Singapore Budget 2018 – Overview of Tax Changes

Singapore Finance Minister Heng Swee Keat announced a series of tax changes for businesses during the Budget 2018 speech on 19 February, 2018. The objectives of the tax changes are broadly categorized into the following themes:

To overcome near-term challenges
To foster pervasive innovation
To build new capabilities
To encourage the spirit of giving
To enhance progressivity, fairness and resilience of the tax system

The following is an overview of the important tax changes:

Name of Tax Change

Current Treatment

New Treatment

To Overcome Near-Term Challenges

Corporate Income Tax (CIT) Rebate

CIT rebate is enhanced and extended to help businesses cope with increasing business costs and to support them in restructuring.

CIT rebate of 20% of tax payable, capped at $10,000.

For Year of Assessment (YA) 2018, the CIT rebate will be enhanced to 40% of tax payable, with enhanced cap at $15,000.
CIT rebate has been extended for another year to YA2019, at a rate of 20% of tax payable, capped at $10,000.

To Foster Pervasive Innovation

Tax deduction for qualifying Research and Development

To support businesses in developing their own innovations, tax deduction on qualifying R&D expenses carried out in Singapore has been enhanced.

Businesses can claim tax deduction of 150% on staff cost and consumables incurred for R&D, and 100% tax deduction on other qualifying expenses.

From YA 2019 to 2025, the tax deduction on staff costs and consumables incurred on qualifying R&D projects has been increased to 250%.
All other conditions of the scheme remain unchanged.

Tax deduction for costs of protecting IP

To encourage small businesses to register and protect their IPs, the scheme, which was scheduled to lapse after YA2020, has been enhanced and extended.

Businesses can claim 100% tax deduction on qualifying IP registration costs.

From YA 2019, businesses can claim 200% tax deduction for the first S$100,000 of the qualifying IP registration expenses for each YA.
The scheme is extended to YA2025.

Tax deduction for costs on IP in-licensing

To encourage businesses to buy and use new and innovative solutions, the deduction allowed on costs of IP in-licensing has been enhanced.

Businesses that have incurred qualifying in-licensing costs can claim 100% tax deduction on such expenses.

From YA 2019, businesses can claim 200% tax deduction for the first S$100,000 of the qualifying IP in-licensing expenses for each YA.
The scheme is extended to YA2025.
Qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded researchers or other businesses, but exclude related party licensing payments, or payments for IP where any allowance was previously made to that person.

To Build New Capabilities

Double Tax Deduction for Internationalization (DTDi)

To encourage internationalization of businesses, the cap on tax deduction for qualifying expenses that can be claimed without prior approval from International Enterprise Singapore (IE Singapore) or Singapore Tourism Board (STB) has now been enhanced.

Under the DTDi scheme, businesses are allowed tax deduction of 200%, on qualifying market expansion and investment development expenses subject to approval from IE Singapore and STB.
No prior approval is needed from IE or STB for tax deduction on the first S$100,000 of the qualifying expenses incurred on the following activities for each YA:

Overseas business development trips/missions;
Overseas investment study trips/missions;
Participation in overseas trade fairs;
Participation in approved local trade fairs.

From YA 2019, the $100,000 expenditure cap for claims without prior approval from IE Singapore or STB has been raised to $150,000 per YA.
Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding $150,000, or on expenses incurred on other qualifying activities.
All other conditions of the scheme remain the same.

Startup Tax Exemption (SUTE) Scheme

The scheme is to incentivize and strengthen the startup ecosystem in Singapore.
However, since other capability enhancing schemes have been introduced to help startups the scheme has been adjusted.

A new company can, subject to conditions, qualify for, in each of the first three YAs:

100% exemption on the first $100,000 of normal chargeable income*; and
50% exemption on the next $200,000 of normal chargeable income.

* Normal chargeable income refers to chargeable income that is taxed at the prevailing corporate income tax rate.

The following adjustments have been made and is applicable from YA 2020:

75% exemption on the first $100,000 of normal chargeable income; and
50% exemption on the next $100,000 of normal chargeable income.

All other conditions of the scheme remain unchanged.

Partial Tax Exemption Scheme (PTE)

Since other capabilities enhancing schemes have been rolled out for companies, the scheme has been adjusted.

