Singapore Budget 2015 – Overview of Tax Changes

The following tax changes were announced by Deputy Prime Minister Tharman Shanmugaratnam in his Budget Statement for the Financial Year 2015, which was announced in Parliament on Monday, 23 February 2015.

Tax Changes for Businesses

Helping Businesses Cope with Rising Costs

Name of Tax Change	Current Treatment	New Treatment
Granting a Corporate Income Tax (“CIT”) Rebate for Year of Assessment (“YA”) 2016 and YA 2017	To relieve business costs, a 30% CIT rebate capped at $30,000 per YA was granted to companies from YA 2013 to YA 2015 as part of the Transition Support Package (“TSP”) announced in Budget 2013.	Given that businesses will continue to face cost pressures in this period of restructuring, the 30% CIT rebate will be provided for another two YAs (YA 2016 and YA 2017), with a reduced cap of $20,000 per company per YA.
Allowing the Productivity and Innovation Credit (“PIC”) Bonus to lapse	The PIC Bonus was introduced in Budget 2013 as part of the TSP. It seeks to help businesses defray rising operating costs and encourage businesses to undertake improvements in productivity and innovation. Businesses that spend a minimum of $5,000 in qualifying PIC investments1 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 provided on top of the existing 400% tax deductions/ allowances and the 60% cash	The PIC Bonus was intended as a transitional measure and has been successful in spreading the culture of productivity amongst SMEs. As there is now a good take-up of the PIC scheme, the PIC Bonus will be allowed to lapse after YA 2015. Businesses will continue to benefit from the PIC scheme which has been extended till YA 2018, and the PIC+ scheme introduced in Budget 2014.

Name of Tax Change

Current Treatment

New Treatment

Granting a Corporate Income Tax (“CIT”) Rebate for Year of Assessment (“YA”) 2016 and YA 2017

To relieve business costs, a 30% CIT rebate capped at $30,000 per YA was granted to companies from YA 2013 to YA 2015 as part of the Transition Support Package (“TSP”) announced in Budget 2013.

Given that businesses will continue to face cost pressures in this period of restructuring, the 30% CIT rebate will be provided for another two YAs (YA 2016 and YA 2017), with a reduced cap of $20,000 per company per YA.

Allowing the Productivity and Innovation Credit (“PIC”) Bonus to lapse

The PIC Bonus was introduced in Budget 2013 as part of the TSP. It seeks to help businesses defray rising operating costs and encourage businesses to undertake improvements in productivity and innovation.

Businesses that spend a minimum of $5,000 in qualifying PIC investments1 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 provided on top of the existing 400% tax deductions/ allowances and the 60% cash

The PIC Bonus was intended as a transitional measure and has been successful in spreading the culture of productivity amongst SMEs. As there is now a good take-up of the PIC scheme, the PIC Bonus will be allowed to lapse after YA 2015. Businesses will continue to benefit from the PIC scheme which has been extended till YA 2018, and the PIC+ scheme introduced in Budget 2014.

Supporting Internationalising Businesses

Name of Tax Change	Current Treatment	New Treatment
Extending and enhancing the Mergers & Acquisitions (“M&A”) scheme	The M&A scheme was introduced in 2010 to encourage companies to consider M&A as a strategy for growth and internationalisation. It 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 costs2 incurred on 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 indirectly3, that results in the acquiring company holding: i) More than 50% ordinary shareholding in the target company (if the acquiring company’s original shareholding 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”.	To further support companies, especially small and medium enterprises, to grow via strategic acquisitions, the 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 costs4 incurred on 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 indirectly5, 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 shareholding 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 The 12-month look-back period will be removed to simplify the scheme. The above changes will take effect for qualifying acquisitions made from 1 April 2015. IRAS will release more details by May 2015 including details of relevant transitional arrangements arising from the above changes.
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 conditions.	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. This provides greater support to businesses expanding overseas as well as creates more skilled jobs and opportunities for Singaporeans to work overseas. 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 (“IE”) 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. IE will release further details by May 2015.
Introducing the International Growth Scheme	Nil	To provide greater and more targeted support for larger Singapore companies in their internationalisation efforts, the Government will introduce a new International Growth Scheme (“IGS”). The IGS aims to support high potential companies in their growth overseas, while they continue to anchor their key functions in Singapore. Under the IGS, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities6. Such companies will be expected to engage in internationalisation activities and provide opportunities for Singaporeans to gain greater international exposure. This new scheme will be administered by IE. The approval window for the new scheme will be from 1 April 2015 to 31 March 2020. IE will release further details by May 2015.

