Enterprise Innovation Scheme (EIS) For Your Business Taxes

Are you an entrepreneur in Singapore? Do you own a small business? Are you looking to expand your business and save on taxes? Enterprise Innovation Scheme (EIS) is something to look into.

This guide will explain EIS in simple terms in accordance with the income tax act. We’ll look at the benefits, what activities qualify, how you can get cash back for your spending, how to apply, and why getting advice from experts is a good idea. Let’s find out how EIS can help your business innovate and reduce your taxes before the income tax filing due date.

It’s a fantastic way to not just boost innovation in your business. At the same time, keep your tax bill lean and mean. Let’s dive in and see how EIS can be a game-changer for you!

What is the Enterprise Innovation Scheme in Singapore? 

The Enterprise Innovation Scheme (EIS) is a government initiative launched by the Singaporean government to encourage businesses to invest in research and development (R&D) activities. Introduced in the 2023 Budget, EIS allow businesses that partake in research and development (R&D) activities to claim up to 400% in tax deductions.

The scheme aims to foster innovation and technological advancement across various industries, helping Singapore maintain its competitive edge in the global market. Under the EIS, companies can enjoy tax benefits that can significantly reduce their tax liability on a case-by-case basis, making it an attractive option for businesses looking to drive growth while saving on taxes.

To participate in the EIS, businesses must meet certain eligibility criteria. The next section will delve into the benefits of EIS and the eligibility criteria for the scheme.

Benefits of EIS 

The Enterprise Innovation Scheme (EIS) offers substantial benefits to boost your business’s growth and innovation, including capability development activities. Firstly, it provides enhanced tax deductions, in lieu of tax deductions, for qualifying R&D activities, significantly reducing your tax liability. Furthermore, it encourages investment in new technologies and methodologies, thereby fostering a culture of innovation within your company. Additionally, by participating in EIS, your business can gain a competitive edge in the market, as it supports the development of unique products and services. Finally, this scheme not only aids in financial savings but also contributes to the overall economic growth of the industry and country. Here’s how it works for you:

1. Tax Deductions/Allowances: You get enhanced or new tax deductions and allowances on expenditures related to:

• R&D activities in Singapore.
• Registering intellectual property (IP).
• Acquiring and licensing IP rights.
• Training programmes.
• Innovation projects with polytechnics, the Institute of Technical Education (ITE), or other qualified partners.

2. Cash Payout: There’s an option to convert up to $100,000 of your total qualifying expenditure across all these activities for each Year of Assessment (YA) into a non-taxable cash payout. This is done at a 20% conversion rate, offering a flexible alternative to tax deductions and allowances.

This scheme not only provides direct financial benefits but also encourages investment in key areas of innovation and skill development.

Eligibility Criteria for The Enterprise Innovation Scheme (EIS) 

To participate in the Enterprise Innovation Scheme (EIS) and enjoy its tax benefits, businesses must meet certain eligibility activities. These activities are designed to ensure that the scheme is targeted towards businesses that are genuinely engaged in research and development (R&D) activities.

Here are the qualifying activities for the EIS:

It is essential to thoroughly review the eligibility activities and understand the specific requirements for each category of expenses. Consequently, this comprehensive understanding will ensure that your business meets the necessary criteria before applying for the EIS. Additionally, such a detailed review can help you identify potential areas where your business might benefit the most from the scheme, further enhancing the likelihood of a successful application.

Steps to Apply for the Enterprise Innovation Scheme (EIS) 

Applying for the Enterprise Innovation Scheme (EIS) involves several steps, from gathering the necessary documentation to submitting the application. Here is a step-by-step guide to help you navigate the application process:

1. Identify Eligible Activities: Start by pinpointing activities that qualify under the EIS, such as specific R&D projects your company plans to undertake.
2. Assess Eligibility: Check if these activities meet the EIS criteria, including R&D initiatives, IP registration, and collaborative innovation projects. Also, confirm that your business is eligible, like being a tax resident in Singapore.
3. Compile Documentation: Organise all necessary documents related to your qualifying activities. This includes detailed records of R&D efforts, IP registrations, and other innovation-related initiatives.
4. Submit Claim Form: For R&D projects, fill out and submit the Research and Development Claim Form alongside your company’s Corporate Income Tax Return for the relevant Year of Assessment. If you’re using Form C, attach this form; if using Form C-S/ Form C-S (Lite), retain it for possible submission to IRAS upon request.
5. Maintain Documentation: Keep comprehensive records of all activities, focusing on aspects like objectives, technical risks, and systematic investigations. Moreover, this documentation should be thorough and ready for presentation to IRAS if asked.
6. Conversion to Cash Payout (Optional): If opting for a cash payout of qualifying expenditures, complete the necessary declarations using the prescribed election form, adhering to the EIS’s guidelines on conversion rates and maximum amounts per Year of Assessment.

