Corporate Income Tax ("CIT") Rebate for Year of Assessment ("YA") 2016 and YA 2017
A 30% CIT rebate capped at $30,000 per YA was granted to companies from YA 2013 to YA 2015. The CIT rebate was given to all companies including Registered Business Trusts and companies that receive income taxed at a concessionary tax rate. Companies that are not tax resident in Singapore are also eligible for the CIT rebate; however, the rebate will not apply to the income derived by a non-resident company that is subject to a final withholding tax.
The 30% CIT rebate will be extended for another two YAs (YA 2016 and YA 2017), with a reduced cap of $20,000 per YA.
NEW TAX INCENTIVES AND CONCESSIONS
International Growth Scheme
A new International Growth Scheme will be introduced to support high potential companies in their growth overseas, while they continue to anchor their key functions in Singapore.
Under this new tax incentive, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities such as headquarter functions. Qualifying companies will be expected to engage in internationalisation activities and provide opportunities for Singaporeans to gain international exposure.
This new scheme will be administered by IE Singapore ("IES") and the approval window for the new scheme will be from 1 April 2015 to 31 March 2020.
IES will release further details by May 2015.
ENHANCEMENTS AND EXTENSIONS TO EXISTING TAX INCENTIVES AND CONCESSIONS
Mergers & Acquisitions ("M&A") Scheme
The M&A scheme is available for qualifying M&As executed from 1 April 2010 to 31 March 2015.
(a) Tax benefits under the M&A scheme:
(i) An M&A allowance based on 5% of the value of the qualifying acquisition, subject to a cap of $100 million on the value of qualifying acquisitions per YA. The allowance is written down over five years;
(ii) Stamp duty relief on the transfer of unlisted shares, capped at $100 million of qualifying M&A deals. This works out to a cap of $200,000 of stamp duty per financial year ("FY"); and
(iii) 200% tax allowance on transaction costs, such as professional fees on due diligence, legal fees and valuation fees, related to qualifying M&A, subject to an expenditure cap of $100,000 per YA. The allowance on transaction costs is written down in one year.
(b) Shareholding eligibility tiers under the M&A scheme
Currently, the acquiring company must acquire ordinary shares in a target company, whether directly or indirectly, that results in the acquiring company holding:
(i) More than 50% ordinary shareholding in the target company (if the acquiring company's original share-holding in the target company was 50% or less); or
(ii) At least 75% ordinary shareholding (if the acquiring company's original shareholding was more than 50% but less than 75%).
(c) "12-month look-back period" for step acquisitions that straddle across FYs
Acquiring companies can also elect for its ordinary share acquisitions in a target company made during a 12-month period to be consolidated to qualify for the M&A tax benefits. The 12-month period must end on the share acquisition date on which the 50% or 75% shareholding threshold is met, or the date of a subsequent acquisition that is conducted within the same basis period. This is commonly known as the "12-month look-back period".
The M&A scheme will be extended till 31 March 2020 with the changes below.
(a) Revised tax benefits under the M&A scheme:
(i) The M&A allowance rate will be increased to 25%;
(ii) The cap on the value of qualifying acquisitions for the M&A allowance per YA will be revised to $20 million;
(iii) Stamp duty relief on the transfer of unlisted shares will correspondingly be capped at $20 million on the value of qualifying M&A deals, which works out to a cap of $40,000 of stamp duty per FY; and
(iv) No change to the tax allowance on transaction costs, such as professional fees on due diligence, legal fees and valuation fees, related to qualifying M&A, which will remain at 200% subject to an expenditure cap of $100,000 per YA and written down in one year.
(b) Revised shareholding eligibility tiers
The acquiring company must acquire ordinary shares in a target company, whether directly or indirectly, that results in the acquiring company holding:
(i) At least 20% ordinary shareholding in the target company (if the acquiring company's original shareholding in the target company was less than 20%), subject to conditions; or
(ii) More than 50% ordinary shareholding in the target company (if the acquiring company's original share-holding in the target company was 50% or less) (status quo).