All companies (excluding those that qualify for the SUTE scheme), can qualify for, in each YA:

75% exemption on the first $10,000 of normal chargeable income; and
50% exemption on the next $290,000 of normal chargeable income.

The following adjustments have been made and is applicable from YA 2020:

75% exemption on the first $10,000 of normal chargeable income; and
50% exemption on the next $190,000 of normal chargeable income.

All other conditions of the scheme remain unchanged.

To Encourage the Spirit of Giving

Tax Deduction for Qualifying Donations

To encourage the spirit of giving among Singaporeans, the scheme has been extended.

Donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character (“IPCs”) and other qualifying recipients from 1 January 2016 to 31 December 2018.

The scheme has been extended for qualifying donations made on or before 31 December 2021.

Business and IPC Partnership Scheme

To continue to promote and encourage employee volunteerism, the BIPS has been extended.

A qualifying business can, subject to conditions, enjoy a total of 250% tax deduction on qualifying expenditure such as wages incurred by it from 1 July 2016 to 31 December 2018 in respect of –

The provision of services by its qualifying employee to an IPC during that period; or
The secondment of its qualifying employee to an IPC during that period.

The scheme has been extended until 31 December 2021.
The administrative process of the scheme will be reviewed by the MOF and IRAS and any changes will be announced soon.

To Enhance Progressivity, Fairness and Resilience of Tax System

Goods and Services Tax

GST has been increased to increase the tax revenue in order to manage the impact of a rapidly ageing population.

GST is presently charged at 7%.

The consumption tax will be increased to 9% sometime during the period 2021 -2025.

GST on Imported Service

To ensure the tax system remains relevant and progressive, a GST has been introduced on imported services.

No GST is chargeable on imported services from overseas suppliers who do not have an establishment in Singapore.

From 1 January 2020, B2B imported services will be subjected to GST on a reverse charge mechanism.
The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST.
However, this is applicable for businesses that make exempt supplies or do not make any taxable supplies. Since most businesses make taxable supplies, the scheme will not have widespread impact.
Further details will be released by IRAS.

Other Taxes

Tax Framework for Singapore Variable Capital Companies (S-VACC)

A S-VACC is a new structure for collective investment schemes that comprise of asset classes that are both traditional and alternative. This could also involve innovative investment strategies. In order to enhance the regulatory framework and to enhance Singapore’s position as a hub for fund management and fund domiciliation, a tax framework for S-VACC will be introduced.

Funds structured as companies, LLPs and trusts can qualify for tax exemptions (under Sections 13R and 13X) and these incentivised funds are given GST remission, allowing them to claim GST at a fixed recovery rate.
Likewise, Fund Managers approved under the Financial Sector Incentive – Fund Management (“FSI-FM”) scheme can qualify for 10% concessionary tax rate on the income derived from managing an incentivised fund.

A tax framework to complement the regulatory framework of S-VACC will be introduced.

A S-VACC will be treated as a company and single tax entity for tax purposes.
Tax exemption under Sections 13R and 13X of the ITA will be extended to S- VACCs;
10% concessionary tax rate under the FSI-FM scheme will be extended to approved fund managers managing an incentivised S-VACC;
The existing GST remission for funds will be extended to incentivised S- VACCs.

Enhanced-Tier Fund Scheme

The scheme has been extended to promote more diverse fund structure – the scheme has been enhanced to include all fund vehicles in all forms.

Tax exemption under the Enhanced-Tier Fund Scheme is available for companies, trusts and limited partnerships, subject to qualifying conditions

For new awardees approved on or after 20 February 2018, besides companies, LLPs and trusts, all fund vehicles will be eligible to enjoy exemptions under the scheme.
Further details are awaited from MAS.

Tax Transparency of Singapore-listed Real Estate Investment Trusts Exchange-Traded Funds (“REITs ETFs”)

Regulatory changes have been introduced to ensure parity of tax treatment between investing in individual Singapore-listed Real Estate Investment Trusts (“S-REITs”) and investments made in S-REITS via REITS ETF.

Distributions made to REITS ETF by S-REITS from specified income are subjected to 17% corporate tax. Consequently, all investors of the REITS ETF will not be charged tax on distributions made from such income of the REITS ETF.

