PIC Scheme Revision Every Startup Should Know

Have you heard of the PIC scheme revision? If you want to know more about it, continue reading as it is relevant to every startup.

In February 2016, a director and several companies were charged with a hefty penalty. It is an outcome of their action of claiming a high amount of Productivity and Innovation Credit (PIC) cash payout through fraudulent transactions.

Director Alan Ang Soon Teck (“Alan Ang”) and his company One IT Distribution Pte Ltd (“One IT”) faked deliveries of automation equipment. It amounted to $27,167 to Chuan Huat Electronics with fabricated invoices. As a result, Chuan Huat Electronics claimed a PIC cash payout of $16,300.20 using the said invoices. However, the transaction never occurred between the two companies.

IRAS never tolerate abusive arrangements. Therefore, it charges severe penalties to those abusing the PIC Scheme. For example, IRAS imposed a total fee amounting to $108,825.60. Also, there is a 12-day jail time on Alan Ang. It happened after discovering other similar transactions between him and four other companies.

PIC abusive arrangements are not new. Also, few other artificial transactions have been discovered over the years of implementing the anti-abuse measures. With this, the PIC scheme revision has more strict policies.

Credit: https://aspireapp.com/blog/how-to-check-singapore-company-registration-number

Common PIC Abusive Artificial Transactions

Front Businesses and Fake Transactions

1. A person creates a startup and becomes its director.
2. Then he/she enlisted his/her family and friends as employees.
3. The director even pays the minimum CPF to make them seem legit, yet there is no real work done.
4. A company can only claim a PIC cash payout if it has at least 3local employees. However, since the director faked his employees, he can claim some PIC benefits.
5. Other fake business owners even made sign up agreements with a conspirator to buy overpriced websites and apps.

Unreasonable Transactions

1. Two individuals agreed to set up Company A and Company B, which provide similar services.
2. Company A conducts training for the employees of Company B.
3. Company B conducts similar training to the employees of Company A.
4. They charge each other $15,000.
5. They then claim PIC benefits for the said training.

Since PIC provides a cash payout conversion rate of 60% of the qualified expenditure:

$15,000 x .60= $9,000

6. Neither company have a real need for the said transactions as they conduct the same training. However, they both apply for PIC cash payouts and the bonus of $24,000 each.

Expenditure Disproportionate to Revenue Generated

1. A person sets up three e-commerce Companies A, B, and C.
2. Company A sells ladies’ clothes. Company B sells ladies’ shoes, and Company C sells make-up.
3. Each one declares revenue of $1,000 for a specific time.
4. However, each also claims to have paid $15,000 for software.
5. All three companies claim $24,000 each from the PIC Scheme.
6. After paying the vendor $15,000 for the website, each will retain $9,000.
7. The owner will then keep a total of $27,000.

Productivity and Innovation Credit is a grant under the supervision of IRAS. It provides tax deductions or allowances, cash payouts and bonuses. Also, it encourages budding startups to use innovative tools for increased productivity.

Advantages of the PIC Scheme Revision

All active businesses are qualified if they have legal registration in Singapore. PIC has three benefits which are all applicable in six qualifying activities.

Tax Deductions/ Allowances

PIC grants 400% tax deductions/ allowances on up to $400,000 of expenditure per year in each of the six qualifying activities.

If your startup spent $1,200,000 for automation equipment in 2013 to 2015:

(400% x $1,200,000) = 4.0 x $1,200,000= $4,800,000

PIC+ Scheme (Only for SME)

2010 is the introduction of the PIC. However, the PIC Scheme came after in 2014. The benefit includes SMEs or businesses with annual revenue of not more than $100 million. Also, it covers companies with less than 200 employees.

From Years of Assessment (YAs) 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600,000 of qualifying expenditure per year in each of the six qualifying activities.

Previously the capped qualifying expenditure was $400,000. But, those making qualified transactions on or after 1 August 2016 will have an increased cap of up t0 $600,000. This way, more SMEs will be able to claim payouts and bonuses.

Cash Payout

It gives SMEs the Option to convert up to $100,000 of total spending in all six activities for each YA into a non-taxable cash payout. But it is in lieu of the tax deduction/allowance. So it is a way to help all struggling SMEs get more extra cash to go further.

For qualifying expenditure obtained from YA 2013 to 31 July 2016, the cash payout is 60%. However, all qualifying expenditures acquired on or after 1 August 2016 to YA 2018 will receive a cash payout conversion rate of 40%.

Most Recent PIC Scheme Revision

• To manage the growing number of fake abusive claims, starting on 5 Jul 2016, 2-Step Verification or 2FA is necessary. It applies when you access IRAS’ e-Services using SingPass. Also, it is for setting up 2FA for your SingPass.
• To keep strict anti-abusive measures, IRAS selects a sample of audit applications. Also, IRAS will request further details and supporting documents for review from cases selected for audit. IRAS strive to complete the assessment within three months of receiving the complete information. However, the processing time may take up to six months. It all depends on the complexity of each case.
• In your claims for PIC enhanced tax deductions/ allowances in the Income Tax Return (Form C-S/ C), do you have errors? Then, submit a revised tax computation and the Form for Filing Revised Income Tax Computations. Again, it is better to correct your claims voluntarily. Being charged with fraudulent activities is the worst case for you.
• Also, IRAS warns the entrepreneurs of vendors who claim to be PIC experts. In addition, it will ask for extra cash in return for processing your PIC application. Remember, IRAS does not endorse any vendors. So consult IRAS first before making any purchase for your company.

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