The existing 75% shareholding eligibility tier will be removed. Acquisitions of ordinary shares that result in the acquiring company owning at least 75% ordinary shareholding (if the acquiring company's original shareholding was more than 50% but less than 75% at the beginning of the basis period for a YA or FY) will no longer qualify under the M&A scheme.
(c) "12-month look-back period" for step acquisitions that straddle across FYs
(i) The 12-month look-back period will be removed.
The above changes will take effect for qualifying acquisitions made from 1 April 2015. IRAS will release more details by May 2015 on this scheme.
Enhancing the Double Tax Deduction ("DTD") for Internationalisation Scheme
Businesses may claim a 200% tax deduction on qualifying expenditure incurred on qualifying market expansion and investment development activities, subject to meeting certain conditions and criteria. However, the scope of qualifying expenditure does not cover manpower expenses.
The scope of qualifying expenditure supported under the DTD for Internationalisation scheme will be enhanced to include qualifying manpower expenses incurred for Singaporeans posted to new overseas entities.
The amount of qualifying manpower expenses to be allowed DTD under the scheme will be capped at $1 million per approved entity per year, subject to conditions. Businesses will have to apply to IE Singapore ("IES") to enjoy the DTD on qualifying manpower expenses.
This change will apply to qualifying manpower expenses incurred from 1 July 2015 to 31 March 2020. IES will release further details by May 2015.
Investment Allowance — Energy Efficiency ("IA-EE") Schemes
The IA-EE scheme and IA-EE for Green Data Centres scheme award Investment Allowance ("IA") to energy efficient or green data centre projects where the capital expenditure incurred results in more efficient energy utilisation. Both schemes are scheduled to lapse after 31 March 2015.
The IA-EE scheme is jointly administered by the Economic Development Board ("EDB") and the National Environment Agency ("NEA"); and the IA-EE for Green Data Centres by the Infocomm Development Authority of Singapore ("IDA").
The two schemes will be combined into one scheme known as the "Investment Allowance — Energy Efficiency Scheme" from 1 March 2015 and the scheme will be extended till 31 March 2021.
This scheme will be solely administered by EDB which will release more details by March 2015.
Development and Expansion Incentive for International Legal Services ("DEI-Legal") Scheme
Under the DEI-Legal scheme, approved law practices will enjoy a 10% concessionary tax rate on incremental income derived from the provision of qualifying international legal services for five years. The incentive is available to law practices that are incorporated as companies.
The incentive is scheduled to lapse after 31 March 2015.
The DEI-Legal scheme will be extended till 31 March 2020. All other conditions of the scheme remain the same.
Approved Foreign Loan ("AFL") Incentive
Under the AFL scheme, tax exemption or a concessionary tax rate may be granted on interest income derived by a non-tax-resident from loans to a company in Singapore to purchase productive equipment.
To qualify as an AFL, the loan must be at least $200,000. The Minister for Trade & Industry has the discretion to approve an application for a foreign loan of less than the minimum loan quantum of $200,000 to be an AFL.
The minimum loan quantum under the AFL incentive will be increased to $20 million from 24 February 2015. The Minister for Trade and Industry may approve an AFL application on a foreign loan lower than the legislated minimum loan quantum of $20 million.
A review date of 31 December 2023 will be legislated for this AFL scheme to ensure that the relevance of the scheme is periodically reviewed.
Approved Royalties Incentive ("ARI")
Under the ARI scheme, tax exemption or a concessionary tax rate may be granted on approved royalties, technical assistance fees or contributions to research and development costs made to a non-tax-resident for providing cutting-edge technology and know-how to a company for the purpose of its substantive activities in Singapore.
A review date of 31 December 2023 will be legislated for this ARI scheme to ensure that the relevance of the scheme is periodically reviewed.
Writing Down Allowance ("WDA") Scheme on Capital Expenditure Incurred on the Acquisition of An Indefeasible Right to Use ("IRU") of Any International Telecommunications Submarine Cable System
The WDA scheme provided under Section 19D of the Income Tax Act provides for writing down allowance on capital expenditure incurred on the costs of acquiring an IRU of any international telecommunications submarine cable system.