The following tax treatment has been introduced:

Transparency on distributions made to REITS ETF by S-REITS from specified income
Tax exemption on such REITS ETF distributions made to individuals except individuals receiving income through a partnership in Singapore or carrying on business, trade or profession.
10% concessionary tax on such REITS ETF distribution received by non-resident non-individuals.

The changes will come into effect 1 July 2018, subject to conditions.

Financial Sector Incentive Scheme

The scheme offers concessionary tax rate to income from qualifying financial services activities. It was scheduled to lapse on 31 December 2018. In order to strengthen the position of Singapore as a leading financial centre the scheme has been extended until 31 December 2023.

Concessionary tax rates of 5%, 10% 12% and 13.5% on income from qualifying banking and financial service activities, headquarter and corporate services, fund management and investment advisory services.
Trading in loans and their related collaterals, excluding immovable property, is a qualifying activity that enjoys a concessionary tax rate of 13.5%.

The scope of the trading in loans has been expanded to include collaterals that are prescribed infrastructure assets or projects.The scheme is applicable to income derived on or from 1 January 2019 and in respect of new or renewal of awards approved on or after 1 June 2017.
Further details are awaited.

Insurance Business Development – Insurance Broking Business (“IBD- IBB”) scheme

While the IBD-IBB scheme is extended until 31 December 2023, the Insurance Business Development – Specialised Insurance Broking Business (IBD- SIBB) has been allowed to lapse after 31 March 2018.
The extension of the IBD-IBB scheme is to reinforce the position of Singapore as an insurance and reinsurance centre.

IBD-IBB grants approved insurance and reinsurance brokers a concessionary tax rate of 10% on commission and fee income derived from insurance broking and advisory services.
IBD-SIBB grants insurance and reinsurance brokers a concessionary tax rate of 5% on commission and fee income from specialty insurance broking activities.

IBD-IBB scheme is extended until 31 December 2023. Specialised insurance businesses that were originally covered under the IBD-SIBB will now come under the IBD-IBB and enjoy concessionary tax rate of 10%.

Tax deduction for banks (including merchant banks) and qualifying finance companies for impairment and loss allowances made in respect of non-credit-impaired financial instruments

The scheme has been extended to promote overall robustness and stability of the Singapore financial system.

Tax deduction under Section 14I is scheduled to lapse after:

YA 2019 (for banks and qualifying finance companies with December financial year end); or
YA 2020 (for banks and qualifying finance companies with non-December financial year end);

Tax deduction under Section 14I will be extended till:

YA 2024 (for banks and qualifying finance companies with December financial year end); or
YA 2025 (for banks and qualifying finance companies with non-December financial year end)

All other conditions of the scheme remain the same.
MAS will release further details by May 2018.

Withholding Tax Exemption of the Financial Sector

To review tax concessions and their relevance and usefulness, the concessions are to be reviewed and rationalised periodically.

Interest payments made by a tax resident or permanent establishment in Singapore to non-tax-residents are subject to Withholding Tax (WHT) at a rate of 15% in general.
There is a range of WHT exemptions for the financial sector which applies to different financial institutions for payments made under different types of financial transactions.

A.To ensure that the relevance of the tax concessions is periodically reviewed, a review date of 31 December 2022 will be introduced for the WHT exemptions for the following payments:

Payments made under cross currency swap transactions made by Singapore swap counterparties to issuers of Singapore dollar debt securities;
Payments made under interest rate or currency swap transactions by financial institutions;
Payments made under interest rate or currency swap transactions by MAS; and
Specified payments made under securities lending or repurchase agreements by specified institutions; and

B. The following WHT exemption will be legislated along with a review date of 31 December 2022:

Interest on margin deposits paid by members of approved exchanges for transactions in futures; and
Interest on margin deposits paid by members of approved exchanges for spot foreign exchange transactions (other than those involving Singapore dollar).

The changes will take effect for payments under agreements entered into on or after 20 February 2018.
C. The WHT exemption for the following payments will be withdrawn:

Interest from approved Asian Dollar Bonds; and
Payments made under over-the- counter financial derivative transactions by companies with FSI- Derivatives Market awards that were approved on or before 19 May 2007.

