Singapore Budget 2014 – Overview of Tax Changes
The following tax changes were announced by Deputy Prime Minister Tharman Shanmugaratnam in his Budget Statement for the Financial Year 2014, which was unveiled in Parliament on Friday, 21 Feb 2013.
Boosting Productivity and Promoting Innovation
|Name of Tax Change
|Extending the Productivity and Innovation Credit (“PIC”) Scheme
|The PIC scheme is available from the Year of Assessment (“YA”) 2011 to YA2015.
Enhanced Tax DeductionsThe scheme provides for 400% tax deductions on up to $400,000 of qualifying expenditure incurred on each of the six qualifying activities 1 in each YA.The expenditure cap of $400,000 per activity is combined across YA2013 to YA2015 (i.e. combined expenditure cap of $1.2 million) per qualifying activity.
PIC Cash Payout In-lieu of the tax deduction, businesses may opt to convert the qualifying expenditure into a non-taxable cash payout. For YA2013 to YA2015, the cash payout rate is 60% of up to $100,000 of qualifying expenditure across the six activities. The expenditure cap of $100,000 is not combined across the 3 YAs.
|To give businesses more time to put in place productivity improvements, the PIC scheme will be extended for three years till YA2018.For enhanced tax deductions, the expenditure cap of $400,000 of qualifying expenditure per activity will be combined across YA2016 to YA2018 (i.e. $1.2 million per qualifying activity). The expenditure cap of $100,000 for PIC cash payout cannot be combined across the three YAs, as is the case currently.
|Introducing PIC+ for SMEs
|PIC enhanced tax deduction at 400% is subject to an expenditure cap of $400,000 per YA for each qualifying activity. This cap is combined across three YAs (i.e. up to $1.2 million per qualifying activity for YAs 2013 to 2015).
|A new PIC+ scheme will be introduced to provide support to SMEs making more substantial investments to transform their businesses. Under the PIC+ scheme, the expenditure cap for qualifying SMEs will be increased from $400,000 to $600,000 per qualifying activity per YA. This means that these SMEs that invest beyond the current combined expenditure cap of $1.2 million for each qualifying activity can claim 400% enhanced tax deduction on an additional $200,000 of qualifying expenditure.PIC+ will take effect for expenditure incurred in YA2015 to YA2018. The combined expenditure cap will be as follows: up to $1.4 million for YA2015; and up to $1.8 million for YA2016 to YA2018. The expenditure cap for PIC cash payout will remain at $100,000 of qualifying expenditure per YA.
|Extending PIC benefits to training of individuals under centralised hiring arrangements
|Businesses that incur training expenses on individuals deployed to their organisations under centralised hiring arrangements are not allowed to claim PIC benefits on the training expenses incurred, as they are not the legal employers of these individuals.
|In response to industry feedback and recognising that training of such individuals can improve the productivity of the businesses where they are deployed, the PIC scheme will be enhanced to allow businesses to claim PIC benefits on training expenses incurred in respect of individuals hired under centralised hiring arrangements.This change will take effect from YA2014.IRAS will release further details by end March 2014.
|Refining the three-local-employees condition for PIC cash payout
|To qualify for PIC cash payout, businesses i.e. sole-proprietorships, partnerships, companies (including registered business trusts) must have employed at least three local employees i.e. three-local-employees condition.A business is considered to have met the condition if it contributes CPF on the payroll of at least three local employees in the relevant month.
|To reinforce the condition that the payouts are made to businesses with active business operations, businesses will have to meet the three-local-employees condition for a consecutive period of at least three months prior to claiming the cash payout. This requirement will take effect for PIC cash payout applications from YA2016.
|Allowing the Tax Deferral Option under the PIC Scheme to Lapse
|To help businesses, especially SMEs, with their cash flow and investments in productivity, businesses can defer a dollar of their tax for the current YA with every dollar of PIC qualifying expenditure incurred in the current financial year, up to a cap of $100,000.The tax deferral option is available for tax payable for YA2011 to YA2014 based on expenditure incurred in the corresponding financial years 2011 to 2014.
