Singapore Budget 2018 Synopsis - EY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Singapore Budget 2018 Synopsis
At a glance Introduction A budget for the future 3 Business tax Start-up Tax Exemption (SUTE) scheme 7 Partial Tax Exemption (PTE) for companies Corporate income tax rebate 8 Enhance the tax deduction for qualifying expenditure on 10 qualifying R&D projects performed in Singapore Enhance the tax deduction for costs on protecting 12 intellectual property (IP) Enhance the tax deduction for costs on intellectual 13 property (IP) in-licensing Enhancing the Double Tax Deduction 14 for Internationalisation (DTDi) scheme Support for firms to build capabilities and forge partnerships 15 Introducing a review date for the WHT exemption on 18 container lease payments made to non-resident lessors Extend the Investment Allowance (IA) scheme to include 19 qualifying investment in submarine cable systems landing in Singapore Extend the tax transparency treatment for S-REITs 21 to REITs ETFs Personal income tax Personal income tax rate and tax rebate 25 Goods and services tax Impending GST rate increase 27 GST on imported services 30
At a glance Financial services Introduce a tax framework for Singapore Variable Capital 33 Companies (S-VACCs) Extend and enhance the Financial Sector Incentive scheme 35 Enhance the Enhanced-Tier Fund scheme under section 36 13X of the ITA Extend the Insurance Business Development – 38 Insurance Broking Business scheme and allow the Insurance Business Development – Specialised Insurance Broking Business scheme to lapse Extend the tax deduction for banks (including merchant banks) 40 and qualifying finance companies for impairment and loss allowances made in respect of non-credit-impaired financial instruments Extend the tax incentive scheme for Approved Special 41 Purpose Vehicle engaged in asset securitisation transactions Extend the Qualifying Debt Securities incentive scheme and 42 allow the Qualifying Debt Securities Plus incentive scheme to lapse Extend the tax exemption on income derived by primary 43 dealers from trading in Singapore Government Securities Rationalise the withholding tax exemptions for the 44 financial sector Miscellaneous Carbon tax 47 Increase in buyer’s stamp duty on the value of residential 49 property in excess of S$1m Extension of the Wage Credit scheme 51 Encouraging a spirit of giving 52 Deferring foreign worker levy changes 53 Tax services in Singapore 56 Singapore Tax Partners, Executive Directors 58 and Directors Glossary of terms 60
1Introduction
A Budget for the future
“The future belongs to those who prepare for it today.”
- Malcolm X
Budget 2018 has carefully laid out the plans to Preparing for the next decade
prepare Singapore for the next decade.
Technology, globalisation and demographic shifts
This multi-faceted Budget addresses the long-term are the primary forces driving this current wave of
challenges of the country and lays the foundation disruption. They are fundamentally changing the
for a sustainable future for Singapore. way the world operates at an unprecedented speed.
Whilst there were lots of pre-budget hype on raising Singapore's businesses, individuals and the
tax revenues, the upward tax adjustments such government are not spared and cannot sidestep
as GST rate increase and reduction of partial tax this march of disruption. It is however important to
exemption are slated for 2020 onwards. Ample recognise that disruption brings not only challenges
advanced notice has been given to businesses and but also opportunities. Uschi Schreiber, EY's Global
individuals to plan their finances, sending a clear Vice Chair for Markets said, “The era of being afraid
signal that the Budget is forward-looking rather to make mistakes and take risks is over. Over the
than reactive. next five to ten years, those who are bold and able
to embrace disruption – and transform the way we
The delivery of the budget speech was striking. The
all operate – will be the winners”.
Minister made commendable efforts to explain the
“what”, “how” and “why”. What are the challenges The next waves of technology revolution – the
faced by our country? How do we respond? Why do Internet of Things, virtual reality, artificial
we need to increase our taxes? intelligence, robotics – have and will continue to
disrupt traditional industries and displace existing
jobs. Various non-tax initiatives such as Open
Innovation Platform, Aviation Transformation
Programme (ATP) and Maritime Transformation
Programme (MTP) will help support companies’
Singapore Budget 2018 Synopsis 3
“Budget 2018 has carefully
laid out the plans to
prepare Singapore for the
next decade.”
innovation and transformation. Whilst not all legal ownership) of an IP. It will indeed be a boost
jobs will be affected and not all affected jobs will to further promote innovative activity if this legal
be eliminated, Singaporeans need to invest in ownership condition is removed.
continuous learning and deepen their skillsets
Like other developed economies, Singapore is facing
to stay relevant. The Tech Skills Accelerator
an aging population. By 2030, 28% of its population
(TeSA) and Capability Transfer Programme serve
will be above 65 years old, according to the United
these objectives.
