The Finance Minister Heng Swee Keat delivered the 2020 Budget on 18 February. As it is the last budget of the 13th parliament expectations for goodies remained high among the general public and business community. The budget has rightly addressed the concerns caused by COVID-19 and has mostly satisfied all fronts. Measures included in the budget focus on the near-term challenges caused by uncertainties and medium-term challenges emerging from the structural changes caused by technological convergence as well as the long-term imperatives caused by an ageing workforce and climate change. The ‘Stability and Support’ package is aimed at enterprises to help them retain their workers amidst increased business challenges, overcome the cash flow challenges and to prepare themselves to be better-equipped to leverage the opportunities that surface with an economic upturn in the future.
The following is an overview of the tax changes affecting Singapore businesses.
Corporate Tax Rebate
No changes were announced for the Corporate Income Tax (CIT). However, to help companies cope with the cash flow, a rebate of 25% on the taxes payable, capped at S$15,000 was announced for the Year of Assessment (YA) 2020.
Property Tax Rebate
As part of Stability and Support Package, qualifying commercial properties will be granted a rebate of 30% on property tax payable for the period 1 January 2020 to 31 December 2020. The rebate applies to accommodation and function room components of hotel buildings, serviced apartment buildings; Meetings, Incentive, Conferences and Events (“MICE”) venues, and other qualifying commercial properties.
A rebate of 15% is granted on the property tax payable for other qualifying commercial properties such as premises of an international airport, international cruise or regional ferry terminal, shops within hotel buildings, serviced apartment buildings, and the prescribed MICE venues; and Premises of tourist attractions. However, the rebate of 30% and 15% does not apply to Marina Bay Sands and Resorts World Sentosa. Instead, they will enjoy a rebate of 10% on property tax payable.
The property tax rebates, however, do not apply to premises that are used for a residential, industrial or agricultural purpose, or as an office, a business or science park, or a petrol station.
Increased Interest-free installment for CIT Payment
Companies paying their CIT by GIRO currently enjoy interest-free installments for paying their CIT when they file their Estimated Chargeable Income (ECI) within three months from their Financial Year End (FYE). The number of installments varies depending on how soon they file their ECI. An additional two months of interest-free installments have been announced. Effectively, the following number of interest-free instalments are available to companies that
- File ECI within one month from FYE: Up to 12 monthly instalments; or
- File ECI within two months from FYE: Up to 10 monthly instalments; or
- File ECI within three months from FYE: Up to 8 monthly instalments
The extension applies to companies that file their ECI from 19 February 2020 to 31 December 2020, and before 19 February 2020, and have ongoing instalment payments to be made in March 2020.
Enhanced Carry-Back Relief Scheme
Any unabsorbed capital allowances and trade losses for a YA (collectively referred to as “qualifying deductions”) for YA 2020 can be carried back up to three immediate preceding YAs, capped at $100,000 of qualifying deductions and subject to conditions. Presently, taxpayers are allowed to carry-back any qualifying deductions to offset against the assessable income for the immediate preceding YA only.
Option to Accelerate Capital Expenses Write-off
Presently taxpayers incurring capital expenditure on plant and machinery (P&M) are allowed to write-off the cost of such acquisition over the working life of the P&M or three years. It is proposed that taxpayers may claim capital allowance against such costs incurred over an accelerated period of two years. P&M costs incurred in the financial year (FY) 2020 can be written off in the following two years of assessment, that is, 75% in YA 2021 and 25% in YA 2022. It must be noted that once opted, the accelerated CA claim is irrevocable and must be claimed successively and cannot be deferred.
Option to Accelerated Deduction of Renovation and Refurbishment Expenses
Expenses incurred by taxpayers on renovation and refurbishments (R&R) during the financial year 2020, can now be deducted in one YA instead of the current provision of deduction over three consecutive YAs following the basis period. The cap of $300,000 continues to apply.
Extend and Enhance the Double Tax Deduction for Internationalisation Scheme
Presently, under the Double Tax Deduction for Internationalisation (DTDi) scheme, companies that are expanding beyond Singapore borders enjoy a tax deduction on qualifying market expansion expenses. The scheme allows the deduction of qualifying expenses incurred on overseas business development or investment study trips/missions participation in overseas trade fairs as well as approved local trade fairs. The scheme that allowed 200% tax deduction was set to lapse in after 31 March 2020.
