APAC Tax Matters: March 2012Singapore
Australia | China | Hong Kong | India | Japan | Korea | Malaysia | New Zealand | Singapore | Taiwan | Thailand | Vietnam
Key tax initiatives
The Singapore Budget 2012 was announced in Parliament on 17 February 2012.
A number of tax changes were announced in the Budget Statement to position Singapore for continued economic growth on the basis of skills, innovation and productivity and by seizing opportunities to grow export markets and move up the value chain.
Some of the changes affecting corporations include:
Transforming through productivity and innovation
- 1. Enhancing the productivity and innovation credit (PIC) scheme:
To provide more support for businesses to invest in innovation and productivity, the PIC scheme will be enhanced in four main areas, with effect from the year of assessment (“YA”) 2012:
a. Certification will not be required for qualifying in-house training expenditure incurred up to S$10,000 per YA. This S$10,000 cap cannot be combined across YAs. In—house training expenditure in excess of S$10,000 may still qualify for PIC benefits up to a cap of S$400,000 if the courses are accredited/approved/certified by the relevant authorities
b. Expenditure incurred by a principal on the training of its agents (e.g. insurance agents, financial advisers and real estate agents) may qualify for the PIC benefits, subject to certain conditions
c. Expenditure incurred on R&D cost-sharing agreements may qualify as expenditure on R&D and enjoy PIC deduction. The qualifying expenditure will be deemed to be 60% of the shared costs; for expenditure incurred on software development projects, the requirement for the software to be sold, rented, leased, licensed or hired to two or more unrelated persons will be removed with effect from YA 2012 to facilitate R&D in software development not intended for sale (excluding software for internal routine administration of businesses)
d. Qualifying automation equipment acquired on hire purchase with repayment schedule straddling two or more financial years will be eligible for the cash payout option
- 2. Cash payout under PIC scheme:
Under the PIC scheme, taxpayers can opt to receive, in lieu of tax deduction benefits, a cash payout. The cash payout rate will be increased from 30% to 60% of the first S$100,000 of qualifying expenditure for YA 2013 to YA 2015. In addition, taxpayers may claim the cash payout any time after the end of each financial quarter (but no later than the due date for the filing of their income tax returns for the relevant year), instead of having to wait till the end of their financial year.
- 3. Enhancing the renovation and refurbishment (R&R) deduction scheme:
The R&R deduction scheme, which allows businesses to claim tax deduction on qualifying R&R costs on their business premises, will become a permanent feature of the tax regime. The expenditure cap will be increased from S$150,000 to S$300,000 for each three-year period with effect from YA 2013.
- 4. Enhancing the merger and acquisition (M&A) scheme:
To further support companies carrying out M&A, the scheme will be enhanced as below for qualifying M&A completed from 17 February 2012 to 31 March 2015:
a. A 200% tax allowance, which will be written down in one year, will be granted on the transaction costs (e.g. professional fees on accounting and tax due diligence, legal fees and valuation fees) incurred on qualifying M&A, subject to an expenditure cap of S$100,000 per YA;
b. For acquisition through subsidiaries, the acquiring company may acquire shares of the target company through multiple tiers, instead of just one tier, of wholly-owned subsidiaries;
c. The qualifying conditions that the target company carries on a trade or business and has at least three employees may be satisfied by any of the multiple tiers of wholly-owned subsidiaries of the target company; and
d. The scheme will, on a case-by-case basis, be available as an added feature for existing Headquarter incentive schemes administered by the Economic Development Board of Singapore (EDB). The qualifying condition that the acquiring company must be held by an ultimate holding company incorporated in, and a tax resident of, Singapore may be waived by the EDB subject to conditions.
- 5. Simplifying capital allowance claims for low-value assets:
To further ease the claiming of capital allowances, the full cost of each asset that may be written down in one year will be increased from not more than S$1,000 to not more than S$5,000 with effect from YA 2013. The aggregate claim for all such assets continues to be capped at S$30,000 per YA.
- 6. Introducing the integrated investment allowance (IIA) scheme:
The IIA scheme will provide an additional allowance, on top of capital allowance, on qualifying capital expenditure incurred for productive equipment placed overseas on approved projects. This IIA scheme will be effective from YA 2013 to YA 2017 for qualifying capital expenditure incurred on or after 17 February 2012. The EDB will administer the scheme.
Capturing opportunities for growth
- 7. Enhancing the double tax deduction (DTD) for internationalization scheme:
Tax deduction of up to 200% may be allowed on qualifying expenditure incurred on or after 1 April 2012, up to S$100,000 per YA, incurred on the following four activities, without the need for approval from International Enterprise Singapore or Singapore Tourism Board:
1. Overseas business development trips/missions
2. Overseas investment study trips/missions
3. Participation in overseas trade fairs
4. Participation in approved local trade fairs
Enhancing the attractiveness of Singapore’s tax regime
- 8. Providing certainty of non-taxation of companies’ gains on disposal of equity investments:
Singapore does not have capital gains tax. The determination of whether the gains from disposal of shares in a company are income or capital in nature is based on a consideration of the facts and circumstances of each case. To provide upfront tax certainty of capital gains treatment, gains derived from the disposal of equity investments by companies on or after 1 June 2012 will not be taxed, if:
a. The divesting company holds a minimum shareholding of 20% in the company whose shares are being disposed; and
b. The divesting company maintains the minimum 20% shareholding for a minimum period of 24 months just prior to the disposal.