Name of Tax Change

Current Treatment

New Treatment

Extending and enhancing the Mergers & Acquisitions (“M&A”) scheme

The M&A scheme was introduced in 2010 to encourage companies to consider M&A as a strategy for growth and internationalisation. It 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 costs2 incurred on 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 indirectly3, that results in the acquiring company holding:
i) More than 50% ordinary shareholding in the target company (if the acquiring company’s original shareholding 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”.

To further support companies, especially small and medium enterprises, to grow via strategic acquisitions, the 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 costs4 incurred on 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 indirectly5, 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 shareholding 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
The 12-month look-back period will be removed to simplify the scheme.
The above changes will take effect for qualifying acquisitions made from 1 April 2015.
IRAS will release more details by May 2015 including details of relevant transitional arrangements arising from the above changes.

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 conditions.

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. This provides greater support to businesses expanding overseas as well as creates more skilled jobs and opportunities for Singaporeans to work overseas.

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 (“IE”) 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.

IE will release further details by May 2015.

Introducing the International Growth Scheme

Nil

To provide greater and more targeted support for larger Singapore companies in their internationalisation efforts, the Government will introduce a new International Growth Scheme (“IGS”).

The IGS aims to support high potential companies in their growth overseas, while they continue to anchor their key functions in Singapore.

Under the IGS, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities6. Such companies will be expected to engage in internationalisation activities and provide opportunities for Singaporeans to gain greater international exposure.

This new scheme will be administered by IE.
The approval window for the new scheme will be from 1 April 2015 to 31 March 2020.
IE will release further details by May 2015.

Supporting Enterprise Growth

Name of Tax Change	Current Treatment	New Treatment
Extending and enhancing the Angel Investors Tax Deduction (“AITD”) scheme	The AITD scheme was introduced to encourage eligible individuals who are able and willing to invest in start-up companies and help them grow. It applies to qualifying investments made in qualifying start-up companies from 1 March 2010 to 31 March 2015. Under the scheme, an approved angel investor needs to, amongst other conditions, invest a minimum of $100,000 into a start-up company within a year, and hold the qualifying investment for a continuous period of two years, to enjoy a tax deduction of 50% of the cost of the qualifying investment. The amount of expenditure incurred on investments that qualify for the deduction is capped at $500,000 per YA. Investments that are co-funded by the Government under the SPRING Start-up Enterprise Development Scheme (“SEEDS”) or the Business Angel Scheme (“BAS”) currently do not qualify for the tax deduction.	The scheme will be extended till 31 March 2020 to continue to encourage angel investors to invest in start-up companies and help them to grow. In addition, to allow more investments to be eligible for the scheme, new qualifying investments made from 24 February 2015 to 31 March 2020 that are co-funded by the Government under SEEDS or BAS will also be allowed to qualify for the AITD. All other conditions of the scheme remain the same.
Refining the tax incentives for venture capital funds and venture capital fund management companies	Currently, approved venture capital funds may be granted tax exemption under Section 13H of the ITA (“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.	In recognition of the importance of venture capital activity in supporting entrepreneurship, 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 given that venture capital is no longer a pioneering activity in Singapore. 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.
Extending the 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 scheme, by the Infocomm Development Authority of Singapore (“IDA”).	As energy efficiency remains a key national priority, 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. EDB will release more details by March 2015.
Extending the Development and Expansion Incentive for International Legal Services (“DEI-Legal”) scheme	The DEI-Legal scheme was introduced in Budget 2010 to encourage law practices to do more international legal services work from Singapore and to attract international law practices to set up offices in Singapore. 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.	To continue encouraging law practices to do more international legal services work from Singapore, the DEI-Legal scheme will be extended till 31 March 2020. All other conditions of the scheme remain the same.
Introducing a review date for the Approved Foreign Loan (“AFL”) incentive	The AFL incentive was introduced to encourage companies to invest in productive equipment for the purpose of carrying on substantive activities in Singapore. Under the scheme, tax exemption or a concessionary tax rate may be granted on interest payments made to a non-tax-resident for loans to a company 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.	A review date of 31 December 2023 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed. In addition, 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.
Introducing a review date for the Approved Royalties Incentive (“ARI”)	The ARI was introduced to encourage companies to access cutting-edge technology and know-how for substantive activities in Singapore. Under the 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 scheme to ensure that the relevance of the scheme is periodically reviewed.
Introducing a review date for the 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 under Section 19D of the ITA	The WDA scheme provided under Section 19D of the ITA was introduced in YA 2004 for 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.