A review date of 31 December 2020 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed.
Tax Incentives for Venture Capital Funds and Venture Capital Fund Management Companies
Approved venture capital funds may be granted tax exemption under Section 13H of the Income Tax Act on the following income:
(a) Gains arising from the divestment of approved portfolio holdings;
(b) Dividend income from approved foreign portfolio companies; and
(c) Interest income arising from approved foreign convertible loan stock.
Fund management companies managing Section 13H funds may also be granted tax exemption under the Pioneer Service incentive on the following income:
(a) Management fees derived from an approved venture capital fund; and
(b) Performance bonus received from the said approved venture capital fund.
A 5% concessionary tax rate will be accorded to approved venture capital fund management companies managing Section 13H funds on their specified income. The approval window will be from 1 April 2015 to 31 March 2020.
With the introduction of this new incentive, the Pioneer Service incentive for venture capital fund management companies will be withdrawn from 1 April 2015. Pioneer certificates already issued will not be affected by this change.
A review date of 31 March 2020 will be legislated for Section 13H to ensure that the relevance of the scheme is periodically reviewed.
Tax Deductions for Collective Impairment Provisions Made Under the Monetary Authority of Singapore ("MAS") Notices
Banks, finance companies and merchant banks may claim tax deduction for collective impairment provisions made under MAS Notice 612, MAS Notice 811 and MAS Notice 1005 respectively, subject to caps as stipulated under Section 14I of the Income Tax Act.
These tax concessions are scheduled to lapse after YA 2016 or YA 2017.
The tax concessions will be extended till YA 2019 or YA 2020, as the case may be. All conditions of the scheme remain the same.
Enhanced-Tier Fund Tax Incentive Scheme
The Enhanced-Tier Fund tax incentive scheme grants tax exemption to approved fund vehicles on specified income derived from designated investment. Amongst other conditions, each approved fund must meet certain economic conditions (e.g. minimum local business spending, minimum fund size).
As a concession, master-feeder fund structures (excluding Special Purpose Vehicles ("SPVs") held by them) may apply for the Scheme and meet the economic conditions on a collective basis.
To accommodate master-feeder fund structures that hold their investments via SPVs, the existing concession for master-feeder fund structures will be enhanced to apply to SPVs held by the master fund, subject to conditions. With this enhancement, master and feeder funds and SPVs within a master-feeder fund structure may apply for the scheme and meet the economic conditions on a collective basis.
This change will take effect for applications made from 1 April 2015. MAS will release further details by May 2015.
Tax Incentive Scheme for Insurance Businesses
Approved general, life and composite insurers and reinsurers may enjoy a concessionary tax rate of 10% on qualifying income derived from qualifying insurance and reinsurance business conducted from Singapore for a ten-year award tenure.
The scheme is scheduled to lapse after 31 March 2015.
The tax incentive scheme for insurance businesses will be extended till 31 March 2020 as the "Insurance Business Development Incentive" ("IBD"). The concessionary tax rate remains at 10%.
In addition, a renewal framework will be introduced with effect from 1 April 2015. MAS will release further details by May 2015.
Maritime Sector Incentive ("MSI")
Under the MSI, ship operators, maritime lessors and providers of certain shipping-related support services can enjoy the following tax benefits:
In addition, automatic withholding tax ("WHT") exemption is granted on qualifying payments made by qualifying MSI recipients to non-tax-residents (excluding a permanent establishment in Singapore) in respect of qualifying loans entered into on or before 31 May 2016 to finance the construction or purchase of qualifying assets (e.g. ships, containers), subject to conditions.
The approval window to award MSI-AIS for qualifying entry players, MSI-ML(Ship), MSI-ML(Container) and MSI-SSS ends on 31 May 2016.