Nations’ 2017 World Population Aging report. This
Globalisation fuelled by technology advancement Budget addresses this challenge by enhancing
will disrupt existing businesses by creating new the ElderShield insurance scheme, expanding the
competitors, remodelling supply chains and community network support, integrating health
lowering price points. The higher cost of doing and social support, and strengthening the role
business in Singapore is not to the advantage of and capabilities of social service offices. The
Singapore businesses. Singapore businesses have government’s sharpened focus on companies
to increase productivity, create added value in their investing in more efficient and smart solutions,
product and service offerings, and collaborate by including the funding support under the Productivity
entering into partnerships to compete effectively. Solutions Grant, will also serve to improve
The ASEAN Leadership Programme, Enterprise productivity when human resources become more
Development Grant and double tax deduction constrained with Singapore’s aging population.
for internationalisation (DTDi) aim to support
The extension of the 250% tax deduction scheme for
companies in enhancing their capabilities for
donations made on or before 31 December 2021
internationalisation. At the same time, to foster
to qualifying charities will continue to help build
pervasive innovation, the enhanced tax deductions
a giving society. It will be even more welcomed if
announced for in-licensing, registration and
this scheme becomes a permanent feature of our
research and development activities for intellectual
tax legislation.
properties (IP) will incentivise enterprises to buy and
use new solutions as well as build their own or co-
create solutions.
An unfulfilled tax wish is the ability to automatically
claim writing down allowances for costs incurred
in acquiring the economic ownership (and not
4 Singapore Budget 2018 Synopsis
Photo credit: Singapore Tourism Board
Fiscal prudence Conclusion
Singapore has been adopting a prudent fiscal Budget 2018 is built on the themes laid out in
policy by managing government expenditure past Budgets - Building our future, Strengthening
growth carefully and getting good value for social security (2015), Partnering for our future
spending. For FY2017, Singapore expects an (2016), Moving forward together (2017) – and
overall Budget surplus of S$9.6b or 2.1% of GDP, now Together, A Better Future (2018). Singapore
as announced during Budget 2018. Budgets are truly special because of their
long-term vision and the explanation of that vision
Over the next decade, it is expected that recurring and purpose.
government expenditure will continue to increase,
especially in the areas of social development This Budget reminded Singapore businesses and
(i.e., education and healthcare) and security. The individuals that disruption will bring challenges –
government plans to strengthen its operating and also new opportunities; but Singapore is
revenue in the immediate term by increasing ready to embrace these challenges and seize
the top marginal buyer’s stamp duty rate from these opportunities.
3% to 4% on the value of residential property in
Let us – the people, businesses, trade associations
excess of S$1m. In the near term from 2020
and chambers and government – come together,
onwards, adjustments will be made to the Start-
work together and make our aspirations a reality.
up Tax Exemption (SUTE) scheme and Partial Tax
Exemption (PTE) scheme, GST rate will increase As the Chinese saying goes: 有志者事竟成*.
from 7% to 9% and carbon taxes will be adjusted
from S$5 per tonne to S$10-15 per tonne of
carbon emission.
GST will also be extended to cover imported
services such as consultancy, marketing, digital
apps and music purchased from overseas
suppliers, with effect from 1 January 2020. This
is consistent with recommendations provided by
the Organisation of Economic Co-operation and Chung-Sim Siew Moon
Development and aims to level the playing field for Partner and Head of Tax
local suppliers. 20 February 2018
*Where there is a will, there is a way.
