAS within three months from the date of receipt of the original PIC Cash Payout Application Form and applicable annexes. Submission must be complete (in full) at the time of application.

For YA 2013 to YA 2015
As announced in Budget 2012, businesses may opt for the cash payout on a quarterly basis any time after the end of each financial quarter, but no later than the filing due date of income tax return for each YA.  IRAS will start the quarterly cash payout in Jul 2012.

The application procedure and revised cash payout application form will be released by 15 Apr 2012.
 

Tax Deferral Option

Businesses can opt to defer a dollar of current YA tax for every dollar of PIC qualifying expenditure incurred for the current financial year, up to a cap of $100,000. This tax will be deferred and is due for payment when the first assessment for the following YA is raised. This tax deferral allows businesses to enjoy their PIC benefits one year in advance.

The election is available for tax payable for YAs 2011 to 2014 based on expenditure incurred in the corresponding financial years 2011 to 2014.

For more information about the application for the tax deferral option, please refer to IRAS' website (www.iras.gov.sg).
 

Qualifying Costs

For the PIC for Design, businesses can conduct eligible design projects either:

  1. In-house with eligible designer(s) (“Designer”); or
  2. Outsourced to eligible design service provider(s) (“Design Service Provider”).
     

In-house activities of Design Projects [Conducted by Designer(s)]:

100% of the manpower costs to conduct activities of Design Projects will qualify.

Manpower costs refer to any salary, wages and other benefits paid or granted in respect of employment (excluding director’s fees), whether in money or otherwise, to any designer for carrying out activities of the Design Projects.

Where a Designer is not engaged in activities of Design Projects on a full time basis, only that part of the manpower costs attributable to the time spent by the Designer on the activities of Design Projects will be eligible.

 

For Outsourced activities of Design Projects [Conducted by Design Service Provider(s)]:

60% of the invoiced amount to conduct activities of Design Projects will qualify.

Where a cost breakdown to indicate that manpower costs exceed 60% of the invoiced amount is provided, 100% of the eligible manpower costs for carrying out activities of Design Projects will be eligible. The corresponding conditions for In-house activities of Design Projects done by a Designer will apply (Refer to above).

 

*Note: Qualifying expenditure on approved Design Projects must be net of grants and subsidies.

Eligibility of Design Project
 

All businesses will be eligible for the PIC for Design, based on the amount they invest in design conducted primarily in Singapore.

Design Projects will be assessed based on each project submitted. An eligible Design Project must meet a set of criteria:

  • The Design Project must relate to Product and Industrial Design activities, resulting in the final design of a physical product.

    For the purpose of the PIC, Product and Industrial Design is defined as the professional specifications of creating and developing concepts or specifications that improve or enhance the functions, value or appearance of physical products, taking into account users’ needs, marketability and production.

    Activities of Design Projects which are not directly classified as Product and Industrial Design can be considered eligible, if it is a component of the design process or design of the eligible final physical product.

  • The Design Project must result in the creation of new intellectual property (“IP”) through the Intellectual Property Office of Singapore (“IPOS”), in the form of a registered design or a patented invention. The applicant must be the sole owner of the IP.
     
  • The Design Project must include activities in all of the following phases (“Design Phases”):
    1. Design research;
    2. Idea generation;
    3. Concept development;
    4. Technical development; and
    5. Communication
       
  • At least three out of the five Design Phases must be conducted entirely in Singapore.
  • The Design Project must be completed within 2 years.

*Note: Design Service Providers which conduct design activities for another business and do not own the IP derived from the design project are not eligible for the PIC for Design.

**Note: The business must not be currently enjoying, in the process of applying or pending approval for 'Double Tax Deduction for Market Development Scheme (Section 14B of the Income Tax Act)' on this same project.
 

Eligibility of Designer

A Designer must be a design professional with a design-related tertiary academic qualification, with at least a diploma level certification.

The eligibility of a Designer is contingent on DesignSingapore’s approval. Businesses can contact DesignSingapore to check the eligibility of academic qualifications.
 

Eligibility of Design Service Provider

A Design Service Provider must be a business/agency/body which provides Product and Industrial Design consultancy services for any trade or business, in accordance to their Principal Activities (SSIC Code) upon registration of the company or the nature of business.

The eligibility of a Design Service Provider is contingent on DesignSingapore’s approval. Businesses can contact DesignSingapore to check the eligibility of the types of Principal Activities and the nature of business.
 

Design Phases

The Design Project must include activities in all of the following Design Phases:

  • Design Research: Research and analysis activities, which can be on-going throughout the project, should have direct impact on the design process and final product. These activities must focus on understanding and addressing the needs of the target users. They can also aim to understand market characteristics and technical feasibilities.
     
  • Idea Generation: This Phase aims to generate ideas, often in response to the research findings. Typical activities include defining the design brief, ideation of concepts and visualisation of scenarios.
     
  • Concept Development: Activities in this Phase pertain to the testing of concepts, possibly through prototyping, iteration processes, evaluation and concept refinement.
     