The change in (c) will take effect for payments under agreements entered into on or after 1 January 2019;
WHT exemptions will continue to apply to payments that are liable to be made on or after 1 January 2023, under agreements entered into on or before 31 December 2022. However, unless the WHT exemptions under (a) and (b) are extended, the WHT exemptions will cease to apply to payments that are liable to be made under agreements entered into on or after 1 January 2023.

Approved Special Purpose Vehicle (ASPV scheme)

The tax incentive offered to ASPVs engaged in asset securitisation transaction has been extended until 31 December 2023 in order to promote and develop a structured debt market.

The scheme offers the following concessions:

Tax exemption on income derived by an ASPV from approved asset securitisation transactions;
GST recovery on its qualifying business expenses at a fixed rate of 76%;
WHT exemption on payments to qualifying non-residents on over-the- counter financial derivatives in connection with an asset securitisation transaction; and
Remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved asset securitisation transactions.

The scheme is extended except for remission of stamp duty as in (4.) which will be allowed to lapse after 31 December 2018.

Qualifying Debt Securities (“QDS”) incentive scheme

The scheme is extended until 31 December 2023, while allowing Qualifying Debt Securities Plus (“QDS+”) to lapse.

The scheme offers the following tax concessions on qualifying income from QDS:

10% concessionary tax rate for qualifying companies and bodies of persons in Singapore; and
Tax exemption for qualifying non- residents and qualifying individuals.

To qualify as QDS, debt securities must be substantially arranged by financial institutions in Singapore.
The QDS+ scheme grants tax exemption for all investors on qualifying income derived from QDS that are:

Debt securities (excluding Singapore Government Securities) with an original maturity of at least 10 years and
Islamic debt securities.

While QDS+ is allowed to lapse after 31 December 2018, securities with 10-year tenure and Islamic bonds that are:

issued after 31 December 2018 will enjoy concessionary tax rates under QDS, provided the qualifying conditions are met.
issued before 31 December 2018 will continue to enjoy the tax concessions under the QDS+ scheme.

Tax Exemption on Income Derived by Primary Dealers

The scheme was targeted at primary dealers trading in Singapore Government Securities. It was scheduled to lapse after 31 December 2018. It is now extended to encourage the local dealer network and trading in government securities.

Tax exemption is granted on income derived by primary dealers from trading in SGS.

The tax exemption on income derived by primary dealers from trading in SGS will be extended till 31 December 2023.

Investment Allowance (“IA”) scheme

In order to strengthen Singapore as a leading digital hub and ITC corridor the scheme is now extended to include capital expenditure incurred on submarine cables.
This is applicable for expenditure incurred between 20 February 2018 and 31 December 2023, inclusive of both dates.

Capital expenditure incurred on submarine cable systems does not qualify for IA.

IA has been extended in respect of productive equipment to capital expenditure incurred on newly- constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions.
All other conditions of the IA scheme apply, except for the following which will be permitted:

The submarine cable systems can be used outside Singapore; and
The submarine cable systems, on which IA has been granted, can be leased out under the indefeasible rights of use arrangements.

WHT exemption on container lease payments made to non-resident lessors

A review date has been introduced to ensure the relevance of the scheme periodically.

WHT exemption is allowed on lease payments made to non-resident lessors (excluding permanent establishment in Singapore) for the use of qualifying containers for the carriage of goods by sea.

The scheme will be reviewed on 31 December 2022.
Therefore, unless the scheme is extended, such payments accruing to a non-resident lessor under any lease or agreement entered into on or after 1 January 2023 will be subject to WHT.

Buyer’s Stamp Duty on the Value of Residential Property

On properties which value exceed S$1 million, the buyer’s stamp duty has been increased.
The top marginal rate is increased to 4% for property value exceeding S$1 million.

Purchase of properties are currently subject to Buyer’s Stamp Duty rates of between 1% to 3%.

Rates	Property Value
1%	First $180,000
2%	Next $180,000
3%	Amount Exceeding S$360,000

The revised rates will apply to all residential properties acquired on or after 20 February 2018

Rates	Property Value
1%	First $180,000
2%	Next $180,000
3%	Next S$640,000
4%	Amount Exceeding S$1 million

Related link: Singapore Budget 2018: Commentary »

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