Singapore Budget 2018 Synopsis 5
2Business tax 6 Singapore Budget 2018 Synopsis
Business tax
Start-up tax exemption (SUTE) scheme
Partial tax exemption (PTE) for companies
Current This change will take effect on or after YA 2020 for
all companies (excluding those that qualify for the
Under the SUTE scheme, a new company can, SUTE scheme) and bodies of persons.
subject to conditions, qualify for, in each of the first
three YAs: All other conditions of the SUTE and PTE schemes
►► 1►00% exemption on the first S$100,000 of remain unchanged.
normal chargeable income
►► 50% exemption on the next S$200,000 of Points of view
normal chargeable income
►► The proposed changes to the PTE and SUTE
Under the PTE scheme, all companies (excluding schemes will result in additional taxes payable
those that qualify for the SUTE) and bodies of of up to S$8,500 and S$12,750 respectively.
persons, can qualify for, in each YA: The impact is lower for companies earning
►► 75% tax exemption on the first S$10,000 of less than S$300,000.
normal chargeable income
►► 50% tax exemption on the next S$290,000 of ►► The corporate income tax rate has remained at
normal chargeable income 17% since YA 2010. At 17%, Singapore’s headline
corporate income tax rate is one of the lowest in
the world.
Proposed
►► Hong Kong has a prevailing corporate income
The tax exemption under the SUTE scheme will be
tax rate of 16.5%. On 29 December 2017, the
adjusted to:
Hong Kong government proposed to implement
►► 75% exemption on the first S$100,000 of normal
a two-tier profits tax rates regime, subject to
chargeable income
conditions. Under the proposal, the tax rates for
►► 50% exemption on the next S$100,000 of
the first HK$2m of profits of corporations will be
normal chargeable income
reduced by 50% (i.e., from 16.5% to 8.25%) and
This change will take effect on or after YA 2020 the remainder of the profits will continue to be
for all qualifying companies under the scheme. For taxed at 16.5%. Based on current exchange rate,
example, if a qualifying company’s first YA is YA a company with taxable profits of approximately
2019, the current SUTE parameters will apply in YA HK$800,000 is likely to pay the same amount
2019 while the new parameters will apply in YAs of tax under the proposed Hong Kong two-tier
2020 and 2021. profits tax rates regime and under the Singapore-
proposed PTE scheme.
The tax exemption under the PTE scheme will be
adjusted to: ►► With the proposed changes to the PTE scheme,
►► 75% exemption on the first S$10,000 of normal and assuming our Singapore corporate income
chargeable income tax rate remains at 17%, an initial reaction is that
►► 50% exemption on the next S$190,000 of the Singapore effective tax rate will be higher
normal chargeable income than Hong Kong for taxable profits above the
HK$800,000 breakeven point. However, this
comparison is not complete as Hong Kong only
allows one entity among “connected entities” to
be eligible for the proposed regime. This is unlike
Singapore’s PTE scheme, which is available for
all companies.
Singapore Budget 2018 Synopsis 7
Business tax
Corporate income tax rebate
Current Points of view
Companies enjoy a 20% corporate income tax ►► The IRAS has clarified that:
rebate, capped at S$10,000 for YA 2018.
►► The corporate income tax rebate will be given
to all companies including registered business
Proposed trusts, non-resident companies and companies
that receive income taxed at a concessionary
The Minister did not propose any change to the
tax rate. The rebate, however, will not apply
corporate income tax rate of 17%.
to income derived by a non-resident company
To ease business costs and support restructuring by that is subject to final withholding tax.
companies, the corporate income tax rebate will be
►► Companies need not factor in the corporate
enhanced and extended as follows:
income tax rebate when filing their
►► Corporate income tax rebate will be enhanced estimated chargeable income and income
to 40% of tax payable and the cap is raised from tax returns (Form C/C-S) as the IRAS will
S$10,000 to S$15,000 for YA 2018. compute and allow the corporate income tax
rebate automatically.
►► Corporate income tax rebate will be extended for
another year to YA 2019, but at a reduced rate ►► For companies that have already received
of 20% of tax payable and capped at S$10,000. their notices of assessment for YA 2018 and
YA 2019 reflecting the lower or nil corporate
income tax rebate respectively, they are still
required to make payment of the tax payable
stated in the notices of assessment by the
due date. The IRAS will issue revised notices
of assessment to affected companies by May
2018 and refund any excess tax paid. If a
company is paying taxes by instalments, it will
need to continue with the payment schedule
based on the instalment plan. The revised
notice of assessment and instalment plan
will be issued by the IRAS to the company by
May 2018.
