On 20 March 2024, the Singaporean Inland Revenue Authority (IRAS) released a revised e-Tax Guide titled “Tax Treatment of Research & Development and Intellectual Property-Related Expenditure in the Pharmaceutical Manufacturing Industry (Fourth edition).” The update incorporates several editorial adjustments, revisions to accommodate the extension of R&D tax incentives until 2028, supplementary details on eligible R&D deductions, and various other modifications.
This e-Tax guide provides guidance on the tax treatment for the following items common to companies in Singapore which develop, manufacture and market drugs for use as pharmaceuticals (herein referred to as “pharmaceutical manufacturing companies”): (a) Deduction of research and development (“R&D”) expenditure under Sections 14C and 14D of the Income Tax Act 1947 (“ITA”); (b) Writing down allowances under Section 19B of the ITA; (c) Income from provision of R&D services; and (d) Deduction of royalty payments and withholding tax implications.
A pharmaceutical manufacturing company may claim deductions on expenditure incurred on qualifying R&D activities relating to its existing trade or business in the year of assessment (“YA”) in which the expenditure was incurred. The manner of set-off against income depends on whether the expenditure can be directly identified to specific products. As a matter of principle, the matching of expense and revenue should be observed where feasible.