Strengthening the Competitiveness of the Financial Sector

Name of Tax Change	Current Treatment	New Treatment
Extending the tax deductions for collective impairment provisions made under the Monetary Authority of Singapore (“MAS”) Notices	Banks may claim tax deduction for collective impairment provisions made under MAS Notice 612, subject to caps as stipulated under Section 14I of the ITA. Additionally, finance companies and merchant banks may claim tax deduction for collective impairment provisions made under MAS Notice 811 and MAS Notice 1005 respectively. These tax concessions are scheduled to lapse after YA 2016 or YA 2017.	In recognition that banks and finance companies need to maintain adequate levels of impairment provisions under the relevant MAS Notices as they transit to the new accounting standard on impairment in Singapore8, 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.
Extending and refining the 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	To strengthen Singapore’s value proposition as an Asian insurance and reinsurance centre, the scheme 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 to encourage existing recipients of the incentive to continue expanding their operations in Singapore. MAS will release further details by May 2015.
Improving the Enhanced-Tier Fund tax incentive scheme	The Enhanced-Tier Fund tax incentive scheme (“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.
Extending the 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.	To continue to promote the listing of REITs in Singapore and strengthen Singapore’s position as a REITs hub in Asia, the package of tax concessions for REITs has been reviewed to ensure that it remains competitive to support the growth of the industry. The package of income tax concessions 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 were intended to enable the industry to acquire a critical mass of local assets, as a base from which the REITS can expand abroad. As this has been achieved, the concessions will be allowed to lapse after 31 March 2015. All other conditions remain the same. MAS will release further details by May 2015.
Extending and enhancing the GST remission for listed REITs, and listed Registered Business Trusts (“RBTs”) in the infrastructure business, ship leasing and aircraft leasing sectors	GST remission is granted to listed REITs, and listed Registered Business Trusts (“RBTs”) in the infrastructure business, ship leasing and aircraft leasing sectors, to allow them to claim GST on their business expenses regardless of whether they hold underlying assets directly or indirectly through multi-tiered structures such as special purpose vehicles (“SPVs”) or sub-trusts. The GST remission is scheduled to lapse after 31 March 2015. REITs and RBTs qualifying under the GST remission are however not allowed to claim GST on costs to set up SPVs that do not hold qualifying assets of the REITs or RBTs, directly or indirectly. The GST on the business expenses of such SPVs is also not claimable. Qualifying assets are assets that are used to make taxable supplies or out-of-scope supplies that would have been taxable supplies if made in Singapore.	The existing GST remission will be extended till 31 March 2020 to continue facilitating the listing of REITs, and RBTs in the infrastructure business, ship leasing and aircraft leasing sectors. In addition, to facilitate fundraising by these REITs and RBTs through SPVs, REITs and RBTs qualifying under the current GST remission will be allowed to claim GST on business expenses incurred to set up SPVs that are used solely to raise funds for the REITs or RBTs, and which do not hold qualifying assets of the REITs or RBTs, directly or indirectly. These REITs and RBTs will also be allowed to claim GST on the business expenses of such SPVs. The enhancement to the GST remission will take effect for GST incurred from 1 April 2015 to 31 March 2020. IRAS will release further details by March 2015.

Strengthening the Competitiveness of the Maritime Sector

Name of Tax Change	Current Treatment	New Treatment
Extending and enhancing the Maritime Sector Incentive (“MSI”)	Under the MSI, ship operators, maritime lessors and providers of certain shipping-related support services can enjoy tax benefits summarised in the table below: For Ship Owners: a) MSI-Shipping Enterprise (Singapore Registry of Ships) (“MSI-SRS”) Tax exemption on qualifying income derived mainly from operating Singapore-flagged ships10 b) MSI-Approved International Shipping Enterprise (“MSI-AIS”) Award Tax exemption on qualifying income derived from operating foreign-flagged ships For maritime lessors c) MSI-Maritime Leasing (Ship) (“MSI-ML(Ship)”) Award Tax exemption on qualifying income derived from leasing ships, and 10% concessionary tax rate on qualifying income derived from managing an approved shipping investment enterprise d) MSI-ML (Container) Award 10% or 5% concessionary tax rate on qualifying income derived from leasing of qualifying sea containers and intermodal equipments that is incidental to the leasing of qualifying sea containers, and 10% concessionary tax rate on qualifying income derived from managing an approved container investment enterprise related support services e) MSI-Shipping-related Support Services (“MSI-SSS”) Award 10% concessionary tax rate on incremental qualifying income derived from carrying out approved shipping-related support services 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.	To further develop Singapore as an International Maritime Centre, the MSI will be enhanced as follows: a) The automatic WHT exemption regime will now 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 to keep pace with industry changes; c) The MSI-SRS and MSI-AIS award will now 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 now 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 now 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.

