Does your firm volunteer your employees for voluntary work? Under the Business and IPC Partnership Scheme (BIPS) you could get tax deductions of up to 250%. This scheme will be open to you till 31 December 2021. Your employees will be required to work a minimum of 35 hours a week. They should also have been employed at your company full time during the time they volunteered. The scheme is also not limited to tax residents. So if you are a non-resident running your business within Singapore, you can still be eligible.
Your firm can get a tax deduction up to 250% if the incurred expenses qualify. But first, the recipient Institution of a Public Character or IPC has to agree. The expenses are capped at S$50,000 per IPC per year. Let’s say you incur expenses of S$25,000 for one IPC and S$60,000 for another in a given year. For the first IPC, you can claim tax deduction up to S$62,500 (250% x 25,000). However, on the second IPC your expenses will be capped at S$50,000, so your tax deduction will be S$125,000 (250% x 50,000). The cap on your firm’s expenditure will be S$250,000 per year. So if you spent S$60,000 (S$50,000 as qualifying expenditure) + S$25,000, which equals S$75,000, you can still claim addition deduction of S$175,000. You won’t be able to claim deductions if the IPC you want to support has already received the cap amount of S$50,000 elsewhere.
What type of firm do you run? Based on the type of business you hold, you may or may not be eligible for BIPS.As a Non-resident Company
The scheme is not limited to Singapore-based companies only. You can participate if your company operates within Singapore. However, if your firm is taxed at final withholding tax rates, you will not qualify for BIPS.An Investment Holding Firm
If you run an investment holding company you won’t qualify for BIPS as your firm earns income from passive sources. Typically, investment holding firms do not conduct business for the purpose of tax.As a Trust
A trust does not actively participate in business, so if you manage a trust, it will not qualify for the Business and IPC Partnership Scheme. But if you do run a Registered Business Trust, it will qualify for BIPS.Eligibility of Service Companies
If your firm is a service company and pays taxes under normal rules, it will qualify for BIPS. However, if your company chooses to opt for a cost + mark-up method of assessment, you will not qualify.
Wages that qualify are basic wages and/or any monthly variable aspect. However, components like CPF contributions, allowances, benefits-in-kind, or bonuses, do not qualify. Wages will only qualify if paid for time spent doing volunteer activity during official working hours. The volunteer work also has to take place at the premises of the IPC. If your employees spent time traveling to the IPC premises or prepared for the event, that time cannot be considered for BIPS. If your employees perform volunteer activities outside working hours, it will not qualify for BIPS. But if your employees volunteer outside working hours and get time off instead of overtime pay, it will qualify.
Take a look at the following to see if your expenditure qualifies for BIPS.
You should always come to an agreement with the IPC to determine the amount of expenditure that is acceptable for both parties. This is recommended as the IPC can choose to endorse a lower amount than the actual expenses you incur. However, if there is a disagreement between your firm and the IPC, IRAS will choose the amount that the IPC endorses.
To claim a deduction for voluntary services, you need to take the following steps:
The Business and IPC Partnership Scheme was introduced in the budget of 2016. It was introduced to encourage business firms to give something back to the community. An attempt to misuse BIPS can attract serious penalties. A maximum penalty of 400% of the tax undercharged amount will apply. In addition, the firm will have to pay a fine not greater than S$50,000 and the offender could also face prison time. If your firm undertakes just one voluntary activity event, it could benefit from either BIPS or the Share as One Program. However, you will have to choose one of the two.