MOF Received 52 Responses To The Public Consultation On What Is R&D For Income Tax Purposes

1. The Ministry of Finance (MOF) has received 52 responses on the public consultation exercise in Aug/Sep 08 on the draft circular entitled "Guidelines on What is Research & Development (R&D) for Income Tax Purposes".

2. Significant enhancements to R&D tax incentives were introduced in Budget 2008. These R&D tax changes aim to encourage pervasive R&D in Singapore, among companies small and large. The public consultation sought feedback on what will be regarded as R&D for income tax purposes.

3. In the draft guidelines, R&D is defined to refer to any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology, and with the objective of acquiring new knowledge or using the results of the study to create or improve products or processes. This definition is broadly in line with that in other jurisdictions such as Australia, New Zealand and UK. A few activities are excluded from qualifying as R&D, such as quality control or routine testing; routine modifications or changes to products; cosmetic modifications or stylistic changes to products; and certain software development activities.

4. Of the 52 responses received, 43 responses relate to the definition of R&D especially on the condition for exclusion of software development activities and the list of excluded activities. Of these, MOF has accepted 27 suggestions which will be incorporated into the final circular. The other 16 responses were inconsistent with the policy intention of the specific provisions. The remaining nine responses fell outside the scope of this public consultation exercise, being requests for clarification or feedback on the tax administration of the R&D incentives e.g. furnishing of R&D expenditure details to support tax deduction claims. The points raised in these nine responses are addressed in the circular "Research & Development Tax Measures" issued by the Inland Revenue Authority of Singapore which provides detailed information on the R&D concessions, including the claims procedures.

5. The Ministry of Finance's responses to the major comments received are summarised on the MOF website.We thank all respondents for participating in this consultation exercise.

MINISTRY OF FINANCE