The scheme is now extended till 31 December 2025, and the enhanced scope of the scheme that will take effect from 1 April 2020 allows the following expenses to be deducted.
- Third-party consultancy costs relating to new overseas business development to identify suitable talent and build up business network relating to the overseas business; and
- New categories of expenses incurred for overseas business missions such as fees incurred on speaking spots to pitch products/services at overseas business and trade conferences, costs for transporting materials/samples, and third-party consultancy costs to arrange business networking events.
Extend the Mergers and Acquisition Scheme
The scheme that was initially launched in 2010 and extended until 2015 was extended further until 31 March 2020. Subject to the condition that the acquiring company must be held by an ultimate holding company that is incorporated in and is a tax resident of Singapore (the condition was, however, waived on a case-by-case basis), the taxpayers are presently allowed the following benefits on the M&A deals.
- 25% of the value of a qualifying acquisition can be written off over five years. The allowance is capped at $40 million per YA;
- Stamp duty relief, capped at $80,000 per FY, on the instruments of acquisition.
- 200% tax deduction on transaction costs subject to an expenditure cap of $100,000 per YA.
To facilitate the small and medium-size companies to continue to grow through mergers and acquisition (M&A) the scheme is now enhanced and extended until 31 December 2025. However, the stamp duty relief will no longer be available on instruments executed on or after 31 March 2020. Also, the condition requiring the ultimate holding company of the acquiring company to be Singapore incorporated and Singapore resident would no longer be waived.
Waiver of Tax on Gains from Disposal of Ordinary Shares
Presently, there is no tax on gains derived from the disposal of ordinary shares, if the divesting company holds at least 20% shares in the company being disposed of and has maintained the minimum 20% shareholding position for at least 24 months preceding the disposal. The scheme was set to lapse on 31 May 2022.
The scheme is now extended for another five years until 31 December 2025. The scheme did not apply to the disposal of unlisted shares in investee companies that are in the business of trading or holding Singapore immovable properties but applied to property development companies. To ensure consistency property development companies and business dealing with immovable properties in Singapore and aboard will also be excluded from the scheme effective 1 June 2022.
Extend the Umbrella Insurance Businesses Development Scheme
Under the Insurance Business Development (IBD) scheme, approved insurers are presently granted 10% concessionary tax rate for a period ten years on qualifying income derived from onshore and offshore life reinsurance/ general insurance and reinsurance. The IBD-Captive Insurance (“IBD- CI”) scheme also charges a concessionary 10% tax rate for five years. Under IBD – Marine Hull and Liability (IBD-MHL), approved insurers enjoy a concessionary tax rate of 10% for five years on qualifying income derived from onshore and offshore MHL insurance and reinsurance. The umbrella scheme was set to lapse on 31 March 2020 but is now extended until 31 December 2025. While the concessionary tax rate is maintained at 10%, the tenure of the concessionary period will be made uniform as five years for all awardees after 1 April 2020. Also, the IBD-MHL concession will be allowed to lapse after 31 March 2020 and will be incentivised under the IBD scheme.
Extend and Enhance the Maritime Sector Incentive
Under the Maritime Sector Incentive (MSI) ship operators, maritime lessors and providers of certain types of shipping-related support services are presently entitled to tax benefits under various schemes. Ship operators enjoy tax exemption on qualifying incomes derived from operating Singapore-flagged ships and foreign-flagged ships under MSI-Shipping Enterprise (Singapore Registry of Ships) (MSI-SRS) and MSI-Approved International Shipping Enterprise (MSI- AIS) Award respectively. Maritime lessors enjoy 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 under the MSI-Maritime Leasing (Ship) (MSI-ML(Ship)) Award. Also, under MSI-ML (Container) Award, they enjoy 10% or 5% concessionary tax rate on qualifying income derived from leasing of qualifying sea containers and intermodal equipment and 10% concessionary tax rate on qualifying income derived from managing an approved container investment enterprise. Presently, the acquisition of shares in a special purpose company by an approved shipping or container investment enterprise, enjoy stamp duty remission on acquisition instruments executed before 31 May 2021. Providers of shipping-related support services enjoy 10% concessionary tax rate on incremental qualifying income under MSI-Shipping-related Support Services (MSI-SSS) Award.
