News Feature – Tax changes for Businesses in Singapore

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The following tax changes were announced by Singapore Finance Minister Heng Swee Keat in his Budget Statement for the Financial Year 2017, which was announced in Parliament on Monday, February 19, 2018.

 

One very important future tax increase – announced by the Minister in his Budget speech – that will come into being sometime between 2021 and 2025 is the increment of the Goods and Services Tax by two percentage points, from 7% to 9%. The exact timing will depend on the state of the economy, how much Singapore’s expenditures grow, and how buoyant the existing taxes are.

 

As always, the Government plans to implement the GST increase in a progressive manner. It will continue to absorb GST on publicly-subsidised education and healthcare. It will enhance the permanent GST Voucher (GSTV) scheme when the GST is increased by making a $2 billion top-up to the GSTV Fund. The Government will also implement an offset package for a period to help Singaporeans adjust to the GST increase.

 

 

Tax changes for Businesses

DESCRIPTION OF TAX CHANGE

CURRENT TREATMENT

NEW TREATMENT ANNOUNCED IN BUDGET 2018

Corporate Income Tax (CIT)

Enhance and     extend   Corporate Income Tax (CIT) rebate Companies can qualify for a CIT rebate of 20% of tax payable, capped at $10,000, for Year of Assessment (YA) 2018. The CIT rebate will be extended for another year to YA 2019, at a rate of 20% of tax   payable,   capped     at $10,000; ; and For YA 2018, the CIT rebate will be enhanced to 40% of tax payable, with enhanced cap at $15,000.

Double Tax Deduction for Internationalisation (DTDi) scheme

Enhance the Double Tax Deduction for Internationalisation (DTDi) scheme Under the DTDi scheme, businesses are allowed tax deduction of 200%, on qualifying market expansion and investment development expenses, subject to approval from International Enterprise (IE) Singapore or the Singapore Tourism Board (STB). No prior approval is needed from IE Singapore or STB for tax deduction on the first $100,000 of qualifying expenses incurred on the following activities for each YA: Overseas business development trips/missions; Overseas investment study trips/missions; Participation in overseas trade fairs; and Participation in approved local trade fairs. The $100,000 expenditure cap for claims without prior approval from IE Singapore or STB   will be raised   to $150,000   per   YA.     This change will apply to qualifying expenses incurred on or after YA 2019. Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding $150,000, or on expenses incurred on other qualifying activities. All other conditions of the scheme remain the same. IE and STB will release further details of the change by April 2018.

Start-Up Tax Exemption (SUTE) scheme

Adjustment to   the Start-Up Tax Exemption (SUTE) scheme A new company can, subject to conditions, qualify for, in each of the first three YAs: 100%   exemption   on     the   first $100,000 of normal chargeable income*; and 50% exemption on the next $200,000 of normal chargeable income. * Normal chargeable income refers to chargeable income that is taxed at the prevailing corporate income tax rate. The tax exemption under the SUTE scheme will be adjusted to: 75% exemption on the   first $100,000 of normal chargeable income; and 50% exemption on the next $100,000 of normal chargeable income. All other conditions   of the scheme remain unchanged. This change will take effect on or after YA 2020 for all qualifying companies   under the scheme. For example, if a qualifying company’s first YA is 2019, the current SUTE parameters will apply in YA 2019 while the new parameters will apply in YAs 2020 and 2021.

Partial Tax Exemption (PTE) scheme

Adjustment   to     the   Partial   Tax Exemption (PTE) scheme All companies (excluding those that qualify for the SUTE scheme) and bodies of persons, can qualify for, in each YA 75% exemption on the first $10,000 of normal chargeable income; and 50% exemption on the next $290,000 of normal chargeable income. 75% exemption on the   first $10,000 of normal chargeable income; and 50% exemption   on     the   next $190,000 of normal chargeable income. All other conditions of the scheme remain unchanged. This change will take effect on or after YA 2020 for all companies (excluding those that qualify for the SUTE scheme) and bodies of persons.

Goods and Services Tax (GST)

Introduce GST on imported services Currently, GST is not applicable on imported services provided by an overseas supplier which does not have an establishment in Singapore. Introduction of GST on imported services on or after January 1, 2020. B2B imported services will be taxed via a reverse charge mechanism. Only businesses that: make exempt supplies, or do not make any taxable supplies need to apply reverse charge The majority of businesses make taxable supplies and thus would not be affected by this reverse charge mechanism. The reverse charge mechanism requires the local business customer to account for GST to IRAS on the services it imports. The local business customer can in turn claim the GST accounted for as its input tax, subject to the GST input tax recovery rules. The taxation of B2C imported services     will   take   effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST. IRAS will release further details by end February 2018.

