Singapore: IP Royalties Tax

Singapore adopts a territorial basis of taxation, whereby only income derived from Singapore or income derived overseas but received in Singapore are subject to tax.

To support its commitment to develop and promote Singapore as an attractive R&D and IP management base, the government has introduced several tax measures, namely:-

• Unilateral Tax Credit Scheme for Royalty Income
• Automatic Writing-Down Allowance for IP Acquisition
• Tax Deduction for Patenting Costs
• Exemption of Foreign Income Used for R&D

Singapore has an existing unilateral foreign tax credit (UTC) scheme that is applicable to certain income received from non-double taxation treaty countries so that such income will not be taxed twice.

With effect from YA 2004, this scheme will be extended to cover royalty income received from all non-treaty countries. With the introduction of this change to the current UTC scheme, foreign taxes paid with respect to royalties received from non-treaty countries will be claimable as a tax credit against the Singapore tax payable on the royalties, thereby eliminating double taxation.

Currently, companies can submit applications to the Economic Development Board ("EDB") or Infocomm Development Authority ("IDA") to obtain writing-down allowances over a five-year period for capital expenditure incurred in acquiring any of the classes of IP as listed below:-

• Patents
• Copyrights and Related Rights
• Trademarks
• Registered Designs
• Geographical Indications
• Layout Designs of Integrated Circuits
• Protection of Confidential Information

However, with effect from 1 November 2003, the writing-down allowances for these IP acquisitions will be granted automatically under the condition that the legal and economic ownership of the IP lies with the Singapore companies.

Drafting and prosecuting a patent application is a process that is both time consuming and expensive. Therefore, to encourage local inventors and companies to patent their inventions, EDB is administering a Patent Application Fund Plus (PAF+) scheme which is complemented by a tax deduction plan for the cost of patenting an invention. The tax deduction plan is applicable to any invention that has not received any PAF+ grant and that the legal and economic ownership of the resulting IP must lie with a Singapore company. The tax deduction plan will apply to patenting costs incurred on or after 1 June 2003, lasting for an initial period of 10 years.

As Singapore surges ahead to in her transformation to become a knowledge based economy, the level of R&D activity in the local scene must be raised. Therefore, the government is introducing a new R&D incentive with effect from 1 June 2003, which will last for an initial period of 5 years. Under this incentive, companies will be granted tax exemption on foreign sourced royalties and interest income which are used for R&D purposes only. In this way, companies can increase their funds to support their R&D activities

The introduction of these new tax measures by the government will no doubt be well received by many. Not only will these measures serve as incentives to encourage local companies and individuals to pursue their R&D initiatives but at the same time help to reduce the cost of protecting their intellectual property rights.