8 Singapore Budget 2018 SynopsisBusiness tax
►► The proposed enhancement to and extension
of the corporate income tax rebate are part of
the continued measures to support businesses,
in particular SMEs as they cope with rising
business costs. The proposed increase in the
rebate rate for YA 2018 will benefit tax-paying
SMEs most as the amount of corporate income
tax rebate they will receive may be two times of
the rebate applicable before the enhancement.
For example, an SME with a tax payable of
S$37,500 will receive the full corporate income
tax rebate of S$15,000, compared with S$7,500
before the enhancement. The enhancement
thus provides SMEs with more immediate cash
flow relief. At the same time, the increase in the
cap to S$15,000 means that larger tax-paying
companies are not left out – they will also get an
additional rebate of up to S$5,000.
►► According to statistics provided by the IRAS
on its website, for YA 2016, approximately
77% of tax-paying companies had a chargeable
income of S$200,000 and below. The proposed
enhancement to the corporate income tax rebate
for YA 2018 will bring down the effective tax rate
of such companies to lower than 5%. However,
the proposed increase and extension will only
benefit tax-paying companies.
►► Companies may consider deferring capital
allowances claims or planning their group loss
relief claims to optimise the amount of corporate
income tax rebate.
►► If the corporate income tax rebate is not
extended after YA 2019 and with the phasing out
of the PIC Scheme after YA 2018, companies,
especially SMEs, may need to continue to look
towards other avenues such as grants to ease
their cash flow pressures going forward.
Singapore Budget 2018 Synopsis 9Business tax
Enhance the tax deduction for qualifying
expenditure on qualifying R&D projects
performed in Singapore
Current
Businesses that have incurred qualifying
expenditure on qualifying R&D projects performed in
Singapore can claim the following:
►► 150% tax deduction for staff costs and
consumables incurred
►► 100% tax deduction for other
qualifying expenditure
Proposed
To support businesses to build their own
innovations, the government will increase the tax
deduction for staff costs and consumables incurred
on qualifying R&D projects performed in Singapore
from 150% to 250%.
All other conditions of the scheme remain unchanged.
This change will take effect from YA 2019 to
YA 2025.
10 Singapore Budget 2018 SynopsisBusiness tax
Points of view ►► Another key difference in comparison to other
jurisdictions is the current stringent eligibility
►► With the expiry of the 400% tax deduction on criteria and practical burdensome process
qualifying R&D staff costs and consumables involved in claiming R&D tax deductions in
expenditure under the PIC post YA 2018, the Singapore, which has created fairly significant
proposal to increase the total tax deduction for uncertainty for businesses in terms of their
qualifying local R&D expenditure from 150% to ability to benefit from the enhanced R&D
250% will be a welcome relief for businesses tax deductions. This issue may detract from
as they seek to build their own innovations the desired outcome of an increase in local
and enhance their competitive advantage R&D activities.
through R&D.
►► As the current total R&D tax deduction for local
►► Unlike the PIC, which capped the 400% R&D tax qualifying expenditure under sections 14D/DA(1)
deduction to the first S$400,000 of qualifying of the ITA is 150%, the discretionary 200% R&D
R&D expenditure per YA (thereafter 150% for tax deduction under section 14E of the ITA has
local R&D expenditure), the proposed 250% been an attractive alternative for taxpayers. The
R&D tax deduction does not impose a cap on proposed increase of the section 14D/DA(1) tax
qualifying expenditure. As such, businesses deduction to 250% will reduce the attractiveness
incurring significant R&D expenditure of the section 14E tax deduction and brings
on qualifying R&D projects performed in into question the continued relevance of the
Singapore will be able to correspondingly enjoy said incentive scheme. In addition, section 14E
greater benefits. currently limits the total amount of tax deduction
►► Based on the current 17% headline corporate allowed under sections 14, 14D, 14DA and 14E
tax rate, a 250% R&D tax deduction will equate to 200% in respect of each approved project.
to an after tax benefit of 42.5% (i.e., 42.5 cents For section 14E to continue to be a meaningful
for every qualifying dollar of R&D expenditure). alternative incentive for R&D, refinements may
This rate is comparable to other jurisdictions with be required to remove the limitation to the 200%
attractive R&D tax incentives such as Australia tax deduction.