Name of Tax Change

Current Treatment

New Treatment

Extending and enhancing the Maritime Sector Incentive (“MSI”)

Under the MSI, ship operators, maritime lessors and providers of certain shipping-related support services can enjoy tax benefits summarised in the table below:

For Ship Owners:
a)
MSI-Shipping Enterprise (Singapore Registry of Ships) (“MSI-SRS”)
Tax exemption on qualifying income derived mainly from operating Singapore-flagged ships10
b)
MSI-Approved International Shipping Enterprise (“MSI-AIS”) Award
Tax exemption on qualifying income derived from operating foreign-flagged ships

For maritime lessors
c) MSI-Maritime Leasing (Ship) (“MSI-ML(Ship)”) Award
Tax exemption on qualifying income derived from leasing ships, and 10% concessionary tax rate on qualifying income derived from managing an approved shipping investment enterprise
d) MSI-ML (Container) Award
10% or 5% concessionary tax rate on qualifying income derived from leasing of qualifying sea containers and intermodal equipments that is incidental to the leasing of qualifying sea containers, and 10% concessionary tax rate on qualifying income derived from managing an approved container investment enterprise related support services
e) MSI-Shipping-related Support Services (“MSI-SSS”) Award
10% concessionary tax rate on incremental qualifying income derived from carrying out approved shipping-related support services

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.

To further develop Singapore as an International Maritime Centre, the MSI will be enhanced as follows:

a) The automatic WHT exemption regime will now 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 to keep pace with industry changes;

c) The MSI-SRS and MSI-AIS award will now 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 now 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 now 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.

Rationalising the Corporate Tax System

Name of Tax Change	Current Treatment	New Treatment
Withdrawing the concessionary tax rate on income derived from offshore leasing of machinery and plant under Section 43I of the ITA	Section 43I provides for a 10% concessionary tax rate on income derived by a leasing company in respect of offshore leasing of machinery and plant.	With the introduction of targeted tax incentives for leasing of aircraft, aircraft engines, ships and sea containers, the relevance of Section 43I has diminished. To simplify our tax regime, the scheme will be withdrawn from 1 January 2016. Any income derived from 1 January 2016 by a leasing company from the offshore leasing of any machinery or plant will be subject to tax at the prevailing corporate tax rate.
Withdrawing the Approved Headquarters incentive under Section 43E of the ITA	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.	As part of our regular review of tax incentives with the objective of simplifying our tax regime, 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.

Name of Tax Change

Current Treatment

New Treatment

Withdrawing the concessionary tax rate on income derived from offshore leasing of machinery and plant under Section 43I of the ITA

Section 43I provides for a 10% concessionary tax rate on income derived by a leasing company in respect of offshore leasing of machinery and plant.

With the introduction of targeted tax incentives for leasing of aircraft, aircraft engines, ships and sea containers, the relevance of Section 43I has diminished.

To simplify our tax regime, the scheme will be withdrawn from 1 January 2016. Any income derived from 1 January 2016 by a leasing company from the offshore leasing of any machinery or plant will be subject to tax at the prevailing corporate tax rate.

Withdrawing the Approved Headquarters incentive under Section 43E of the ITA

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.

As part of our regular review of tax incentives with the objective of simplifying our tax regime, 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.

Tax Changes for Individuals

Personal Income Tax

Name of Tax Change

Current Treatment

New Treatment

Enhancing progressivity of the personal income tax rate structure of tax resident individual taxpayers

The current personal income tax rate structure for tax resident individual taxpayers is shown in the table below.