|As the PIC cash payout serves a similar purpose to help businesses relieve cash-flow concerns, the tax deferral option will lapse with effect from YA2015.
|Extending the Research and Development (“R&D”) Tax Measures
|Under section 14DA(1) of the Income Tax Act (“ITA”), businesses can enjoy additional 50% tax deduction on qualifying expenditure incurred on qualifying R&D activities up to YA2015. Section 14E of the ITA provides further tax deduction on expenditure incurred in relation to R&D projects approved by EDB on or before 31 March 2015.Currently, businesses can claim tax deductions/ allowance on R&D expenditure incurred for undertaking R&D in areas unrelated to their existing trade or business as long as the R&D is conducted in Singapore.
|To continue encouraging private R&D and to give certainty to businesses, the additional 50% tax deduction accorded under section 14DA(1) will be extended for ten years till YA2025.To attract businesses to conduct large R&D projects in Singapore, the further tax deduction accorded under section 14E will be extended for five years till 31 March 2020.In line with the above extensions, businesses can continue to claim tax deductions/ allowance on R&D expenditure incurred for R&D in areas unrelated to their existing trade or business as long as the R&D is conducted in Singapore. Businesses can also continue to claim a further deduction of up to 300%, on qualifying R&D expenditure up to $400,000 under the PIC scheme, which has been extended till YA2018.
|Extending and Refining the Section 19B Writing Down Allowance (“WDA”) Scheme
|Under section 19B of the ITA, businesses can claim a 100% WDA over a period of five years on the acquisition cost of the following types of qualifying Intellectual Property Rights (“IPRs”):a) Patents;b) Trademarks;c) Registered designs;d) Copyrights;e) Geographical indications;
f) Lay-out designs of integrated circuits;
|To build Singapore as an IP hub, the section 19B WDA will be extended for five years till YA2020. The accelerated WDA for MDE companies will be extended for three years till YA2018.All other existing conditions of the section 19B WDA remain unchanged.To provide clarity on the types of items that would not meet the description of “information that has commercial value”, a negative list will be legislated to expressly exclude the following two categories of information:(i) customer-based intangibles, and(ii) documentation of work processes.This is in line with the policy intent of the scheme, which is to encourage the economic exploitation of confidential information that is of the same class or nature as trade secrets and the other forms of IPR expressly listed in the definition.
The negative list will be published on IRAS’ website by end April 2014, and will be legislated by end December 2014.
Businesses can also continue to claim a further 300% allowance on up to $400,000 of such qualifying costs under the PIC scheme, which has been extended till YA2018.
|Extending the Section 14A Tax Deduction Scheme for Registration Costs of Intellectual Property
|Under section 14A of the Income Tax Act, businesses can claim 100% tax deduction on the costs incurred to register the following qualifying intellectual property:a) Patent;b) Trademarks;c) Designs; andd) Plant Varieties.The scheme will lapse after YA2015.
|To encourage businesses to protect their intellectual property, the 100% tax deduction will be extended for five years till YA2020.Businesses can also continue to claim a further 300% deduction on up to $400,000 of such qualifying costs under the PIC scheme, which has been extended till YA2018 (see item S/N 1).
|Extending and Enhancing the Land Intensification Allowance (“LIA”) Scheme
|The LIA scheme was introduced in Budget 2010 to encourage intensification of industrial land.The scheme is open to businesses in the manufacturing sector that build on industrial Business 1/ Business 2 (“B1/B2”) (excluding B1 White and B2 White) land. To qualify for the LIA scheme, businesses must meet the following conditions:a) The relevant building or structure must meet the Gross Plot Ratio (“GPR”) benchmark applicable for the qualifying trade or business; andb) At least 80% of the total floor area of the relevant building or structure is utilised by a single user for undertaking the qualifying trade or business.