(43.5% for SMEs and 38.5% for large companies),
Ireland (37.5%), and the UK (43.7% for SMEs
and 8.91% for large companies), and Hong
Kong’s recently introduced 200%/300% R&D
deduction (49.5% on first HK$2m per year and
33% thereafter).
►► However, the proposed 250% R&D tax deduction
provides no option for businesses in a tax loss
position to cash out their R&D tax deductions,
unlike many other jurisdictions such as Australia,
Ireland or the UK. As such, the 250% R&D tax
deduction may be limited in its effectiveness
for SMEs and start-ups who may not be in a tax
paying position and are relying heavily on cash to
finance ongoing R&D efforts.
Singapore Budget 2018 Synopsis 11Business tax
Enhance the tax deduction for costs on
protecting intellectual property (IP)
Current ►► The current legislation requires the claimant to
be the legal and economic owner of the IP upon
Businesses that have incurred qualifying IP registration. This raises the question of whether
registration costs can claim 100% tax deduction the legal and economic ownership condition can
under section 14A(1) of the ITA on such costs. still be fulfilled if the claimant is not successful in
The scheme is scheduled to lapse after YA 2020. its application for IP registration. In the context
of PIC, the IRAS had provided clarifications
that PIC benefits are granted regardless of
Proposed the outcome of the application as long as the
business has incurred the qualifying registration
To encourage businesses, in particular smaller
cost. A similar clarification by the IRAS on
ones, to register and protect their IPs, the
the proposed enhanced deduction will help to
government will:
eliminate the uncertainty.
►► Extend the scheme till YA 2025
►► Based on the existing section 14A(1) of the ITA,
►► Enhance the tax deduction to 200% for the first the 100% tax deduction is available to “a person
S$100,000 of qualifying IP registration costs carrying on a trade or business”. Partnership is
incurred for each YA not included in the definition of “person” under
the ITA. A separate provision under section
This change will take effect from YA 2019 to 14A specifically allows partnerships to claim
YA 2025. PIC enhanced deductions. It is hoped that the
proposed enhanced deduction will be made
Points of view available to all businesses including partnerships.
►► The current PIC scheme, which will lapse after ►► The current legislation imposes a claw back
YA 2018, provides enhanced deduction or cash requirement for the 100% tax deduction if the
conversion benefit (subject to certain caps) on claimant sells, transfers or assigns all or any part
qualifying IP registration costs. The proposed of the qualifying IP that is subject to claim. The
enhanced deduction, which is scheduled to enhanced deductions under PIC are clawed back
take effect from YA 2019, will be welcomed only if the claimant sells, transfers or assigns all
by businesses. or any part of the qualifying IP or the application
for the registration or grant of the qualifying
►► The proposed enhanced deduction has a lower IP for which such costs were incurred, within
qualifying expenditure cap, as compared to one year from the date of filing the application.
the PIC scheme. This appears to be in line with We await further details on whether and how
the government’s objective of encouraging claw back of the proposed enhanced deduction
smaller businesses to register and protect their will apply.
IPs. Having said that, it is noted that the cash
conversion option under the PIC scheme, which
is commonly elected by small enterprises, is not
available under the proposed scheme.
12 Singapore Budget 2018 SynopsisBusiness tax
Enhance the tax deduction for costs on
intellectual property (IP) in-licensing
Current ►► The IRAS has clarified that qualifying IP in-
licensing covers patents, copyrights, registered
Businesses that have incurred qualifying IP in- designs, geographical indications, lay-out designs
licensing costs can claim 100% tax deduction under of integrated circuit, trade secrets or information
sections 14 or 14D of the ITA on such costs. that has commercial value, and plant varieties.
Trademarks and any rights to the use of software
Proposed are excluded.