Financial Sector Incentive (FSI) scheme – SG as a leading financial centre

Extend and enhance the Financial Sector Incentive (FSI) scheme The FSI scheme accords concessionary tax rates of 5%, 10%, 12% and 13.5% on income from qualifying banking and financial activities, headquarters and corporate services, fund management and investment advisory services. The FSI scheme is scheduled to lapse after December 31, 2018. The trading in loans and their related collaterals, excluding immovable property, is a qualifying activity that is accorded a concessionary tax rate of 13.5%. The FSI scheme will be extended till December 31, 2023. The scope of trading in loans and their related collaterals is expanded to include collaterals that are prescribed infrastructure assets or projects. The change will apply to income derived on or after January 1, 2019, in respect of new and renewal awards approved on or after June 1, 2017. All other conditions of the scheme remain the same. MAS will release further details of the change by May 2018.

Withholding tax (WHT) exemptions for the financial sector

Rationalise the withholding tax (WHT) exemptions for the financial sector Interest payments made by a tax resident or permanent establishment in Singapore to non-tax-residents are subject to WHT at a rate of 15% in general. There is a range of WHT exemptions for the financial sector which applies to different financial   institutions for payments made under different types of financial transactions. Following changes are made: A) To ensure that the relevance of the tax concessions is periodically reviewed, a review date of December 31, 2022, will be introduced for the WHT exemptions for the following payments: Payments made under cross- currency swap transactions made by Singapore swap counterparties to issuers of Singapore dollar debt securities; Payments made under interest rate or currency swap transactions by financial institutions; Payments made under interest rate or currency swap transactions by MAS; and Specified   payments   made under   securities lending or repurchase agreements   by specified institutions; and B) The following WHT exemptions will be legislated, along with a review date of December 31, 2022: Interest on margin deposits paid by members of approved exchanges for transactions in futures; and Interest on margin deposits paid by members of approved exchanges for spot foreign exchange transactions (other than those involving Singapore dollar).

Singapore Variable Capital Companies – positioning Singapore as a fund management hub

Introduce a tax framework for Singapore Variable Capital Companies (S-VACCs) Funds structured as companies, as well as trusts and limited partnerships, can qualify for tax exemption under Sections 13CA, 13R and 13X of the Income Tax Act (ITA) and these incentivised funds are given GST remission, which allows them to claim GST at a fixed recovery rate. Fund managers approved under the Financial Sector Incentive – Fund Management (FSI-FM) scheme can qualify   for 10% concessionary tax rate on the income derived from managing an incentivised fund. MAS is studying the regulatory framework for S-VACCs to further develop and strengthen Singapore’s position as a hub for both fund management and fund domiciliation. Notably, a S-VACC is a new structure designed for collective investment schemes, and will accommodate a variety of traditional and alternative asset classes and investment strategies. A tax framework for S-VACC will be introduced to complement the S-VACC regulatory framework: An S-VACC will be treated as a company and a single entity for tax purposes; Tax exemption under Sections 13R and 13X of the ITA will be extended to S- VACCs; 10% concessionary tax rate under the FSI-FM scheme will be extended to approved fund managers managing an incentivised S-VACC; and The existing GST remission for funds will be extended to incentivised S-VACCs. The conditions under the existing schemes in (2), (3) and (4) remain unchanged. The changes will take effect on or after the effective date of the S-VACC regulatory framework. MAS will release further details of the tax framework for S-VACCs by October 2018.

Enhanced-Tier Fund Scheme – catering for more diverse fund structures

Enhance the Enhanced-Tier Fund Scheme under Section 13X of the ITA Tax exemption under the Enhanced- Tier Fund Scheme is available for companies, trusts and limited partnerships, subject to qualifying conditions. The Enhanced-Tier Fund Scheme will be extended to all fund vehicles constituted in all forms. Besides companies, trusts and limited partnerships, all fund vehicles will be able to qualify for the Enhanced-Tier Fund Scheme if they meet all qualifying conditions. All other conditions of the scheme remain the same. The change will take effect for new awards approved on or after February 20, 2018. MAS will release further details of the change by May 2018.