Furthermore, subject to conditions, the recipients of MSI tax benefits are also granted withholding tax exemption on qualifying payments made to non-residents in connection with qualifying financing arrangements entered into on or before 31 May 2021.
The MSI-AIS for qualifying entry players, MSI-ML(Ship), MSI-ML(Container), MSI-SSS as well as the withholding tax exemption, which were all scheduled to lapse after 31 May 2021, have been extended till 31 December 2026. However, the stamp duty remission on acquisition instruments will be allowed to lapse on or after 1 June 2021.
To continue developing Singapore as an international maritime centre, the scope of in-house ship management income exemption under the MSI AIS award is enhanced to include income derived by MSI-AIS Sister Company and MSI- AIS Local Subsidiary. Further, under the MSI- SRS scheme tax exemption is granted on income derived from operating a ship that is provisionally registered with the SRS. Such tax exemption is only allowed up to 1 year from the date of issue of the provisional certificate if a permanent certificate is not obtained. The tax benefits under the enhanced scope are available to the existing and new award recipients for qualifying income derived on or after 19 February 2020.
Enhance the Withholding Tax Exemption for Interest on Margin Deposits
The withholding tax exemption for interest on margin deposits is now enhanced to further Singapore’s competitiveness as leading derivative markets. Presently, only spot foreign exchange (other than those involving Singapore dollar), financial futures, and gold futures products offered by members of approved exchanges were offered an exemption from withholding tax. The scope of the withholding tax exemption has been enhanced to cover all other derivative contracts traded or cleared on approved exchanges and approved clearing houses. The covered entities have also been expanded to include members of approved clearing houses, as well as approved exchanges and approved clearing houses. The enhancements will apply to agreements entered into on or after 19 February 2020 and extension of the scheme will be reviewed before its lapse on 31 December 2022.
Extend and Enhance the Finance and Treasury Centre Scheme
The Finance and Treasury Centre (FTC) Scheme that was set to lapse on 31 March 2021 is now extended unit 31 December 2026. The scheme presently grants a concessionary tax rate of 8% on qualifying income derived by approved FTCs from qualifying activities or services. Funds raised via convertible debt issued on or after 19 February 2020 will also be included in the list of qualifying sources of funds. In addition, income derived from transacting or investing in private equity or venture capital funds not structured as companies will also be counted as income from qualifying activities.
Extend and Refine the Global Trader Programme
Under the Global Trader Programme (GTP), a concessionary tax rate of 5% or 10% is charged on income derived by approved global trading companies from qualifying transactions. The GTP is scheduled to lapse after 31 March 2021. Notwithstanding concessionary tax rates on income from qualifying transactions in other qualifying commodities under the GTP, approved global trading companies enjoy a concessionary tax rate of 5% on their income from qualifying transactions in liquefied natural gas (“LNG”). Also, under the GTP Structured Commodity Finance Companies GTP(SCF), approved companies enjoy a Concessionary tax rate of 5% or 10% on qualifying income. Both GTP and GTP(SCF) were scheduled to lapse after 31 March 2021.
The GTP scheme is extended until 31 December 2026. However, the GTP (SCF) will be allowed to lapse, but the qualifying activities under the scheme will be subsumed under GTP. The preferential tax treatment for incomes derived from trading LNG will be allowed to lapse, and LNG will be treated like any other approved commodity under the GTP. However, the awardees of GTP (SCF) and LNG programme can continue to enjoy the concessionary tax rates until their awards expire provided they meet the qualifying conditions.
