Across the globe, manufacturing economies are embracing the Fourth Industrial Revolution (i4.0). They recognize that the fourth industrial revolution is the future of manufacturing and are working quickly to provide tax and business incentives to lure foreign investors and secure their countries’ future in a digitally connected world.

National, state and local municipalities are beginning to understand the importance of attracting 21st century businesses. “Take, for example, the feeding frenzy that a tech giant touched off when they announced their search for a second US headquarters — 238 cities vying for the prize,” says Michele Hendricks, Executive Director for KPMG International’s Global i4.0 initiative, KPMG in the US. “Thousands of high-tech jobs and billions in construction — sounds pretty similar to the future of manufacturing.”

With so much at stake, the official incentives can play an important role in the site selection. A global car manufacturer, for example, is investing US$1.1 billion in a ‘smart’ factory, or “Full Flex Plant,” in Hungary, where the government offered US$46 million in incentives. National governments aren’t the only players, of course. In 2017, New York succeeded in attracting a global aerospace and defense company to set up a US$300 million digital R&D center there with the offer of up to US$10 million in employment tax credits. Most manufacturers won’t be building greenfield facilities, but almost all will require some upgrades and investments to compete in the new i4.0 landscape — and governments recognize this shift.

KPMG Industrial Manufacturing professionals wanted to know how the government incentives compare in this race to attract i4.0 investment, so we examined the 10 largest manufacturing countries plus seven others that are trying to position themselves as promoters of advanced-manufacturing facilities. Given the many incentives to encourage corporate investment and job creation, KPMG Industrial Manufacturing professionals compared the countries, based on some quantifiable direct and indirect tax incentives. Eighteen tax attributes were analyzed that would influence the selection of new, or improved, manufacturing operations. 

Seventeen countries were reviewed

  • Australia
  • Canada
  • China
  • France
  • Germany
  • India
  • Israel
  • Italy
  • Japan
  • Korea
  • Mexico
  • Netherlands
  • New Zealand
  • Singapore
  • Spain
  • The UK
  • The US

Singapore has a Smart Nation Initiative, the Smart Industry Readiness Index, and Industry Transformation Maps that help show it has a strategic vision for its economy. It provides tax inducements and financial-grant incentives to support companies that will undertake substantial business activities in the city-state.

Singapore’s incentives include:

  • R&D tax deductions at 2.5 times the expenditure.
  • 200 percent tax allowances on qualifying IP registration and in-licensing costs.
  • accelerated tax depreciation on computers and machinery that meet automation and clean-manufacturing standards.
  • concessionary tax rate incentives ranging from 0 percent to 10 percent on qualifying income for i4.0 and advanced manufacturing investment in Singapore.

Take note that no US R&D credits are allowed for foreign research, which brings us to another important consideration when planning i4.0 investments: the cross-border effect of such things as treaty networks, trade zones, free trade agreements and the quickly expanding global trade wars. Across the globe, KPMG Industrial Manufacturing professionals are seeing an increase in the enforcement of trade rules, as customs authorities scrutinize imports more closely.

“In Asia, there has been an uptick in valuation audits, while in the European Union, a duty savings program has been eliminated and royalty payments are more likely to be dutiable,” says Adam Palozzolo, Tax Partner, KPMG in the US. This means that managing and complying with trade is more complex than ever. It is key to evaluate the impact of trade remedies on a company’s options to minimize spending from a global perspective. As part of this process, companies are undergoing a number of steps including, but not limited to, collecting their trade data, assessing the classification and country of origin of their products, mapping import and export activity, evaluating duty savings strategies, and performing comprehensive reviews of their supply chain and product pricing strategies. These elements will help ensure their businesses are structured in ways to mitigate the impacts of trade uncertainty.

Decision-making around i4.0 can be complicated enough without considering the complexity of tax and business incentives, which are continuously changing. The examples above show that getting it right can lead to millions in savings. Getting it wrong can mean leaving money on the table.

KPMG member firms have i4.0 tax specialists in each of the countries ranked above, joined by a network
of direct and indirect tax specialists in over 100 countries, to help companies navigate this quickly changing landscape. Be sure to enrich your approach to i4.0 with some of their perspective, as you prepare to make your investments.

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