Tax transparency for REITs EFTs

Extend the tax transparency treatment for Singapore-listed Real Estate Investment Trusts (S-REITs) to     Singapore-listed   Real   Estate Investment Trusts Exchange- Traded Funds (REITs ETFs) Distributions made by S-REITs to REITs ETFs out of specified income derived by S-REITs are subject to tax at the prevailing corporate tax rate of 17% in the hands of REITs ETFs.All investors of REITs ETFs will not be taxed on the distributions made out of such income from REITs ETFs. To have parity in tax treatments between investing in individual S-REIT and via REITs ETF with investments in S-REITs, the following tax treatment will be accorded to REITs ETFs: Tax transparency treatment on the distributions received by REITs ETFs from S-REITs which are made out of the latter’s specified income; Tax exemption on such REITs ETFs distributions received by individuals, excluding individuals who derive any distribution: through   a     partnership   in Singapore; or from the carrying on of a trade, business or profession; and 10% concessionary tax rate on such REITs ETFs distributions received by qualifying non-resident non- individuals. Subject to conditions, the tax concessions for REITs ETFs will take effect on or after July 1, 2018, with a review date of March 31 2020, which is the same as that for other tax concessions for S-REITs. Application for the tax transparency treatment can be submitted to IRAS on or after April 1 2018. MAS and IRAS will release further details of the change by March 2018.

Non-credit-impaired financial instruments – ensuring stability of Singapore’s financial system

Extend the tax deduction for banks (including merchant banks) and qualifying finance companies for impairment and loss allowances made in respect of non-credit- impaired financial instruments Under Section 14I of the ITA, banks and qualifying finance companies can claim a tax deduction for impairment losses on non-credit-impaired loans and debt securities made under Financial Reporting Standard   109, and any additional loss allowances as required under MAS Notices 612, 811 and 1005 (collectively referred to as “MAS Notices”), subject to a cap. The tax deduction under Section 14I is scheduled to lapse after YA 2019 (for banks and qualifying finance companies with December financial year end (FYE)) or YA 2020 (for banks and qualifying finance companies with non-December FYE). The Government has extended the tax deduction under Section 14I of the ITA till YA 2024 (for banks and qualifying finance companies with December FYE) or YA 2025 (for banks and qualifying finance companies with non-December FYE). All other conditions of the scheme remain the same. MAS will release further details of the change by May 2018.

ASPV and QDS schemes – developing the structured debt market

Extend the tax incentive scheme for Approved Special Purpose Vehicle (ASPV) engaged in asset securitisation transactions (ASPV Scheme) The ASPV scheme grants the following tax concessions to an ASPV engaged in asset securitisation transactions: Tax exemption on income derived by an ASPV from approved asset securitisation transactions; GST recovery on its qualifying business expenses at a fixed rate of 76%; WHT exemption on   payments to qualifying non-residents on over-the- counter financial derivatives in connection with an asset securitisation transaction; and Remission   of stamp duties   on the instrument   relating     to   transfer   of assets   to the ASPV   for approved asset securitisation transactions. The scheme is scheduled to lapse after December 31, 2018. The ASPV scheme will be extended till December 31, 2023, with the exception of stamp duty remission in (d).The stamp duty remission in (d) will be allowed to lapse after December 31, 2018. All other conditions of the scheme remain the same. MAS will release further details of the extension by May, 2018.
Extend the Qualifying Debt Securities (QDS) incentive scheme and allow the Qualifying Debt Securities Plus (QDS+) incentive scheme to lapse The QDS scheme offers the following tax concessions on qualifying income from QDS : 10% concessionary tax rate for qualifying companies and bodies of persons in Singapore; and Tax exemption for qualifying non- residents and qualifying individuals. To qualify as QDS, debt securities must be substantially arranged by financial institutions in Singapore. The QDS+ scheme grants tax exemption for all investors on qualifying income derived from QDS that are: Debt securities (excluding Singapore Government Securities) with an original maturity of at least 10 years; and Islamic debt securities or sukuk. The QDS and QDS+ schemes are scheduled to lapse after December 31, 2018. The QDS scheme will be extended till December 31, 2023.As part of the Government regular review of tax incentives, the QDS+ scheme will be allowed to lapse after December 31, 2018. Debt securities with tenure beyond 10 years, and Islamic debt securities that are issued: After December 31, 2018, can enjoy tax concessions under the QDS scheme if the conditions of the QDS scheme are satisfied; On or before December 31, 2018, can continue to enjoy the tax concessions under the QDS+ scheme if the conditions of the QDS+ scheme are satisfied. MAS will release further details of the change by May 2018.

Tax exemption in SGS trading

Extend the tax exemption on income derived by primary dealers from trading in Singapore Government Securities (SGS) Tax exemption is granted on income derived by primary dealers from trading in SGS. The tax exemption is scheduled to lapse after December 31, 2018. The tax exemption on income derived by primary dealers from trading in SGS will be extended till December 31, 2023.

Investment Allowance in Submarine cable systems landing – improving digital connectivity

Extend the Investment Allowance (IA) scheme to   include qualifying investment in submarine cable systems landing in Singapore Capital expenditure incurred on submarine cable systems does not qualify for IA. Extension of IA in respect of productive equipment to capital expenditure incurred on newly constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions. All other conditions of the IA scheme apply, except for the following which will be permitted: The submarine cable systems can be used outside Singapore; and The submarine cable systems, on which IA has been granted, can be leased out under the indefeasible rights of use arrangements. This change will take effect for capital expenditure incurred between February 20, 2018, and December 31, 2023, inclusive of both dates.