How & When to Claim the EIS Benefits?

To claim the Enterprise Innovation Scheme (EIS) benefits, businesses must follow specific procedures and timelines. For enhanced tax deductions or allowances, companies should claim these in their income tax returns, which must be filed by the statutory due date for the relevant Year of Assessment (YA). It’s crucial to maintain detailed records of qualifying activities and expenditures, as IRAS may request these for verification. For the cash conversion option, businesses must make an irrevocable election by submitting a prescribed form along with their income tax return, no later than the filing due date for the relevant YA.

The cash payout application can be made via the “Apply for EIS Cash Payout” digital service, which becomes available after the income tax return is filed. Generally, cash payout applications are processed within 3 months of receiving the completed application and any required supporting documents. It’s important to note that the EIS is effective from YA 2024 to YA 2028, so businesses should plan their innovation investments and claims accordingly within this five-year window to maximize the benefits of the scheme.

How to Apply for the EIS Cash Payout?

To apply for the EIS cash payout, you need to submit your application through the “Apply for EIS Cash Payout” digital service.

• If you’ve incurred costs on acquiring intellectual property rights (IPRs) through an instalment agreement, fill out and submit the Instalment Arrangement Template for Acquisition of IPRs along with your application.
• If you’ve done qualifying R&D in Singapore, complete and submit the Research and Development (R&D) Claim Form with your application.

Once submitted, you’ll get an instant acknowledgment. You can check your application status using the View EIS Cash Payout Application Status service.

Keep in mind:

• You can only submit one application per year.
• Sole proprietors only need one application for all their businesses.
• Once you opt for a cash payout, it’s final.
• Keep all related documents (like invoices and agreements) for 7 years, as IRAS may request them.

Providing false information or claiming enhanced deductions while also applying for cash payout is illegal. If your application is audited and found incorrect, IRAS can recover the payout.

More Tax Benefits

To sum up, the Enterprise Innovation Credit Scheme (EIS) is a valuable initiative by the Singaporean government, aimed at encouraging business owners such as yourself to engage in research and development, including the registration of intellectual property. With the potential for tax deductions of up to 400% on qualifying activities, EIS is a key opportunity for small and medium enterprises (SMEs), as well as entrepreneurs in Singapore, to innovate while saving on taxes.

To benefit from this scheme, businesses need to meet specific eligibility criteria and follow a structured application process. Moreover, utilising EIS can lead to significant tax savings and foster a culture of innovation, crucial for maintaining a competitive advantage in the global market.

If you’re not eligible for the Enterprise Innovation Scheme (EIS), don’t worry! There are other government schemes and incentives you can leverage. Check out our blog for a complete list.

Strategic Considerations for Maximising EIS Benefits

To make the most of the EIS and optimise your tax savings, consider the following strategies:

• Plan your innovation activities: Align your R&D, IP, and training initiatives with the EIS qualifying activities to maximize your tax deductions.
• Timing of expenditure: Since the scheme runs from YA 2024 to YA 2028, plan your innovation investments to fall within this period.
• Balance between deductions and cash payouts: Assess whether tax deductions or cash payouts are more beneficial for your company’s financial situation.
• Documentation: Maintain detailed records of your qualifying expenditures to support your EIS claims.
• Collaborate with partner institutions: Explore opportunities to work with polytechnics or ITEs on innovation projects to leverage the specific deductions for these collaborations.

How Grof Can Help?

At Grof, we don’t just navigate the complexities of tax applications—we make them work for you. Our seasoned accountants are your trusted partners in maximising the benefits of programs like the EIS, tailoring strategies to your unique business goals.

We empower your business with expert knowledge, ensuring you make confident, informed decisions about your tax strategies. Our personalised approach means we identify unique opportunities for each business, helping to optimise your tax positions and unlock potential financial advantages.

To sum up, we go beyond crunching numbers and filling out forms; we are committed to helping you navigate the dynamic realms of taxation and accounting, steering your business towards success.