To support businesses to buy and use new solutions, ►► The IRAS has also clarified that qualifying IP
the government will enhance the tax deduction from licensing costs will exclude any part of the costs
100% to 200% for the first S$100,000 of qualifying which is subsidised by grants or subsidies from
IP in-licensing costs incurred for each YA. the government or a statutory board, cost on
transfer of ownership of the rights as well as legal
Qualifying IP in-licensing costs include payments fees and other costs related to the licensing of
made by a qualifying person to publicly funded each right.
research performers or other businesses, but
exclude related party licensing payments, or ►► From an implementation perspective, it will be
payments for IP where any allowance was previously helpful if interested persons may approach a
made to that person. designated government body for a published
list of qualifying publicly funded research
This change will take effect from YA 2019 to performers and/or the IP that may be available
YA 2025. for in-licensing.
►► Apart from qualifying IP in-licensing payments
Points of view made to publicly funded research performers, the
►► The proposed enhanced tax deduction from YA proposed enhanced tax deduction also extends to
2019 is welcomed, in view of the expiry of the qualifying IP in-licensing payments made to other
PIC scheme in YA 2018. businesses. To encourage the in-licensing of a
wider range of IP, other businesses should include
►► Under the PIC scheme, all businesses are overseas IP owners.
allowed to claim PIC benefits on qualifying IP
in-licensing costs incurred for use in their trade ►► I► P in-licensing payments made to non-Singapore
or business, subject to other PIC conditions. The tax residents are subjected to Singapore WHT at
proposed enhanced tax deduction is applicable 10% under the ITA. As the proposed enhanced
to qualifying IP in-licensing costs made by a tax deduction is targeted at smaller companies,
qualifying person. To facilitate the adoption which may likely be made to bear the WHT, it
of technology and innovation by all firms, it is will further incentivise such smaller companies
hoped that the definition of qualifying persons be to in-license IP if Singapore WHT is exempted on
flexible enough to cover all types of businesses or qualifying IP in-licensing payments.
business forms. Under the current ITA definition,
persons do not include partnerships.
Singapore Budget 2018 Synopsis 13Business tax
Enhancing the Double Tax Deduction for
Internationalisation (DTDi) scheme
Current Points of view
Under the DTDi scheme, businesses are allowed ►► The enhancement of the DTDi scheme
tax deduction of 200% on qualifying market expenditure cap is to further support businesses
expansion and investment development expenses to internationalise. This will be welcomed by
under sections 14B and 14K of the ITA, subject businesses especially SMEs, which have been
to approval from IE Singapore or Singapore increasingly looking towards internationalisation
Tourism Board (STB). as a growth strategy as they continue to
face rising costs and manpower pressures
No prior approval is needed from IE Singapore or in Singapore.
STB for tax deduction on the first S$100,000 of
qualifying expenses incurred from 1 April 2012 to ►► It is noted that the proposed enhancement will
31 March 2020 on the following activities: take effect before the qualifying expenditure
period lapses from 1 April 2020. In the absence
►► Overseas business development trips or missions
of any announcement of the extension of the
►► Overseas investment study trips or missions qualifying period, it appears that the proposed
enhancement is only available for a short period
►► Participation in overseas trade fairs from YA 2019 to 31 March 2020.
►► Participation in approved local trade fairs ►► The scheme is currently not available to
companies that are already enjoying other
Proposed forms of tax incentives or concessions (such
as Finance & Treasury Centre Incentive, Global
To further encourage internationalisation, the Trader Programme and Investment Allowance).
S$100,000 expenditure cap for claims without prior This restriction remains unless specific approval
approval from IE Singapore or STB will be raised is granted.
to S$150,000 per YA. Businesses can continue to
apply to IE Singapore or STB on qualifying expenses
exceeding S$150,000, or on expenses incurred on
other qualifying activities.
All other conditions of the scheme remain the
same. This change will apply to qualifying expenses
incurred on or after YA 2019.
IE Singapore and STB will release further details of
the change by April 2018.
14 Singapore Budget 2018 SynopsisBusiness tax
Support for firms to build capabilities and
forge partnerships
Prior to the Budget 2018 announcement, there are significant complexities and overlaps in objectives,
support mechanisms and qualifying costs or activities between the different grant schemes as shown in
the following:
Current
Qualifying cost
Type of grant Objective Support level
categories/support
Capability Support SMEs to scale up Cash grants Manpower,
Development business capabilities, ensure defray up consultancy, training,
Grant (CDG) business sustainability to 70% of certification and
and support future efforts qualifying costs equipment costs
in areas of partnerships,
product diversification and
internationalisation.
