Budget 2023: New scheme enhances tax deductions for innovation activities

THE government is introducing a new Enterprise Innovation Scheme that will raise tax deductions for businesses working on key activities that boost innovation.

Businesses are currently allowed tax deductions of up to 250 per cent of qualifying expenditure on some activities.

The tax deductions will be raised to 400 per cent of qualifying expenditure for five activities, said Finance Minister Lawrence Wong during Tuesday’s (Feb 14) Budget speech.

The activities are:

• Research and development conducted in Singapore
• Registration of intellectual property (IP), including patents, trademarks and designs
• Acquisition and licensing of IP rights
• Innovation carried out with polytechnics and Institutes of Technical Education (ITEs)
• Training via courses approved by SkillsFuture Singapore and aligned to the Skills Framework

The qualifying expenditure will be capped at S$400,000 for each activity, except for innovation carried out with polytechnics and ITEs – which will have a cap of S$50,000.

“With these enhancements, businesses that make full use of the scheme could enjoy tax savings of nearly 70 per cent of their investment,” said Wong.

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He also noted that some companies have yet to turn profitable, or have insufficient profits to maximise the benefits.

The government will therefore allow businesses the option of converting 20 per cent of their total qualifying expenditure per Year of Assessment into a cash payout of up to S$20,000.