Global Tax Alert | 10 March 2014
Singapore releases Budget 2014
On 21 February 2014, Singapore's Minister for Finance delivered the Budget 2014 Statement (Budget 2014) for the financial year 1 April 2014 to 31 March 2015.
In addition to social strategy, Budget 2014 focuses on the economy through extending and expanding incentives for restructuring that enable innovation, such as the productivity and innovation credit (PIC), research and development (R&D) deductions and amortization of intellectual property acquisition costs. In addition, Budget 2014 also enhances incentives for the financial sector. This Alert summarizes key features of the Budget 2014.
Extension of PIC regime
The PIC regime will be extended for three years to Year of Assessment (YA) 2018, i.e., accounting year ending 2017, to give businesses more time to put in place productivity improvements. The taxpayer is allowed to claim up to the maximum of S$1.2 million (US$951,000) per qualifying activity based on the qualifying expenditure incurred for YA 2016 to YA 2018. The expenditure cap of S$100,000 (US$79,000) per year for the PIC cash payout cannot be combined across YA 2016 to YA 2018.
Introduction of PIC plus for small and medium enterprises (SMEs)
A PIC plus incentive is introduced to provide support to SMEs that are making more substantial investments to transform their businesses. Under the PIC plus incentive, the expenditure cap for qualifying SMEs will be increased from S$400,000 to S$600,000 per qualifying activity per YA. The PIC plus incentive will become effective for expenditures incurred in YA 2015 to YA 2018. An entity is a qualifying SME if: (a) its annual turnover is not more than S$100 million (US$79 million) or (b) its employment size is not more than 200 workers. This criterion will be applied at the group level if the entity is part of a group.
Extension of PIC benefits to training of individuals under centralized hiring arrangements
The PIC incentive will be enhanced to allow businesses to claim PIC benefits on training expenses incurred in conjunction with individuals hired under centralized hiring arrangements, effective from YA 2014.
Extension of the R&D incentives
The additional 50% tax deduction on qualifying expenditures incurred on qualifying R&D activities under Section 14DA(1) of the Income Tax Act (ITA) will be extended for ten years to YA 2025. Further, tax deductions on expenditures incurred in relation to R&D projects approved by the Economic Development Board under Section 14E of the ITA will be extended for five years to 31 March 2020. Businesses can also continue to claim a further deduction of up to 300% on qualifying R&D expenditure under the PIC regime (subject to relevant caps), which has been extended to YA 2018.
Extension of two-year and five-year amortization provisions
The accelerated two-year amortization of the acquisition cost of qualifying intellectual property rights (IPRs),i.e., patents, trademarks, registered designs, copyrights, geographical indications, lay-out designs of integrated circuits, trade secrets or information that has commercial value and plant varieties, applicable to media and digital entertainment companies will be extended for three years to YA 2018; while the normal five-year amortization of the acquisition of IPRs for other businesses is extended for five years to YA 2020.
Extension and enhancement of the land intensification allowance (LIA) incentive
The following incentives will be made to continue to encourage businesses to optimize land use:
- • The LIA incentive will be extended for five years to 30 June 2020.
- • The LIA incentive will be extended to the logistics sector and businesses carrying out qualifying activities on airport and port land.
To encourage businesses to continue to intensify their land use, existing buildings that have already met or exceeded the Gross Plot Ratio (GPR) benchmark are required to meet a minimum incremental GPR criterion of 10%.
The incentives are effective for LIA approvals granted, and capital expenditures incurred on or after 22 February 2014.
Strengthening the competitiveness of the financial sector
Extending and refining tax incentives for qualifying funds
The tax incentives for qualifying funds grant tax exemptions on specified income derived from designated investments and withholding tax exemptions on interest and qualifying payments made to all nonresident persons (excluding permanent establishments in Singapore). Qualifying funds comprise:
A. Trust funds with resident trustee
B. Trust funds with nonresident trustee and nonresident corporate funds
C. Resident corporate
D. Enhanced-tier funds
Except for qualifying fund A,1 qualifying funds B through D will be extended for five years to 31 March 2019. In addition, the following improvements will be made:
- • Effective 1 April 2014, the qualifying fund B will be expanded to include trust funds with resident trustees that are currently covered under the qualifying fund A.
- • Effective 1 April 2014, the investor ownership levels for the qualifying funds B and C will be computed based on the prevailing market value of the issued securities on the last day of the qualifying fund's basis period for the relevant YA instead of the historical value.
- • The list of designated investments will be expanded to include loans to qualifying offshore trusts, interest in certain limited liability companies and bankers acceptance. This will apply to income derived on or after 21 February 2014 from such investments.
Stamp duty changes
Streamlining of the stamp duty rate structure
Stamp duty on certain categories of instruments is currently imposed on a specific dollar value basis relative to the underlying consideration or value of such instruments. To streamline the basis and calculation of the stamp duty, the following categories of stamp duty will now be subject to an ad valorem or percentage based rate structure:2
- • Buyer's stamp duty on immovable property
- • Share transfer duty
- • Lease duty
- • Mortgage duty
Changes have also been made to the basis of calculation of duty on leases of immovable property to provide consistent treatment for leases of varying tenures.
1. This will expire after 31 March 2014.
2. Depending on the instruments, rates range from 0.2% to 3%.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Solutions LLP, Singapore
- • Chung-Sim Siew Moon
+65 6309 8807
- • Russell Aubrey
+65 6309 8690
Ernst & Young LLP, Asia Pacific Business Group, New York
- • Chris Finnerty
+1 212 773 7479
- • Kaz Parsch
+1 212 773 7201
- • Bee-Khun Yap
+1 212 773 1816
EYG no. CM4242