Focus areas include:
►► Branding and marketing
►► Product development
►► Enhancing business processes
for productivity
►► Intellectual property
►► Business model
transformation
Global Company Support companies in Cash grants Manpower, overseas
Partnership (GCP) internationalisation efforts defray up to office rental and
50% or 70% of consultancy services
Focus areas include: qualifying costs
►► Market access
►► Manpower development
►► Overseas market promotion
►► Capability building
Proposed
CDG and GCP grants will be combined into the Enterprise Development Grant (EDG). The EDG will provide
funding support for up to 70% of qualifying costs from FY2018 to FY2019. EDG will be administered by
Enterprise Singapore (ESG).
Singapore Budget 2018 Synopsis 15Business tax
Current
Even with the conclusion of the PIC Automation scheme effective from YA 2018, there are a number
of existing schemes that support the companies’ adoption of pre-approved digital technologies,
consulting and infocomm technology solutions including iSPRINT and SMEs Go Digital Programme (pre-
approved technology solutions). Some of these schemes may be consolidated into the new Productivity
Solutions Grant (PSG).
Proposed
The existing grant schemes that support pre-scoped, off-the-shelf productivity solutions will be streamlined
into one PSG. The PSG will provide funding support for up to 70% of qualifying costs.
Current
Qualifying cost
Type of grant Objective Support level
categories/support
Partnerships To identify and implement Up to 70% Manpower-related
for Capability collaborative projects between funding costs
Transformation the large organisations (LO) and support for
(PACT) local SMEs in areas of: qualifying costs Professional services
Programme ►► Knowledge transfer from an Prototyping-related
(SPRING and EDB) LO to at least one SME services
►► Capability upgrading of an
LO’s new or existing suppliers Technical
►► Development and test- support services
bedding of innovative
Equipment, materials,
solutions between an LO and
consumables
at least one SME
and software
Intellectual
property acquisition
Collaborative Supports collaborations Up to 50% Solutions development
Industry between enterprises and or 70% and/or adoption costs.
Projects (CIP) industry partners, such as Trade funding support
Associations and Chambers, to Software-and
source for suitable solutions to equipment-related
help overcome industry-specific project cost
business challenges.
Proposed
The existing PACT (SPRING and EDB) and the CIP will be combined into the PACT scheme. PACT will provide
funding support of up to 70% of qualifying costs, for collaborations between companies in areas including
capability upgrading, business development and internationalisation. PACT will be administered by EDB
and ESG.
16 Singapore Budget 2018 SynopsisBusiness tax
Points of view ►► Industry ecosystem partnership: The
PACT scheme is aimed at leveraging large
In his budget speech, the Finance Minister organisations as demand and technology
reiterated the need to take a more cluster- drivers to upgrade the capabilities of other
based approach in the next phase of Singapore’s smaller Singapore-based companies. Through
Industry Transformation Map (ITM) journey – to this process, the government hopes to enhance
reap synergies, strengthen linkages across collaborations and encourage knowledge or
multiple industries, and to explore potential technology transfer.
new opportunities.
►► Business excellence: The EDG will help
The move to merge SPRING and IE Singapore companies to develop or enhance their
into ESG will enable a holistic approach towards internal organisational, innovation and
developing the SMEs and allow a more integrated international market capabilities. Through
support for them to internationalise, develop this scheme, companies can accelerate
capabilities, and ultimately be more competitive their internationalisation efforts and build
both locally and abroad. differentiating competencies that would allow
them to win in the global market.
Aligned with the cluster-based approach of the
ITMs and the creation of ESG, the proposed ►► Automation or digital capability enhancement:
streamlining of the various incentive schemes into The PSG will help companies that are currently
the three key pillar schemes namely the PACT, smaller and lack economies of scale to cost-
EDG and PSG, will minimise overlaps and confusion effectively implement standard solutions to
amongst companies, particularly the SMEs, who improve their current process or capabilities
may not have the resource nor bandwidth to through technology adoption. The PSG will likely
navigate the intricacies of the various schemes. be targeted at adoption of digital and automation
solutions for these companies.