  • Technical Development: This Phase aims to ready the concept for manufacture and production. Typical activities would include the drawing up of final design and technical specifications, cost appraisal and production of assembly guides.
     
  • Communication: This Phase aims at designing tools to communicate product benefits and differentiation to the target user segment, which will lead the final product to market launch. Typical activities will include the development of packaging, branding guidelines and user manuals.

Businesses may choose to outsource only certain Phases of the Design Project to one or more Design Service Providers. The qualifying amounts for in-house and outsourced activities of Design Projects will remain as 100% and 60% respectively.
 

Design Categories

The Design Project must result in the final design of a physical product which is registered as IP through IPOS. This final physical product should not fall into any of the following categories:

  1. Architecture (design of buildings);
  2. Landscape design;
  3. Interior design;
  4. Multimedia design;
  5. Graphics and communication design;
  6. Engineering design;
  7. Computing and programming design;
  8. Bio-design;
  9. Process design;
  10. Service design;
  11. Information design;
  12. User-interfaces; and
  13. Exhibition spaces
The final physical product may fall into any one of the following categories:
  1. Tools and Equipment;
  2. Consumer goods (includes consumer electronics);
  3. Household products;
  4. Medical and Healthcare-related products;
  5. Transport-related products;
  6. Furniture;
  7. Jewellery;
  8. Craft-related products;
  9. Toys;
  10. Packaging;
  11. Any other physical systems

Businesses must submit an Application Form to DesignSingapore at least 2 months before the commencement of the design project, subject to the approval of the design project and the eligibility of designer(s) and/or design service provider(s). 

Upon Approval

Upon approval, businesses will keep the Letter of Approval from DesignSingapore for submission to IRAS in requested. Businesses will submit as part of its annual tax return to the Comptroller of Income Tax, a detailed account of all operating expenditure for the Design Project. To apply for the Cash Payout or Tax Deferral Option, businesses will need to submit a separate application form to IRAS.

Businesses must submit a post-project report no later than 2 months after the projected end date of Design Project. Failure to do so will render the Design Project ineligible.

Businesses must also seek approvals for any change in components of the Design Project immediately. Failure to do so will render the Design Project ineligible. Businesses must also inform DesignSingapore immediately should the Design Project be aborted or terminated.


Contact Information

For more information, please contact:

Email : info@designforenterprises.sg
Hotline : 6333 3737 (Weekdays from 9.30am to 5.30pm)
Website : www.designforenterprises.sg

1.    Can I engage more than one designer or design service provider for each design project?

Yes. However, only manpower costs and invoiced amounts incurred for in-house designers and design service providers for the design project will qualify for the Scheme.
2.    I am engaging a design service provider who will provide me with the cost breakdown of his invoice showing the manpower costs for the design project. Will 100% of the manpower costs qualify?
Yes, as long as the designers at the Design Service Provider have design-related academic qualifications of at least a diploma from local or overseas recognised institutions. DesignSingapore will assess the eligibility of the designers at the Design Service Provider and will require businesses to submit the academic qualification certificates of the designers together with the application.
3.    I am receiving a grant for the design project. Do I need to declare this?
Yes. Businesses need to declare this in the application form and will be required to deduct the amount of the grant from the qualifying expenditure.
4.    I am a design service provider, who provided design consultancy services for other businesses. Am I eligible for the PIC for Design?
No. Only your clients whom you provide design consultancy services for and whom the IP will belong to will be eligible for the PIC for Design.
5.    My design project stretches beyond my accounting year. Will the project be eligible?
Yes. However, you will need to submit the application for the design project two months before the commencement of the project. Once approved, you can enjoy the tax deductions based on the eligible expenditure incurred on the approved design project. The design project must be completed within 2 years.
6.    My business engaged a design consultancy to design our new logo and branding. Will this be considered a design project eligible for the PIC for Design?
No. The design project must be an industrial and product design that results in the final design of a physical product.
7.    Can I engage a design service provider who is operating overseas?
No. The design project must be conducted in Singapore and the design service provider must be registered and operating in Singapore.
8.    Can I engage a designer who is not trained in industrial design?
Yes, as long as the in-house designer has a design-related academic qualification of at least a diploma from a recognised institution. Businesses can contact DesignSingapore on the eligibility of the academic qualifications.
9.    Can I engage an in-house designer who is not a Singaporean?
Yes, as long as the designer has at least a diploma of a design-related academic tertiary qualification from a recognised institution that is contingent to DesignSingapore's approval and that the designer conducts activities of the design project in Singapore.
10.  My design project which was approved under the PIC for Design was terminated mid-way. What should I do?
You must inform DesignSingapore in writing immediately. Any previous tax deductions that the business might have enjoyed previously will have to be returned to IRAS accordingly.
11.  Can we apply for both Double Tax Deduction for Market Development Scheme(Section 14B of the Income Tax Act) (DTD) and PIC for Design for the same project? 
No, you may not apply for both DTD and PIC for Design for the same project.  You can apply for one or the other.