As the saying attributed to Benjamin Franklin puts it: “In this world, nothing is certain except death and taxes!” However, for businesses that develop and exploit intellectual property (IP) assets, those inevitable tax bills can be reduced. This is because certain innovative activities and IP investments qualify for tax reliefs or deductions.
Your tax liabilities will be determined by three main considerations: How much taxable income you generate (as a result of your business activities); How many of your expenses are deductible against tax (some are, some aren’t); What capital allowances you can claim (broadly, the tax equivalent of depreciation).
Tax planning aims to ensure your taxable income is not over-reported and make the best use of all the deductions you are entitled to claim to offset it.
It should be stressed at the outset that this guide is not a substitute for proper professional advice. Every company’s situation is different. Accounting treatments that work for some companies are unsuitable for others; also, your entitlement to tax reliefs and deductions will vary depending on the activities in which you engage. Rather, this guide is intended to offer an overview of things you should be discussing with your accountant.
Chapter 1 sets the foundations by describing how IP investment is commonly taxed, and how research and development expenditure can be accounted for. Chapter 2 then looks at the specific incentives that are available linked to investment in IP, focusing in particular on offsetting elements of qualifying IP investment against tax and on R&D tax credits, which are likely to be relevant for the majority of innovative companies.
Chapter 3 considers how you can reduce the amount of tax you pay on the earnings you derive from your investment in IP. Singapore has introduced the IP Development Incentive (IDI), which offers reduced tax rates on directly IP-attributable income, including royalties. There are several conditions linked to this relief, including levels of investment made locally in innovation.
Where to locate and manage your IP is also a consideration for companies, especially as they grow. Chapter 4 looks at how tax might feature in your decision-making process, depending on the varying locations of your IP, operations and production processes. If you move your IP assets, you will also encounter the challenges of transfer pricing, which is under increasing scrutiny. An accompanying guide in this series—Uncovering your Hidden Value, can assist you further by setting out how your intangibles might be valued.
Learn from leading global professional services organisation—EY Singapore, smart wearables IoT platform company—KaHa/Cove® and full-service law firm—Colin Ng and Partners (CNP) on how to use intangible assets and IP to attract tax perks to benefit your businessSubscribe for the full complimentary guide