Global Tax Alert | 26 February 2018
Singapore releases Budget 2018
On 19 February 2018, Singapore’s Minister for Finance delivered, in Parliament, the Singapore Budget for financial year 1 April 2018 to 31 March 2019 (Budget 2018).
Budget 2018 sets forth a strategic and integrated plan to position Singapore for the future and prepare the nation to take on three major shifts in the coming decade: (i) the shift in global economic weight towards Asia; (ii) emergence of new technologies; (iii) and the aging population of Singapore. Specifically, Budget 2018 seeks to prepare Singapore to guard against the challenges and capture opportunities through developing the nation into a more vibrant and innovative economy, building a smart, green and livable city, fostering a caring and cohesive society and planning ahead for a fiscally sustainable and secure future.
A number of tax changes were announced to provide near-term support to businesses, foster continuing innovation, encouraging capabilities building and forging of partnerships, all with the aim of developing a better future together for Singapore.
This Alert summarizes the key tax initiatives in Budget 2018.
Introducing Goods and Services Tax (GST) on imported services
To ensure a fair and resilient tax system in a digital economy, GST will be implemented on 1 January 2020 on imported services consumed in Singapore. Business to Business 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 the reverse charge. The taxation of Business to Consumer imported services will take effect through an Overseas Vendor Registration (OVR) regime,1 which requires overseas suppliers and electronic marketplace operators that make significant supplies of digital services to local consumers to register with the Inland Revenue Authority of Singapore (IRAS) for GST. The IRAS will release further details by the end of February 2018.
Increasing the GST rate
To support the expected increase in healthcare, security and other social spending, the GST rate will be raised from 7% to 9% during 2021 and 2025. The exact timing will depend on the state of the economy, growth of the country’s expenditures, and how buoyant the existing taxes are.
Revisions to the corporate income tax (CIT) rebate
For the year of assessment (YA) 2018,2 the CIT rebate will be increased from 20% of tax payable to 40% of tax payable and the cap will be raised from S$10,000 (US$7,500) to S$15,000 (US$11,400). Further, the CIT rebate will be extended for another year to YA 2019 with a reduced rate of 20% of tax payable, capped at S$10,000.
Increase in the tax deduction for certain expenditures on qualifying research and development (R&D) projects performed in Singapore
To support businesses in building their own innovations, the tax deduction for labor costs and consumables incurred on qualifying R&D projects performed in Singapore will be increased from 150% to 250%. This change will become effective from YA 2019 to YA 2025.
Amendment to the tax deduction for costs on protecting intellectual property (IP)
To encourage businesses to register and protect their IP, the existing 100% tax deduction on qualifying IP registration costs, which is scheduled to expire after YA 2020, will be extended through YA 2025. Further, the tax deduction will be increased to 200% for the first S$100,000 (US$75,000) of qualifying IP registration costs incurred for each YA. This change will become effective from YA 2019 to YA 2025.
Increase in the tax deduction for costs on IP in-licensing
To support businesses in buying and using new solutions, the existing 100% tax deduction for qualifying IP in-licensing costs will be increased to 200% for the first S$100,000 of qualifying IP in-licensing costs incurred for each YA. 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. This change will become effective from YA 2019 to YA 2025.
Extending the 250% tax deduction for qualifying donations
The existing 250% tax deduction for qualifying donations made between 1 January 2016 and 31 December 2018 will be extended for donations made on or before 31 December 2021.
Introduction of a tax framework for Singapore Variable Capital Companies (S-VACCs)
The Monetary Authority of Singapore (the MAS) introduced S-VACCs in March 2017 with the objective to further develop and strengthen Singapore’s position as a hub for both fund management and fund domiciliation.
An 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. This is anticipated to benefit private equity, real estate and Infrastructure funds, as well as platform funds, among others.
To complement the S-VACC regulatory framework, the following tax framework for S-VACC has been introduced in Budget 2018:
- 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 Income Tax Act will be extended to S-VACCs
- The 10% concessionary tax rate under the Financial Sector Incentive – Fund Management scheme will be extended to approved fund managers managing an incentivized S-VACC
- The existing GST remission for funds will be extended to incentivized S-VACCs
The changes will become effective on or after the effective date of the S-VACC regulatory framework.
The MAS will release further details of the tax framework for S-VACCs by October 2018.
1. The proposed OVR does not affect e-commerce for low value goods. For imports of low-value goods (where the goods are imported by air or post and the value is below S$400 [(US$300]), it is still under review by the Government.
2. The term “year of assessment” (YA) refers to the year in which income tax is assessed on the company. The basis period for a particular YA for a company is the financial year ending in the year preceding that YA.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Solutions LLP, International Tax Services, Singapore
- Chester Wee
- Desmond Teo
- Hsin Yee Wong
- Mriganko Mukherjee
Ernst & Young LLP, Singapore Tax Desk, New York
- Su Ling Agnew
Ernst & Young LLP, Asia Pacific Business Group, New York
- Chris Finnerty
- Kaz Parsch
- Bee-Khun Yap
EYG no. 01093-181Gbl