When one incorporates a company, it’s obvious it’s to earn money. But when the focus on making profits reaches a point that they forget to deal with their own social and environmental impacts, it becomes a problem. Studies have shown that companies that engage in CSR activities succeed better than the companies that solely concentrate on earning profits. CSR activities help in improving the company’s public image and building customers’ trust.
In Singapore, companies that give back to society can enjoy certain tax benefits. They have the privilege to claim a 250% tax deduction on qualifying CSR expenditures they incur from 1st of July 2016 to 31st of December 2023. The purpose of the 250% tax deduction is to encourage corporate volunteerism.
If you have missed out on these benefits in the past, now is the time to get started. Hiring a good and knowledgeable company secretary or tax consultant would have ensured you stayed up-to-date about all the schemes and leveraged them. Nevertheless, it’s still not too late. In this article, we would be covering all about the Business and IPC Partnership Scheme (BIPS) to help you save tax.
What is the Business and IPC Partnership Scheme (BIPS)?
BIPS is a scheme that allows companies or businesses in Singapore to claim a 250% tax deduction on qualifying expenditure when they voluntarily render corporate services to Institutions of a Public Character (IPCs).
Who Can Claim?
A business that carries out trade or business in Singapore is eligible for BIPS when they send their employees to render services to IPCs. These businesses include the following:
- Sole proprietorships, companies, partnerships (both limited liability partnerships and limited partnerships), and registered business trusts
- Bodies of persons that are deemed to run a business.
Do note that owners of businesses who are also directors of the company, like the shareholders, sole-proprietors, and partners, are not eligible for BIPS.
Everyone who qualifies for BIPS can claim a deduction in the tax till the 31st of December 2023.
What Expenditures Can Be Claimed?
Those who are eligible for BIPS can claim deduction only for qualifying expenditures which include the following:
- Basic wages
- Other related and necessary expenses that businesses incur while rendering services to IPC.
Every qualifying expenditure must meet all these requirements:
- Incurred only as a result of the volunteer services;
- Not reimbursed by the IPCs at any time;
- Not capital expenditure; and
- Not considered as personal, family, or living expenses.
Effective from the 2nd of December 2019, some enhancements were made, which made it easier for businesses to claim BIPS tax deductions. Organizations can also claim a tax deduction on the wage of all part-time employees who volunteer with IPCs under BIPS.
Also, businesses would now be able to claim tax deductions on wage expenditure on a fixed hourly rate instead of actual salary. The fixed rate for general volunteering and skills-based volunteering are $10 per hour and $20 per hour, respectively. Skills-based volunteering services are services that involve work-related expertise, as required by the IPC.
When businesses receive IPC’s agreement, they will get a total of 250% tax deduction on the qualifying expenditure they incur.
The table below shows the tax deduction available for two different kinds of qualifying expenditure.
|Qualifying Expenditure||Tax Deduction Given|
|Currently deductible under Section 14(1) of the Income Tax Act||– 100% tax deduction under Section 14(1) of the Income Tax Act
– Additional 150% tax deduction under Section 14ZB, subject to meeting the relevant conditions under BIPS
|Currently not deductible under Section 14(1) of the Income Tax Act||– 250% tax deduction under Section 14ZB, subject to meeting the relevant conditions under BIPS|
Kindly note that the qualifying expenditure per business per Year of Assessment (YA) can’t exceed $250,000. Also, the qualifying expenditure for each IPC per calendar year is capped at $50,000.
Let’s use an example to illustrate the application of the expenditure caps.
Company X, whose financial year ends on the 31st of December, sends some of its employees to render volunteering services to IPC A and IPC B during the year 2021. Company X used $30,000 to render service to IPC A and $80,000 to render service to IPC B, respectively. If the expenditures qualify for BIPS, then the table below illustrates how the expenditure cap applies to this example.
|IPC||Expenditure incurred||Qualifying expenditure||Tax deduction granted|
|A||$30,000||$30,000||$30,000 x 250% = $75,000|
|B||$80,000||$50,000||$50,000 x 250%= $125,000|
You should have observed that company X incurred $80,000 while providing services to IPC B, yet only $50,000 qualifies for BIPS. The qualifying expenditure couldn’t exceed $50,000 due to the $50,000 cap imposed on every IPC per calendar year. Hence, any other business that renders volunteering services to IPC B in 2021 will not receive any tax deduction under BIPS.
However, a business that renders volunteering services to IPC A in 2021 can still receive up to $20,000 ($50,000-$30,000) deduction under BIPS on qualifying expenditure since the limit hasn’t been exceeded for IPC A.
Since the qualifying expenditure per business per YA is capped at $250,000, company X can still claim another $170,000 ($250,000 – $80,000) when it renders another volunteering service to other IPC institutions in YA 2022.
How to Make BIPS Claims?
Businesses need to take certain steps in order to receive tax deductions under BIPS. The required steps are as follows:
Step 1: Make an agreement with IPC before rendering services
Business and IPC need to agree on the kind of volunteer service to be rendered, the duration of the service, and the estimated expenditure. After the business and IPC have made a mutual agreement, the business should download and fill the BIPS Service Giving Form A so that IPC can endorse it.
Step 2: Seek the IPC’s endorsement on the completed BIPS Service Giving Form after rendering services
Business needs to seek endorsement from IPC to serve as proof of the service it has rendered. The endorsement needs to be on the completed BIPS Service Giving Form B showing the actual expenditure.
Step 3: IPC to submit all necessary documents electronically
IPC will submit the endorsed Form A, Form B, and Declaration to IRAS through mytax.iras.gov.sg using BIPS Service Giving Declaration Form Submission e-Service by the end of January of the following year.
Kindly note that businesses no longer need to submit documentation proof for the IPCs’ verification for expenses that don’t make up to 5% of the total qualifying expenditure for the service they rendered. However, businesses are expected to keep documentation for verification by IRAS for tax claims and usual record-keeping purposes.
Step 4: Claim the total qualifying expenditure in Tax Computation
Based on the amount endorsed by the IPC in Form B, businesses can claim BIPS tax deduction in their tax computation when submitting their income tax return.
We recommend that businesses take full advantage of the BIPS scheme while it lasts. The BIPS scheme helps businesses save tax by deducting 250% tax on qualifying expenditures when they render services to IPC. The amount of tax deduction that each business can claim per Year of Assessment is subject to a cap.
The BIPS scheme does not only help businesses save tax but also helps society at large since it encourages corporate volunteerism. So, if you own a business in Singapore, we implore you to assist society through this scheme and get a reward for doing so.