The MSI will be enhanced as follows:
(a) The automatic WHT exemption regime will be extended to cover finance leases, hire-purchase arrangements, and loans used to finance equity injection into wholly-owned SPVs or intercompany loans to wholly-owned SPVs for the SPVs' purchase/construction of vessels, containers and intermodal equipment;
(b) The definition of qualifying ship management activities for the purpose of the MSI-SRS, MSI-AIS award and MSI-SSS award will be updated;
(c) The MSI-SRS and MSI-AIS award will also cover mobilisation fees, demobilisation fees, holding fees, and incidental container rental income that are derived in the course of qualifying shipping operations;
(d) Qualifying profits remitted from approved foreign branches by MSI-AIS entities will enjoy exemption;
(e) Existing MSI-SSS award recipients can renew their award tenure for another five years, subject to qualifying conditions and higher economic commitments; and
(f) The MSI-ML award will also cover income derived from finance leases treated as sale.
The enhancements to the MSI will take effect for existing and new award recipients from 24 February 2015. The approval window to award MSI-AIS for qualifying entry players, MSI-ML(Ship), MSI-ML(Container) and MSI- SSS will be extended till 31 May 2021. In addition, the automatic withholding tax exemption regime will be extended to qualifying payments made on qualifying loans taken on or before 31 May 2021.
The Maritime Port Authority of Singapore ("MPA") will release further details by May 2015.
Tax Concessions for Listed Real Estate Investment Trusts ("REITs")
Currently, REITs listed on SGX enjoy tax transparency if the trustee of a REIT distributes at least 90% of its taxable income to unitholders in the same year in which the income is derived by the trustee. In addition, listed REITs enjoy the following income tax and stamp duty concessions, which are scheduled to lapse on 31 March 2015:
(a) Concessionary income tax rate of 10% for non-tax-resident non-individual investors;
(b) Tax exemption on qualifying foreign-sourced income (i.e. foreign-sourced dividend income, interest income, trust distributions and branch profits) for listed REITs and wholly-owned Singapore tax resident subsidiary companies of listed REITs, subject to conditions that the overseas property:
(i) is acquired by the trustee of the REIT or its wholly-owned Singapore tax resident subsidiary company on or before 31 March 2015; and
(ii) continues to be beneficially owned by the trustee of the REIT or its wholly-owned Singapore tax resident subsidiary company after 31 March 2015.
(c) Stamp duty remission on the transfer of a Singapore immovable property to a REIT; and
(d) Stamp duty remission on the transfer of 100% of the issued share capital of a Singapore-incorporated company that holds immovable properties situated outside Singapore, to the REIT.
The income tax concessions, with the exception of the stamp duty concessions (c & d above) for REITs will be extended till 31 March 2020. With the extension, the tax exemption on qualifying foreign-sourced income will apply so long as the overseas property is acquired by the REIT or its wholly-owned Singapore tax resident subsidiary company on or before 31 March 2020.
The stamp duty concessions (c & d above) will be allowed to lapse after 31 March 2015. All other conditions remain the same. MAS will release further details by May 2015.
EXPIRY AND WITHDRAWAL OF TAX INCENTIVES AND CONCESSIONS
Productivity and Innovation Credit ("PIC") Bonus
Businesses that spend a minimum of $5,000 in qualifying PIC investments in a YA will receive a dollar-for-dollar matching cash bonus of up to $15,000 over YA 2013 to YA 2015. The PIC Bonus is given on top of the existing 400% tax deductions/ allowances and the 60% cash payout available under the PIC scheme.
The PIC Bonus will be allowed to lapse after YA 2015.
Concessionary Tax Rate on Income Derived From Offshore Leasing of Machinery and Plant
Section 43l of the Income Tax Act provides for a 10% concessionary tax rate on income derived by a leasing company in respect of offshore leasing of machinery and plant.
The scheme under Section 43I will be withdrawn from 1 January 2016.
Approved Headquarters Incentive
The Approved Headquarters incentive was introduced to encourage companies to use Singapore as a base to conduct headquarter management activities.
The incentive confers tax exemption or a concessionary tax rate of 10% on income derived from:
(a) The provision of qualifying headquarter services to qualifying network companies; or
(b) Qualifying treasury, investment or financial activities.
The Approved Headquarters incentive will be withdrawn from 1 October 2015.
Companies performing qualifying headquarters activities or services in Singapore to network companies may qualify for the Development and Expansion Incentive, subject to meeting of conditions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.