Current tax structure
	Chargeable Income ($)	Tax Rate (%)	Gross Tax Payable ($)
On the first On the next	20,000 10,000	0 2	0 200
On the first On the next	30,000 10,000	– 3.5	200 350
On the first On the next	40,000 40,000	– 7	550 2,800
On the first On the next	80,000 40,000	– 11.5	3,350 4,600
On the first On the next	120,000 40,000	– 15	7,950 6,000
On the first On the next	160,000 40,000	– 17	13,950 6,800
On the first On the next	200,000 120,000	– 18	20,750 21,600
On the first In excess of	320,000 320,000	– 20	42,350

The new personal income tax rate structure for tax resident individual taxpayers is shown in the table below.

Tax structure with effect from Year of Assessment (“YA”) 2017
	Chargeable Income ($)	Tax Rate (%)	Gross Tax Payable ($)
On the first On the next	20,000 10,000	0 2	0 200
On the first On the next	30,000 10,000	– 3.5	200 350
On the first On the next	40,000 40,000	– 7	550 2,800
On the first On the next	80,000 40,000	– 11.5	3,350 4,600
On the first On the next	120,000 40,000	– 15	7,950 6,000
On the first On the next	160,000 40,000	– 18	13,950 7,200
On the first On the next	200,000 40,000	– 19	21,150 7,600
On the first On the next	240,000 40,000	– 19.5	28,750 7,800
On the first On the next	280,000 40,000	– 20	36,550 8,000
On the first On the next	320,000 320,000	– 22	44,550

The changes to the tax rates are made to enhance progressivity of our personal income tax rate regime and strengthen future revenues. This new personal income tax rate structure will take effect from YA 2017.

Personal income tax rebate for tax resident individual taxpayers

Nil

A personal income tax rebate of 50%, capped at $1,000 per taxpayer, will be granted to all tax resident individual taxpayers for YA 2015.

Allowing individual taxpayers to claim a specified amount of expenses against his passive rental income derived from residential properties in Singapore

An individual who derives passive rental income from a residential property in Singapore can, subject to income tax rules, claim against such income a deduction of the actual deductible expenses incurred in producing the income. To substantiate his claim for the deduction of expenses, he is required to keep the relevant records for a period of at least five years from the YA to which the claims relate.

To simplify tax compliance, an individual who derives passive rental income in the basis period for YA 2016 or a subsequent YA from the letting of a residential property in Singapore (referred to as “qualifying rental income”) can, in lieu of claiming the actual amount of deductible expenses incurred (excluding interest expenses) against his qualifying rental income, claim a specified amount of expenses as a proxy for the deductible expenses (determined based on 15% of the gross rental income derived from that residential property). The individual can continue to deduct against his qualifying rental income, any deductible interest expense.

This tax change does not apply to any rental income derived:

a) by an individual through a partnership in Singapore; and
b) from a trust property.
IRAS will release further details of the change by May 2015.

Tax exemption for non-tax-resident arbitrators

Non-tax-resident arbitrators are exempted from tax on income derived on or after 3 May 2002 from arbitration work carried out in Singapore.

A review date of 31 March 2020 will be legislated for the tax exemption for non-tax-resident arbitrators, to ensure that the relevance of the scheme is periodically reviewed.

Tax Changes for Individuals and Businesses

Encouraging Philanthropy

Name of Tax Change	Current Treatment	New Treatment
Extending and enhancing the 250% tax deduction for donations	Donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character (“IPCs”) and other qualifying recipients (such as approved museums, prescribed educational institutions) from 1 January 2009 to 31 December 2015.	To build a stronger culture of giving and as part of the SG50 jubilee celebration, the tax deduction rate for qualifying donations made to IPCs and other qualifying recipients in 2015 will be increased from the current 250% to 300%. The tax deduction will revert to 250% for qualifying donations made from 1 January 2016 to 31 December 2018 to IPCs and other qualifying recipients.

Name of Tax Change

Current Treatment

New Treatment

Extending and enhancing the 250% tax deduction for donations

Donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character (“IPCs”) and other qualifying recipients (such as approved museums, prescribed educational institutions) from 1 January 2009 to 31 December 2015.

To build a stronger culture of giving and as part of the SG50 jubilee celebration, the tax deduction rate for qualifying donations made to IPCs and other qualifying recipients in 2015 will be increased from the current 250% to 300%.

The tax deduction will revert to 250% for qualifying donations made from 1 January 2016 to 31 December 2018 to IPCs and other qualifying recipients.