The scheme will lapse after 30 June 2015.
|To continue encouraging businesses to optimise land use, the LIA scheme will be extended for five years till 30 June 2020. The LIA will be extended to the logistics sector in recognition of the close nexus between this sector and qualifying activities supported by LIA.The LIA scheme will also be extended to businesses carrying out qualifying activities on airport and port land.A new condition requiring existing buildings that have already met or exceeded the GPR benchmark to meet a minimum incremental GPR criterion of 10% will be introduced. This is to encourage businesses, especially those already in the top quartile of the relevant GPR benchmark, to continue intensifying their land use.All other existing conditions of the LIA scheme remain unchanged.The enhancements are effective for LIA approvals granted, and capital expenditure incurred on or after 22 February 2014. EDB will release the implementation details by end May 2014.
Promoting Economic Growth
|Name of Tax Change
|Waiving the Withholding Tax Requirement for Payments made to Branches in Singapore
|Persons making payments that fall under the scope of sections 12(6) and 12(7) of the ITA (e.g. interest and royalty payments) to non-residents are required to withhold tax on the payments. This includes payments made to Permanent Establishments (“PEs”) that are Singapore branches of non-resident companies.
|To reduce compliance costs for businesses, payers will no longer need to withhold tax on sections 12(6) and 12(7) payments made to PEs that are Singapore branches of non-resident companies.These branches in Singapore will continue to be assessed for income tax on such payments that they receive and will be required to declare such payments in their annual tax returns. This change will take effect for all payment obligations that arise on or after 21 February 2014.
|Introducing a review date for the Approved Building Project (“ABP”) Scheme
|Currently, land under development can be granted property tax exemption for a period of up to three years under the ABP scheme, subject to conditions.
|A review date of 31 March 2017 will be legislated to ensure that the relevance of the scheme is periodically reviewed.
Strengthening the Competitiveness of the Financial Sector
|Name of Tax Change
|Treating Basel III Additional Tier 1 Instruments as Debt for Tax Purposes
|Additional Tier 1 instruments are a new type of capital instruments under the Basel III global capital standards. Under MAS Notice 637, Singapore-incorporated banks are required to meet minimum capital adequacy ratios that are 2% higher than the Basel III minimum requirements, with effect from 1 January 2015. In addition, Singapore-incorporated banks are required to meet the Basel III minimum capital adequacy requirements from 1 January 2013, two years ahead of the Basel Committee on Banking Supervision’s 2015 timeline. Currently, the tax treatment of such Additional Tier 1 instruments has not been publicly clarified.
|To provide tax certainty and maintain a level-playing field for Singapore-incorporated banks which issue Basel III Additional Tier 1 instruments, such instruments other than shares, will be treated as debt for tax purposes. Hence, distributions on such instruments will be deductible for issuers and taxable in the hands of investors, subject to existing rules. The tax treatment will apply to distributions accrued in the basis period for YA2015 and thereafter, in respect of such instruments issued by Singapore-incorporated banks (excluding their foreign branches) that are subject to MAS Notice 637. MAS will release further details by end May 2014.
|Extending and Refining Tax Incentive Schemes for Qualifying Funds
|Funds managed by Singapore-based fund managers (“Qualifying funds”) currently enjoy the following tax concessions, subject to conditions:a) Tax exemption on specified income derived from designated investments; andb) Withholding tax exemption on interest and other qualifying payments made to all non-resident persons (excluding Permanent Establishments in Singapore).Qualifying funds comprise the following:a) Trust funds with resident trustee (section 13C scheme);b) Trust funds with non-resident trustee and non-resident corporate funds (section 13CA scheme);
c) Resident corporate funds (section 13R scheme); and
d) Enhanced-tier funds (section 13X scheme)
The sections 13CA and 13R schemes impose conditions on investor ownership levels on the last day of the qualifying fund’s basis period for the relevant YA. The investor ownership levels are computed based on the historical value of the qualifying funds’ issued securities. The section 13X scheme does not impose conditions on investor ownership levels. The schemes for qualifying funds will lapse after 31 March 2014.
|To anchor and continue to grow Singapore’s asset management industry, the sections 13CA, 13R and 13X schemes will be extended for five years till 31 March 2019. The section 13C scheme will be allowed to lapse after 31 March 2014.The sections 13CA, 13R and 13X schemes will be refined as follows:a) The section 13CA scheme will be expanded to include trust funds with resident trustees, which are presently covered under the section 13C scheme, with effect from 1 April 2014;b) The investor ownership levels for the sections 13CA and 13R schemes will be computed based on the prevailing market value of the issued securities on that day instead of the historical value. This will take effect from 1 April 2014; andc) 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.Other existing conditions of the schemes remain unchanged. MAS will release further details of the changes by end May 2014.
