Singapore’s tax deductions on a company’s capital expenditure don’t stop at physical assets and machinery. It turns out you could also claim the benefits on your Intellectual Property Rights spending, under the Writing Down Allowances (WDA) program.
To find out how, we invite you to read along as we explore the entire WDA claims process. You get to find out what WDA entails, how to qualify for the allowances, how to calculate them, as well as how to claim them in Singapore.
Writing Down Allowances, or WDA in short, are basically tax deductions that companies can claim on capital expenditure spent on acquiring intellectual property rights (IPRs), which are then put into use in a company’s business activities or trade.
Now, for the avoidance of doubt, “capital expenditure” in this case refers to just the funds spent on acquiring IPRs, excluding stamp duty, registration fees, and legal fees.
Generally, Section 19B of Singapore’s Income Tax Act describes intellectual property rights as:
Please note, however, that there are exceptions.
For instance - when it comes to copyrights, “information that has commercial value” and trade secrets”, the act leaves out:
To qualify for Writing-Down Allowances (WDA), an IPR transfer transaction should fundamentally have two participating parties - the transferor and the transferee. The former is the party that grants the intellectual property rights, while the transferee is the company that purchases them.
In essence, IPR transfer occurs when the transferee acquires economic and legal ownership of the IPRs from the transferor. Economic ownership grants the transferee all the financial benefits that come with the IPRs, while legal ownership - on the other hand - means the transferee gets the right of assigning the IPRs.
That said, you should keep in mind that the Income Tax Act gives the Economic Development Board the right to grant waivers from legal ownership.
The value of your company’s annual WDAs substantially depends on the year of accounting that you happen to file for.
If you acquired the IPRs before YA 2017, for instance, the IRAS spreads out the WDA allowances over a continuous period of five years, starting with the YA that the capital expenditure was incurred. As such, you’ll end up getting equal annual deductions for five years straight.
Now, to put it into perspective, consider a company that purchased an IPR for S$300,000 in YA 2016. If it proceeds to claim WDA, the capital expenditure allowances will be assessed and spread out equally over a period of five years, starting with 2016. That means that eventually, the company would end up benefitting from an annual WDA allowance of S$60,000 in YA 2016, YA 2017, YA 2018, YA 2019, and YA 2020.
For WDA claims on IPRs acquired from YA 2017, companies are given the option of choosing their writing down period. The IRAS is flexible enough to split the allowances into equal amounts spread out over a period of 5, 10, or 15 years.
Each company chooses the period it prefers via a Declaration Form, which should be filled and attached to the company’s income tax returns on the first YA of the WDA claim.
And while you’re at it, it’s worth noting that the WDA allowances apply consecutively through the years that you choose. If you settle for a 10-year period, for instance, your capital expenditure will be split into 10 equal amounts, which should then apply yearly for 10 years straight - starting with the first YA.
To put that into perspective, consider a company that acquires IPRs worth S$300,000 in YA 2020 (excluding the stamp duty, registration fees, legal fees, and other indirect acquisition costs). That gives it three options - it can settle for either:
The choice is yours.
To claim writing-down allowances, you should fill out and submit your company’s Form C or Form C-S, along with the following documents:
Curious if your company qualifies for writing-down allowances? Perhaps wondering how best to file the claims?
Take advantage of our free consultations and get in touch with us today for professional assistance. We’ll assess your company and advise you on not only IPR acquisition benefits, but also planning and minimizing your Singapore corporate income taxes.