Rationalising the Tax System

Name of Tax Change	Current Treatment	New Treatment
Withdrawing the tax concession on royalties and other payments from approved intellectual property or innovation under Section 10(16) of the ITA	Section 10(16) of the ITA provides a tax concession to: a) An individual who is the inventor, author, proprietor, designer or creator of an approved intellectual property or innovation; or b) Any company in which such an individual beneficially owns all the issued shares. The income derived by such an individual or company from royalties or other payments received as consideration for the assignment of or the rights in the approved intellectual property or innovation shall be deemed to be: a) the amount of royalties or other payments remaining after deductions and capital allowances (if any); or b) an amount equal to 10% of the gross amount of royalties or other payments, whichever is less.	As the tax concession is assessed to be no longer relevant, the Section 10(16) concession will be withdrawn from YA 2017.

Name of Tax Change

Current Treatment

New Treatment

Withdrawing the tax concession on royalties and other payments from approved intellectual property or innovation under Section 10(16) of the ITA

Section 10(16) of the ITA provides a tax concession to:

a) An individual who is the inventor, author, proprietor, designer or creator of an approved intellectual property or innovation; or
b) Any company in which such an individual beneficially owns all the issued shares.
The income derived by such an individual or company from royalties or other payments received as consideration for the assignment of or the rights in the approved intellectual property or innovation shall be deemed to be:
a) the amount of royalties or other payments remaining after deductions and capital allowances (if any); or
b) an amount equal to 10% of the gross amount of royalties or other payments,
whichever is less.

As the tax concession is assessed to be no longer relevant, the Section 10(16) concession will be withdrawn from YA 2017.

Other Tax Changes

Goods and Services Tax (GST)

Name of Tax Change	Current Treatment	New Treatment
Simplifying pre-registration GST claim rules for GST-registered businesses	GST incurred on purchases of goods and services prior to GST registration is referred to as pre-registration GST. In general, GST-registered businesses can only claim pre-registration GST on the portion of goods and services used or to be used to make taxable supplies after GST registration. Where goods and services are used to make supplies straddling GST registration (i.e. supplies before and after GST registration), or where goods are partially consumed before GST registration, businesses are required to apportion the pre-registration GST on these goods and services and can only claim the portion attributable to taxable supplies made after GST registration.	To ease compliance, the claiming of pre-registration GST will be simplified to allow a newly GST-registered business to claim pre-registration GST in full on the following goods and services that are acquired within six months before the GST registration date of the business: a) Goods held by the business at the point of GST registration; and b) Property rental, utilities and services, which are not directly attributable to any supply made by the business before GST registration. Thus, businesses no longer have to apportion the pre-registration GST on the above goods and services even if these goods and services have been used to make supplies straddling GST registration or these goods have been partially consumed before GST registration. This is provided the use of these goods and services after GST registration is for the making of taxable supplies and not exempt supplies. For other purchases of goods and services prior to GST registration, including those acquired more than six months before the GST registration date of the business, existing pre-registration GST claim rules will apply. This change will take effect for businesses that are GST-registered from 1 July 2015. IRAS will release further details of the change by June 2015.

Name of Tax Change

Current Treatment

New Treatment

Simplifying pre-registration GST claim rules for GST-registered businesses

GST incurred on purchases of goods and services prior to GST registration is referred to as pre-registration GST. In general, GST-registered businesses can only claim pre-registration GST on the portion of goods and services used or to be used to make taxable supplies after GST registration.

Where goods and services are used to make supplies straddling GST registration (i.e. supplies before and after GST registration), or where goods are partially consumed before GST registration, businesses are required to apportion the pre-registration GST on these goods and services and can only claim the portion attributable to taxable supplies made after GST registration.

To ease compliance, the claiming of pre-registration GST will be simplified to allow a newly GST-registered business to claim pre-registration GST in full on the following goods and services that are acquired within six months before the GST registration date of the business:

a) Goods held by the business at the point of GST registration; and
b) Property rental, utilities and services, which are not directly attributable to any supply made by the business before GST registration.

Thus, businesses no longer have to apportion the pre-registration GST on the above goods and services even if these goods and services have been used to make supplies straddling GST registration or these goods have been partially consumed before GST registration. This is provided the use of these goods and services after GST registration is for the making of taxable supplies and not exempt supplies.

For other purchases of goods and services prior to GST registration, including those acquired more than six months before the GST registration date of the business, existing pre-registration GST claim rules will apply.

This change will take effect for businesses that are GST-registered from 1 July 2015.

IRAS will release further details of the change by June 2015.