- 9. Extending the filing and payment deadline for withholding tax:
For payments made to non-residents on or after 1 July 2012, taxpayers will be allowed an additional month to file and account for the withholding tax, i.e. by the 15th of the second month following the date of payment to the non-resident. For example, if the date of payment to non-resident is 1 September 2012, the withholding tax will now have to be accounted for by 15 November 2012.
Enhancing Singapore’s attractiveness as a hub for shipping and aviation activities
- 10. Exempting vessel disposal gains derived by qualifying ship operators and ship lessors from tax:
To provide upfront tax certainty of capital gains treatment, qualifying ship operators and ship lessors under the Maritime Sector Incentive-Shipping Enterprise (Singapore Registry of Ships), MSI-Approved International Shipping Enterprise and MSI-Maritime Leasing (Ship) awards will be granted tax exemption automatically on gains from the disposal of vessels with effect from 1 June 2011, without the need to opt for the exemption. The gains from the disposal of vessels under construction and new building contracts will also be exempt from Singapore income tax.
- 11. Exempting charter fees for ships from withholding tax:
Bareboat, voyage and time charter payments made on or after 17 February 2012 to non-residents, excluding permanent establishments in Singapore, for the use of ships will be exempted from withholding tax.
- 12. Enhancing the Maritime Sector Incentive – Maritime Leasing (Container) Award:
To further promote the growth of container leasing in Singapore, the following enhancements will be made to this tax incentive scheme:
a. Interest and related payments, made on or after 17 February 2012, arising from loans taken to finance qualifying containers and intermodal equipment will be granted an automatic withholding tax exemption.
b. With effect from YA 2013, income derived from the leasing of intermodal equipment (e.g. trailers) which is incidental to the leasing of qualifying containers will also enjoy the concessionary tax rate of 5% or 10%.
c. With effect from YA 2013, qualifying containers will refer to containers that adhere to the standards defined by the International Organization for Standardization, the Institute of International Container Lessors or any other equivalent organization.
- 13. Extending and enhancing the aircraft leasing scheme (ALS):
The ALS, which provides concessionary tax rate of 5% or 10% on income derived by approved ALS award recipients from the leasing of aircraft or aircraft engines and other prescribed activities, will be extended from 29 February 2012 to 31 March 2017. Withholding tax exemption will be granted automatically, subject to conditions, on interest and qualifying payments made on or after 1 May 2012 by existing and new ALS award recipients in respect of qualifying foreign loans entered into on or before 31 March 2017, to finance the purchase of aircraft or aircraft engines.
Strengthening Singapore’s position as a leading financial centre
- 14. Enhancing the liberalized withholding tax exemption regime for banks:
Specified entities that are licensed under the Banking Act, the Finance Companies Act, Securities and Futures Act or approved under the MAS Act will not need to withhold tax on any interest or other payments relating to any loan or indebtedness made to permanent establishments in Singapore. This change will take effect for:
a. Payments to be made from 17 February 2012 to 31 March 2021 (for contracts already in force before 17 February 2012)
b. All payments arising from contracts effective on or after 17 February 2012 to 31 March 2021
- 15. Extending the withholding tax exemption for over-the-counter (OTC) financial derivatives payments:
Withholding tax exemption on all payments made on qualifying OTC financial derivatives to persons who are neither residents nor permanent establishments in Singapore, will be extended from 19 May 2012 to 31 March 2021.
- 16. Extending the tax deduction for collective impairment provisions made under the Monetary Authority of Singapore (MAS) notices:
Banks and finance companies may claim a tax deduction for collective impairment provisions made under MAS notices, subject to certain caps. To encourage these financial institutions to maintain adequate levels of impairment allowances, the tax concessions will be extended for a further three years until either YA 2016 or YA 2017, depending on their financial year end.
- 17. Enhancing the designated investment and specified income lists for financial sector tax incentive (FSI) schemes:
For certain qualifying activities under FSI schemes, concessionary tax rates of 5%, 10% or 12% will apply to a list of specified income and a list of designated investments. To simplify the list of specified income and designated investments, and to keep up with industry development and changes, the list of specified income will be revised into an exclusion list.
Besides rationalization, the list of designated investments will also be expanded to cover certain private trusts, freight derivatives and publicly-traded partnerships that do not carry on a trade, business, profession or vocation in Singapore. These changes will take effect from 17 February 2012.
- 18. Liberalizing the cash distribution requirement for tax transparency for real estate investment trusts (REITs):
For distributions made on or after 1 April 2012, tax transparency (i.e. the distributions are taxed in the hands of the unitholders and the trustee of the REIT is not subject to tax) will apply for distributions to unitholders in the form of units if the REIT distributes at least 90% of taxable income in the same financial year in which such income is derived, subject to the following conditions:
a. Before the distribution, the trustee of the REIT grants the unitholders the option to receive the distributions either in cash or units in that REIT.
b. On the date of distribution, the trustee of the REIT must have sufficient cash to make the entire distribution fully in cash had no option been given to those unitholders to receive the distribution in units in that REIT.
Goods and services tax (GST) changes
- 19. Granting GST exemption on investment-grade gold and precious metals:
To develop a new refining and trading cluster in Singapore, the import and supply of investment-grade gold and precious metals will be treated as exempt supplies for GST purposes with effect from 1 October 2012.
- 20. Extending the GST temporary import (TI) period:
Goods for approved purposes, such as exhibitions, fairs, auctions, repairs, stage performances, testing, experiments and demonstration, may be imported without GST if they are to be re-exported within the TI relief period. This TI relief period will be extended from three to six months with effect from 1 April 2012.
« Previous | Next »
Inside March 2012 edition
Find out more
Request your copy of APAC Tax MattersContact us
Do you have any burning tax issues? Please feel free to contact us