Tax Measures in Budget 2017
In view of the increasing cross border trade, we may expect an ongoing study as to gauge the role of tax rates vis-à-vis competitive position of Singapore for direct foreign investments.
As a general comment, Minister Heng reinforced that Singapore has taken a position to support the principle of the Base Erosion and Profit Shifting (“BEPS”) project to ensure that companies are taxed where substantive economic activities are performed.
In regards to digital transactions we should look out for changes in the Singapore GST system for e-commerce transactions. We look forward to new developments that levels playing field between local business which are GST registered and foreign based ones which are not and which thus lead to a potential ‘GST-charge’ on music downloads or e-book purchases.
Below is an overview of some of the more relevant announced measures:
Personal Income Tax Measures
Personal Income Tax Rebate
This is for an individual who is a resident taxpayer in YA 2017. They will be granted a tax rebate of 20%, capped at S$500.
Corporate Income Tax Measures
Enhancing and Extending the Coporate Income Tax ("CIT") Rebate
Enhanced measure to support business by increasing the capping limit of corporate income tax rebate from S$20,000 to S$25,000 while the rate 50% of the tax payable remains unchanged for YA 2017. It will be extended to YA 2018 with a reduced rebate of 20% of tax payable capping limit at S$10,000.
Extending the Withholding Tax exemption on payments made to non-resident non-individuals for structured products offered by Financial Institutions
To align the objective of continuing to promote Singapore as a financial hub, withholding tax exemption on payments made to non-resident non-individuals for structured products offered by Financial Institutions will be extended till 31 March 2021 while the other conditions of the scheme remain the same. In addition, tax incentive scheme for Project and Infrastructure finance will be extended till 31 December 2022 while the stamp duty remission is to lapse after 31 March 2017. Further details will be released by MAS by May 2017.
Introducing an Intellectual Property ("IP") Regime to encourage the exploitation of IP arising from research & development ("R&D") activities of the taxpayer
To encourage the use of IPs arising from taxpayer's R&D activities, IP income will be incentivised under a new IP Regime named the IP Development Incentive (IDI).
The IDI incorporates the BEPS-compliant modified nexus approach, i.e. to link benefit from IP to the amount of qualifying research and development (R&D) carried out by the claimant company.
Such income will be removed from the scope of Pioneer-Services/Headquarters Incentive and the Development and Expansion Incentive-Services/Headquarters for new incentive awards approved on or after 1 July 2017. Existing incentive recipients will continue to have such income covered under their existing incentives awards till 30 June 2021.
The IDI will take effect on or after 1 July 2017, and will be administered by EDB.
EDB will release further details of the change by May 2017.
Introducing a safe harbour rule for payments under Cost Sharing Agreements ("CSAs") for R&D projects
Taxpayers may either claim tax deduction under Section 14D for 75% of the payments made under a CSA incurred for qualifying R&D projects or subject the CSA payments to specific restriction rules which disallow certain categories of expenditure.
The change will apply to CSA payments made on or after 21 February 2017.
IRAS will release further details of the change by May 2017.
Extending the Withholding Tax ("WHT") exemption on payments for international telecommunications submarine cable capacity under an Indefeasible Rights of Use ("IRUs") agreement
The withholding tax exemption on payments for international telecommunications submarine cable capacity under an IRU agreement will be extended till 31 December 2023.
The change will apply to new or renewal incentive awards approved on or after 21 February 2017.
Refining the Finance and Treasury Centre ("FTC") scheme
To help ease the compliance burden of approved FTCs, the qualifying counter parties for certain transactions of approved FTCs will be streamlined. The change will apply to new or renewal incentive awards approved on or after 21 February 2017. EDB will release further details of the change by May 2017.
Enhancing the Global Trader Programme ("GTP")
To facilitate and encourage more trading activities in Singapore and to simplify the GTP, the GTP will be enhanced as follows:
- The requirement for qualifying transactions to be carried out with qualifying counterparties will be removed. Consequently, concessionary tax rate will be granted to approved global trading companies on income derived from qualifying transactions with any counterparty;
- Concessionary tax rate will be granted to approved global trading companies on physical trading income derived from transactions in which the commodity is purchased for the purposes of consumption in Singapore or for the supply of fuel to aircraft or vessels within Singapore;
- Concessionary tax rate will be granted to approved global trading companies on physical trading income attributable to storage in Singapore or any activity carried out in Singapore which adds value to commodity by any physical alteration, addition or improvement (including refining, blending, processing or bulk-breaking); and
- The substantive requirement to qualify for the GTP will be increased.
The enhancements in the first to the third point will apply to qualifying income derived on or after 21 February 2017 by approved global trading companies from qualifying transactions.
The enhancement in the last point will apply to new or renewal incentive awards approved on or after 21 February 2017.
IE Singapore will release further details of the change by May 2017.
Extending and refining the Integrated Investment Allowance ("IIA") scheme
The Integrated Investment Allowance scheme will be extended till 31 December 2022. Qualifying productive equipment may be used by the overseas company primarily to manufacture products for the qualifying company under an approved project on or after 21 February 2017.
Extending and refining the Aircraft Leasing Scheme ("ALS")
To continue encouraging the growth of the aircraft leasing sector in Singapore, the ALS will be extended and refined as follows:
- The ALS will be extended till 31 December 2022;
- The scope of qualifying ancillary activities for approved aircraft lessors will be updated to cover incidental income derived from the provision of finance in the acquisition of aircraft or aircraft engines by any lessee; and
- The concessionary tax rate on income derived from leasing of aircraft or aircraft engines and qualifying ancillary activities will be streamlined from 5% and 10% to a single rate of 8%
- The enhancement for the second point will apply to income derived on or after 21 February 2017 for all incentive recipients.
- The refinement in the third point will apply to new or renewal incentive awards approved on or after 1 April 2017.
- The automatic withholding tax exemption regime will be extended to qualifying payments made on qualifying loans entered into on or before 31 December 2022.
- EDB will release further details of the change by May 2017.
Allowing the accelerated Writing-Down Allowances ("WDA") for acquisition of Intellectual Property Rights ("IPRs") for Media and Digital Entertainment ("MDE") content scheme to lapse
As the scheme is assessed to be no longer relevant and to simplify our tax regime, the accelerated WDA for the MDE content scheme will be allowed to lapse, in respect of IPRs acquired for MDE content after the last day of the basis period for YA 2018.
MDE companies or partnerships may elect to claim WDA over a writing-down period of 5, 10 or 15 years on the capital expenditure incurred to acquire the qualifying IPRs under Section 19B or the ITA.