|Recovery of GST for Qualifying Funds
|As a concession, qualifying funds that are managed by prescribed fund managers in Singapore are allowed to claim GST incurred on expenses at a fixed rate. The concession will lapse after 31 March 2014.
|To further grow Singapore as a centre for fund management and administration, the concession will be extended for five years till 31 March 2019. MAS will release further details of the change by end March 2014.
|Enhancing the Foreign-Sourced Income Exemption Scheme for Listed Infrastructure Registered Business Trusts (“RBTs”)
|Currently, foreign-sourced income derived by listed infrastructure RBTs in Singapore is exempted from tax if the income falls within certain scenarios specified under section 13(12) of the ITA. Tax exemption for foreign-sourced income received in all other situations must be approved by the Minister for Finance, on a case-by-case basis, including the tax exemptions for foreign-sourced dividends that originate from interest income and foreign-sourced interest income derived from a qualifying offshore infrastructure project/ asset.
|To accord listed infrastructure RBTs in Singapore greater tax certainty, thereby facilitating the listing of more infrastructure assets in Singapore, the foreign-sourced income exemption for listed infrastructure RBTs will be enhanced as follows:a) The specified scenarios under section 13(12) will be expanded to cover dividend income originating from foreign-sourced interest income so long as it relates to the qualifying offshore infrastructure project/ asset. IRAS will continue to verify that the qualifying conditions are met for all specified scenarios; andb) Interest income derived from a qualifying offshore infrastructure project/ asset will automatically qualify for section 13(12) exemption provided certain conditions are met. With the change, IRAS will verify that the qualifying conditions are met instead of the current case-by-case approval by the Minister for Finance.IRAS will release further details, including the effective date of these enhancements, by end May 2014.
|Refining the Designated Unit Trust (“DUT”) Scheme
|The DUT scheme was introduced to foster the development of the domestic retail unit trust industry. Specified income derived by a unit trust with the DUT status is not taxed at the trustee level, but is taxed upon distribution in the hands of certain investors. Qualifying foreign investors and individuals7 are exempted from tax on any distribution made by a DUT.The DUT scheme is available to both retail unit trusts8 and certain other types of unit trusts, which are targeted at more sophisticated and institutional investors (“non-retail unit trusts”).
|The DUT scheme will be streamlined and rationalised through the following changes:a) The scheme will be limited to unit trusts offered to retail investors with effect from 21 February 2014. Non-retail unit trusts may consider other fund schemes;b) Existing non-retail unit trusts that were approved under the scheme prior to 21 February 2014 may continue to retain their DUT status; andc) From 1 September 2014, subject to the fulfilment of conditions, unit trusts do not have to apply for the DUT scheme to enjoy the benefits of the scheme.Other existing conditions of the DUT scheme remain unchanged. A review date of 31 March 2019 will be legislated to ensure that the relevance of the scheme is periodically reviewed. MAS will release further details of the changes by end May 2014.
Rationalising the Corporate Tax System
|Name of Tax Change
|Allowing the Investment Allowance (“IA”) Scheme for Aircraft Rotables to Lapse
|The IA scheme for aircraft rotables was introduced on 10 September 2004 to encourage investments in aircraft rotables that would increase the productive capacity of the aerospace maintenance, repair and overhaul companies. The scheme will lapse after 31 March 2015.
|As the scheme is assessed to be no longer relevant, the IA scheme for aircraft rotables will be allowed to lapse after 31 March 2015.
Personal Income Tax
|Name of Tax Change
|Enhancing the Parent and Handicapped Parent Reliefs
|A tax resident individual may claim parent / handicapped parent relief in a YA if he supported his or his spouse’s parents, grandparents and great-grandparents (collectively referred to as “parents”) in the year immediately preceding that YA. The current quantum of parent / handicapped parent relief granted for each parent is as follows:
Currently, parent / handicapped parent relief in respect of a qualifying parent can only be claimed by one claimant in any YA.