Extend and Refine Incentives for Venture Capital Funds and Fund Management Companies
Presently, divestment gains from qualifying investments, dividend income from foreign companies and interest income arising from foreign convertible loan stock of Venture Capital (VC) Funds are exempted from tax. Approved VC management companies enjoy a concessionary tax rate of 5% on incomes derived from managing approved VC funds. Both tax incentives that were set to lapse on 31 March 2020 are now extended until 31 December 2025 with the following refinements that will take effect from 1 April 2020:
- Relevant items of the Specified Income – Designated Investments list under section 13CA, 13R and 13X of the Income Tax Act will now be eligible for tax incentives.
- The incentives are now extended to venture capital funds which are constituted as foreign- incorporated companies or Singapore Variable Capital Companies.
- The statutory sub-limit imposing a maximum tenure of 10 years for the first tranche of the tax exemption will be removed, while the 15-year cap on the overall tenure of the tax exemption status remains.
- Approved venture capital funds will be allowed, by way of remission, to claim GST incurred on their expenses at a fixed recovery rate to be determined for the industry; and
- Statutory limitations on the total incentive tenure allowed for each venture capital fund management company will be removed. Instead, each Fund Management Incentive award for the fund manager will be set at a maximum tenure of 5 years and can be renewed subject to conditions.
Related Read : Why the variable capital company VCC is a global gamechanger
Extended the Land Intensification Allowance Scheme
The Land Intensification Allowance (LIA) scheme that was set to lapse 30 June 2020 will be extended until 31 December 2025 and tax benefits remain unchanged. Under the LIA, an initial allowance of 25% of the qualifying capital expenditure incurred on the construction or renovation/extension of an approved LIA building is granted. Also, upon issuance of the Temporary Occupation Permit (“TOP”) for the completed LIA building, an annual allowance of 5% of the qualifying capital expenditure incurred is granted, an annual allowance of 5% of the qualifying capital expenditure incurred is granted.
The Writing Down Allowance (WDA) Scheme for expenses incurred on the acquisition of Indefeasible Right of Use (IRU) of an international submarine cable system is extended until 31 December 2025, subject to condition. It was set to lapse after 31 December 2020.
Taxpayers enjoy a further tax deduction, capped at 200% on R&D expenditure incurred on approved R&D projects conducted in Singapore either by the business itself or by an R&D organisation on its behalf. The incentive will be allowed to lapse after 31 March 2020.
The capital allowance claimed on P&M expenditure will be streamlined. Presently, depending on the P&M, businesses may claim annual allowances on their P&M over 5, 6, 8, 10, 12, or 16 years. Hereafter, for P&M with a prescribed working life of 12 years or less, businesses can claim capital allowance over 6 or 12 years; and for P&M with 16 years or less prescribed working life, capital allowance can be claimed over 6, 12 or 16 years. This is applicable for P&M expenses incurred on or after FY2022 and those incurred before FY2022 but for which no claims of capital allowance were made.
Singapore does not charge tax on receipts that are capital in nature, so recipients of capital grants from the Government and statutory boards are not subject to tax on the grant amounts received. However, grants that are revenue in nature are currently subjected to tax. Nevertheless, recipients, regardless of the deemed nature of grants, can claim tax deductions or allowances on expenditure that are funded by such grants. To prevent double incentivisation, recipients of capital grants approved on or after 1 January 2021, will no longer be allowed to claim deductions or allowances on that part of the expenditures that are funded by such grants from the Government or statutory boards.
The slew of rebates on corporate income tax, property tax as well as the enhanced and accelerated capital allowance claims and deductions are all intended to help businesses tide over the near-term economic impact caused by COVID-19. The measures will ease the potential slump in business and facilitate the businesses to manage their cash flow efficiently. Besides, the budget also has measures to ensure the resilience and competitiveness of Singapore business to support them through the long-term challenges. Extensions and enhancements announced to schemes relating to internationalisation, M&A and gains from divestments are especially a shot in the arm for companies consolidating and expanding locally and overseas. The property tax rebates are timely for companies operating in the hospitality, tourism and retail industries that are adversely affected by the contagion. Extensions and enhancements made to schemes targeted at enterprises in the maritime, venture capital funds and fund management, finance and treasury, and commodities trading industries will reinforce Singapore’s competitiveness in these industries and attract more investments and new international and regional enterprises to Singapore shores.
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