Encouraging corporate giving

Extend the Business and IPC Partnership Scheme (BIPS), which was piloted in 2016 A qualifying person can, subject to conditions, enjoy a total of 250% tax deduction on qualifying expenditure such as wages incurred by him from July 1, 2016, to December 31, 2018, in respect of – The provision of services by his qualifying employee to an IPC during that period; or The secondment of his qualifying employee to an IPC during that period. To continue supporting employee volunteerism through businesses, BIPS will be extended till December 31, 2021. In addition, MOF and IRAS will review the administrative processes for BIPS based on feedback that has been received. Details of any change will be announced in the second half of 2018.

Research & Development (R&D) and Intellectual Property (IP)

Enhance the tax deduction for qualifying expenditure on qualifying research and development (R&D) projects performed in Singapore Businesses that have incurred qualifying expenditure on qualifying R&D projects performed in Singapore can claim the following: 150% tax deduction   for staff costs and consumables incurred, and 100% tax deduction   for other qualifying expenditure The tax deduction for   staff costs and consumables incurred on qualifying R&D projects performed in Singapore will increase from 150% to 250%. All other conditions of the scheme remain unchanged. This change will take effect from YA 2019 to YA 2025.
Enhance the tax deduction for costs on protecting IP Enhance the tax deduction for costs on IP in-licensing Businesses that have incurred qualifying IP registration costs can claim 100% tax deduction on such costs. The scheme is scheduled to lapse after YA 2020. Businesses that have incurred qualifying IP in-licensing costs can claim 100% tax deduction on such costs. A) Extension of the scheme till YA 2025; and B) Enhance the tax deduction to 200% for the first $100,000 of qualifying IP registration costs incurred for each YA. This change will take effect from YA 2019 to YA 2025. The Government will enhance the tax deduction from 100% to 200% for the first $100,000 of qualifying IP in-licensing costs incurred for each YA. This change will take effect from YA 2019 to YA 2025. Qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded research performers or other businesses, but exclude related party licensing payments, or payments for IP where any allowance was previously made to that person

Tax changes for Individuals

DESCRIPTION OF TAX CHANGE

CURRENT TREATMENT

NEW TREATMENTS   ANNOUNCED IN BUDGET 2018

Donations

Extend the 250% tax deduction for qualifying donations Donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character (“IPCs”) and other qualifying recipients from January 1, 2016, to December 31, 2018. The 250% tax deduction for qualifying donations will be extended for donations made on or before 31 December 2021. All other conditions of the scheme remain the same.

Business and IPC Partnership Scheme (BIPS)

Extend the Business and IPC Partnership Scheme (“BIPS”), which was piloted in 2016 A qualifying person can, subject to conditions, enjoy a total of 250% tax deduction on qualifying expenditure such as wages incurred by him from July 1, 2016, to December 31, 2018, in respect of – The provision of services by his qualifying employee to an IPC during that period; or the secondment of his qualifying employee to an IPC during that period. To continue supporting employee volunteerism through businesses, BIPS will be extended till December 31, 2021. In addition, MOF and IRAS will review the administrative processes for BIPS based on feedback that has been received. Details of any change will be announced in the second half of 2018.

Residential properties

Raise buyer’s stamp duty on the value of residential property in excess of $1 million Purchase of properties are currently subject to buyer’s stamp duty rates of between 1% to 3%. Details are as under: *first $180,000 – 1% *next $180,000 – 2% *amount exceeding $360,000   – 3% The top marginal buyer’s stamp duty (BSD) rate will be raised from 3% to 4%, and applied on the value of residential property in excess of $1 million. Details as under: *no changes for the first $180,000 and the next $180,000 *next $640,000 – 3% (revised) *amount exceeding $1 million – 4% (new) The revised rates will apply to all residential properties acquired on or after February 20, 2018. The BSD rates for non-residential properties remain unchanged at 1% to 3%.

Tobacco products

Increase in tobacco excise duty across all tobacco products Raise the excise duties by 10% across all tobacco products: Cigarettes and other manufactured tobacco: From $388/kg. or 38.8 cents/stick of cigarette to $427/kg. or 42.7 cents/stick of cigarette. Beedies, Ang Hoon   and smokeless tobacco: From $299/kg. to $329/kg.. Unmanufactured and cut tobacco and other tobacco refuse: From $352/kg. to $388/kg. These tax changes will take effect from February 19, 2018.