Where the family members are unable to agree among themselves on who is to claim the parent / handicapped parent relief, the Comptroller of Income Tax has the discretion to decide on whom the relief will be allowed.
|To provide greater encouragement and recognition to individuals supporting their or their spouse’s parents, the quantum of parent / handicapped parent relief will be increased, with individuals who are staying with these dependants enjoying a higher relief quantum, as follows:
Recognising that care for parents is a shared responsibility among family members, claimants of parent / handicapped parent relief will be able to share the relief according to the claimants’ agreed proportion.
If more than one claimant is making the claim and the claimants cannot come to an agreement on the apportionment ratio among themselves, the Comptroller of Income Tax will apportion the relief equally among all claimants. The above changes will take effect from YA2015.
|Enhancing the Handicapped Spouse, Handicapped Sibling and Handicapped Child Reliefs
|The current amounts of handicapped spouse, handicapped sibling and handicapped child reliefs are as follows:
|To provide greater recognition to individuals who are supporting their handicapped dependants, the amount of handicapped spouse, handicapped sibling and handicapped child reliefs will be increased with effect from YA2015 as follows:
|Removing Transfers of Qualifying Deductions, and Deficits Between Spouses
|From YA2005, a married taxpayer can transfer the following qualifying deductions and deficits to his / her spouse for a particular YA:a) Unabsorbed trade losses;b) Unabsorbed capital allowances;c) Unutilised donations; andd) Rental deficits.The taxpayer can also carry back any unabsorbed trade losses or capital allowances to set-off against the income of his / her spouse for the immediate preceding YA under the loss carry-back scheme from YA2006 onwards.
|To simplify the personal income tax system, married couples can no longer transfer qualifying deductions and deficits between each other (including under the loss carry-back scheme) with effect from YA2016.As a transitional concession, qualifying deductions and deficits incurred by a married couple in and before YA2015 will still be allowed for inter-spousal transfers up till YA2017, subject to existing rules.Any unabsorbed trade losses or capital allowances may still be carried forward to future years to be set-off against the future income of the taxpayer, until the amount is fully utilised, subject to existing rules. Similarly, any unutilised donations may be carried forward to future years to be set-off against the future income of the taxpayer, up to a maximum of five years. IRAS will provide more details of the change by end May 2014.
|Removing the Section 40 Relief
|Currently, certain categories of non-resident individuals are entitled to section 40 relief that would reduce their tax payable on their aggregate assessable income to an amount equivalent to what they would have been liable for had they been assessed as a tax resident in Singapore and entitled to personal income tax reliefs. These categories of non-resident individuals are:a) Singapore Citizens;b) Individuals who are not Singapore Citizens and deriving pension income from Singapore; andc) Individuals who are not Singapore Citizens and are residents of countries with which Singapore has a tax treaty that accords such benefits on a reciprocal basis.
|To simplify the personal income tax system, the Section 40 relief will be removed with effect from YA2016.
|Name of Tax Change
|Streamlining the Stamp Duty Rate Structure
|a) Currently, the stamp duty payable on a lease of an immovable property is assessed on the annualised rental amount, regardless of the actual lease period. This means that a one-month lease will bear the same stamp duty amount as a one year lease, where the monthly rent is the same for both leases.The current stamp duty rate structure for leases is as follows:
b) Buyer’s stamp duty is charged as a specified amount for every $100 or part thereof of the consideration for land premiums and purchase of property as follows:
c) Stamp duty is charged as a specified amount for every $100 or $1,000 or part thereof on the following types of instruments:
|a) To ensure consistency in stamp duty treatment across leases of varying tenures, the basis for charging stamp duty on leases executed on or after 22 February 2014 will be as follows:
b) To further streamline the stamp duty regime, the stamp duty rates for other instruments (land premiums and purchase of property, share transfers and mortgages) executed on or after 22 February 2014 will be as follows:
ii) Share Transfers and Mortgages