Vehicle Tax

Name of Tax Change	Current Treatment	New Treatment
Refining the Carbon Emissions-based Vehicle Scheme (“CEVS”)	CEVS was introduced in 2013. Under the scheme, car models with low carbon emissions receive rebates of up to $20,000 on their Additional Registration Fee (“ARF”) while those with high carbon emissions pay a surcharge of up to $20,000 (see table below). The current CEVS will expire on 30 June 2015.	To encourage a greater shift to green cars, the CEVS will be extended by two years, from 1 July 2015 to 30 June 2017, with 2 refinements: a) Update the surcharge and rebate bands to reflect improvements in vehicle engine technology; and b) Increase the highest rebate and surcharge quantum from $20,000 to $30,000.
Updating petrol duty rates	The current petrol duty rates introduced in 2003 are: Current Duty Rate Premium grade petrol – unleaded (RON 97 and above) $0.44 per litre Intermediate grade petrol – unleaded (RON 90 and above but under RON 97) $0.41 per litre	To promote efficient fuel usage to reduce carbon emissions, the petrol duty rates introduced in 2003 will be updated: New Duty Rate Premium grade petrol – unleaded (RON 97 and above) $0.64 per litre Intermediate grade petrol – unleaded (RON 90 and above but under RON 97) $0.56 per litre
Providing a one-year road tax rebate for petrol vehicles	Road tax payable is based on the engine capacities for cars and motorcycles and based on maximum laden weight for commercial vehicles. Road tax for taxis is $1,050 per year.	To ease the transition to the revised petrol duties, a one-year road tax rebate will be provided for petrol vehicles: 20% for petrol cars; 60% for petrol motorcycles; and 100% for petrol commercial vehicles and taxis. For a typical car, the road tax rebate will offset about two-thirds of the impact of the duty change on intermediate grade petrol. The rebate will be effective from 1 August 2015 to 31 July 2016.

Name of Tax Change

Current Treatment

New Treatment

Refining the Carbon Emissions-based Vehicle Scheme (“CEVS”)

CEVS was introduced in 2013. Under the scheme, car models with low carbon emissions receive rebates of up to $20,000 on their Additional Registration Fee (“ARF”) while those with high carbon emissions pay a surcharge of up to $20,000 (see table below).

The current CEVS will expire on 30 June 2015.

To encourage a greater shift to green cars, the CEVS will be extended by two years, from 1 July 2015 to 30 June 2017, with 2 refinements:
a) Update the surcharge and rebate bands to reflect improvements in vehicle engine technology; and
b) Increase the highest rebate and surcharge quantum from $20,000 to $30,000.

Updating petrol duty rates

The current petrol duty rates introduced in 2003 are:

Current Duty Rate
Premium grade petrol – unleaded
(RON 97 and above)
$0.44 per litre
Intermediate grade petrol – unleaded
(RON 90 and above but under RON 97)
$0.41 per litre

To promote efficient fuel usage to reduce carbon emissions, the petrol duty rates introduced in 2003 will be updated:

New Duty Rate
Premium grade petrol – unleaded
(RON 97 and above)
$0.64 per litre
Intermediate grade petrol – unleaded
(RON 90 and above but under RON 97)
$0.56 per litre

Providing a one-year road tax rebate for petrol vehicles

Road tax payable is based on the engine capacities for cars and motorcycles and based on maximum laden weight for commercial vehicles.
Road tax for taxis is $1,050 per year.

To ease the transition to the revised petrol duties, a one-year road tax rebate will be provided for petrol vehicles:

20% for petrol cars;
60% for petrol motorcycles; and
100% for petrol commercial vehicles and taxis.

For a typical car, the road tax rebate will offset about two-thirds of the impact of the duty change on intermediate grade petrol. The rebate will be effective from 1 August 2015 to 31 July 2016.

Singapore Budget 2015 – Overview of Tax Changes

Tax Changes for Businesses

Helping Businesses Cope with Rising Costs

Supporting Internationalising Businesses

Supporting Enterprise Growth

Strengthening the Competitiveness of the Financial Sector

Strengthening the Competitiveness of the Maritime Sector

Rationalising the Corporate Tax System

Tax Changes for Individuals

Personal Income Tax

Tax Changes for Individuals and Businesses

Encouraging Philanthropy

Rationalising the Tax System

Other Tax Changes

Goods and Services Tax (GST)

Vehicle Tax

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