If your company is based in Singapore, there is a chance that you will have to pay taxes, which could add up to a sizable sum as you continue to run your business. In recognition of this, businesses seek government initiatives that will reduce taxes. The government, in turn, is offering such relief measures as part of an effort to boost the nation’s economy by encouraging businesses to expand. One of these tax relief initiatives is the writing-down allowance for IPRs.
Writing-down Allowances for IPRs is one of the initiatives businesses take advantage of in Singapore, as it makes for a more pleasing balance sheet. This article will discuss how writing-down allowances relate to intellectual property rights (IPRs) and what you need to know about them.
Writing-Down Allowances for IPRs
Writing-down Allowances For Intellectual Property Rights is one unique gift given by the government to businesses. It enables businesses that invest capital in acquiring IPRs for use in their trade or business to receive tax concessions. This demonstrates the Singapore government’s intention to actively promote a vibrant economy, beginning with IPR, a crucial value creator.
Legal fees, registration fees, stamp duty, and other expenses related to the acquisition of IPRs are not considered capital expenditures that qualify for a company’s tax deductions in Singapore. Along with that, the program has other terms and conditions, which are covered in the following paragraphs.
The Laws that Cover WDA for IPRs
Writing-down Allowances for Intellectual Property Rights are deductible from your taxes and are legally protected. According to Section 19B of the Singapore Income Tax Act, which covers capital expenditure acquisition of IPRs, the following are categorically defined as IPRs:
- Plant varieties
- Trade secrets or information with commercial value
- Layout designs of integrated circuits
- Geographical indications
- Registered designs
- Trademarks
- Copyrights
- Patents
It’s also important to note that these rules have a few exceptions. For example, where a company’s copyright is concerned, the law does not apply if the contents are trade secrets or have commercial viability. Here, “business secrets” refer to items like customer lists and profiles gathered over time while conducting that business or trade.
Processes intended to assist you in producing or processing goods or materials but do not contain information on industrial techniques and protected processes are also excluded. Exemptions also include other related pieces of information that the nation’s Finance Minister may add on through various regulations.
The Provision For Transfer of Ownership
The transfer of an IPR must go through several appropriate processes for the Writing-Down Allowances for IPRs to be enforceable.
When it comes to Writing-Down Allowances for IPRs, any transfer of ownership requires the presence of two entities: the transferor and the transferee. The business entity that purchases intellectual property ownership is known as the transferee, whereas the party that agrees to sell its intellectual property is known as the transferor.
Assuming Company A is the transferee and Charles William is the transferor, ownership will change hands once Charles William has consented to sell Company A his intellectual property.
Following the conclusion of a deal, Charles William will benefit financially (typically as a one-time benefit) from the transfer of intellectual property. But even though Charles William will benefit financially from the process, he will no longer have a legal claim to the property or its potential future value.
Therefore, Company A will be in charge of assigning the intellectual property (whenever and wherever) and will possess full legal rights over it. This indicates that Company A, the transferee, receives the legal rights to the intellectual property and, as a result, is qualified to receive the financial gains associated with the IPR.
How to Calculate WDA?
As much as you may need the tax break, it is crucial that you comprehend how it is determined. Before calculating a WDA, you need to first determine which accounting period you’re aiming for.
If you want to calculate your writing-down allowances for a period of, say, ten years, you should be aware that the capital expenditure that applies to your intellectual property will be divided into ten equal parts (10 equal years). Each of these years will be taken into account during the accounting period, which will begin with the first accounting year (YA).
For example, if a business entity purchases intellectual property valued at S$600,000 from YA 2022, it is up to the business entity to determine the value of the Writing Down Allowances that it is entitled. These are the possible paths:
- When 15 years is taken into account, the WDA for YA starting in 2022 and ending in 2036 will be valued at S$40,000 per YA.
- When 10 years is taken into account, the WDA will be valued at S$60,000 per YA for YA starting in 2022 to 2031.
- When five years are taken into account, the WDA for YA starting in 2022 and ending in 2026 will be valued at S$120,000 per YA.
There are three options available; it is up to the business to select the one that best serves its interests.
Claiming WDA for Intellectual Property Rights
The following steps must be taken to claim WDA for intellectual property rights.
- Obtain an independent third-party valuation report that outlines the IPRs’ true value.
- Provide the Declaration Form from the Inland Revenue Agency of Singapore (IRAS), which must be properly dated for each WDA period, as evidence that the company has completed the ownership takeover requirements. Remember that this form is subject to verification.
- Form C-S or Form C, which the company typically provides, should be filled out carefully and submitted to IRAS.
- Await a reply after the proper formal procedures have been completed.
Final Words on Writing-Down Allowances for IPRs
Writing-Down Allowances for IPRs can prove to be a great way for businesses to cut costs, as was carefully discussed in the paragraphs above. Understanding it is easy enough — we’ve ensured that with this thorough content — but it’s a good idea to seek professional assistance when applying.
Aside from aiding with the filing, a professional firm could help ensure your company’s financial stability by guiding you in terms of other tax relief options and helping you adhere to policy rules. Lastly, it should be noted that Writing-Down Allowances for IPRs do expire, so renewing them on time is critical.