The three key grant support schemes are targeted
at supporting companies through the different The budget of more than S$800m that has
stages of their growth within the ITM: been set aside for these schemes demonstrates
the growing recognition that all companies, in
particular SMEs, play a significant role in achieving
success on the ITMs. The streamlining of the
various incentive schemes, which will simplify
the process and minimise confusion, is a step in
the right direction to accelerate the growth of
these SMEs.
Singapore Budget 2018 Synopsis 17Business tax
Introducing a review date for the WHT
exemption on container lease payments
made to non-resident lessors
Current ►► As part of the review, further enhancements
could be considered including:
WHT exemption is allowed on lease payments
made to non-resident lessors (excluding permanent ►► Expanding the scope of the WHT exemption to
establishments in Singapore) for the use of qualifying include the leasing of intermodal equipment
containers for the carriage of goods by sea. and other non-standard containers such as
offshore containers.
Proposed ►► Expanding the scope of the WHT exemption
to cover alternative forms of financing such
A review date of 31 December 2022 will be
as hire purchases and loans with respect to
introduced to ensure that the relevance of the
the purchase of containers. Currently, WHT
scheme is periodically reviewed.
exemptions on the purchase of containers
This means that unless the scheme is extended, are only available to entities under the
such payments accruing to a non-resident lessor Maritime Sector Incentive – Maritime Leasing
under any lease or agreement entered into on or (Container) scheme.
after 1 January 2023 in respect of the use of a
►► Providing clarifications on WHT exemption
qualifying container for the carriage of goods by sea
with respect to the following types of leases
will be subject to WHT.
in view of the adoption of FRS 116 – leases
for companies with annual reporting periods
Points of view beginning on or after 1 January 2019:
►► Short-term leases or low value leases
The WHT exemption was introduced with effect from ►► Right-of-use assets (ROU assets) not
19 January 1979 under section 13(4) of the ITA. treated as sale
Given that the WHT exemption has been in place ►► ROU assets treated as sale
for more than three decades, the review is timely to
ensure its relevance and usefulness. ►► Companies looking to renew or enter into new
lease agreements with non-resident lessors
However, it is hoped that the WHT exemption will be may wish to conclude the agreement before
extended beyond 31 December 2022 to maintain 1 January 2023. Otherwise, for agreements
Singapore’s competitiveness as a global maritime entered into on or after 1 January 2023, there
hub. In many situations, the Singapore lessees could be additional tax costs in the event that the
are the ones bearing the WHT under the lease WHT exemption is not extended.
agreements. The cost of doing business for the
Singapore lessees will increase in the event that the ►► C
ompanies can also mitigate any potential
WHT exemption is not extended and the Singapore WHT costs by exploring tax exemption under
lessees are required to account for the WHT on a the business profits article or the shipping
gross-up basis. article of tax treaties between Singapore and
the foreign countries where the lessor is tax
resident in. However, WHT exemption may not
be available if the lessors are tax resident in
non-treaty countries.
18 Singapore Budget 2018 SynopsisBusiness tax
Extend the Investment Allowance (IA) scheme
to include qualifying investment in submarine
cable systems landing in Singapore
Current
Capital expenditure incurred on submarine cable
systems does not qualify for IA.
Proposed
To strengthen Singapore’s position as a leading
digital connectivity hub, the government will
extend the IA scheme 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 that will be permitted:
►► The submarine cable systems can be used
outside Singapore.
►► The submarine cable systems, on which IA has
been granted, can be leased out under the
indefeasible rights of use (IRU) arrangements.
This change will take effect for capital expenditure
incurred between 20 February 2018 and
31 December 2023, inclusive of both dates.
Singapore Budget 2018 Synopsis 19Business tax
Points of view ►► Section 19D of the ITA defines “international
telecommunications submarine cable system” to
►► The proposed extension of the IA scheme to be an international submarine cable that is laid in
capital expenditure incurred on submarine cable the sea and includes its cable landing station and
systems landing in Singapore demonstrates any other equipment ancillary to the submarine
the government’s commitment to encourage cable system. The proposed extension raises the
new and strategic infrastructure for digital following questions:
connectivity to support the emergence and
adoption of new technologies. ►► What is the definition of “newly-constructed
strategic submarine cable systems landing
►► Currently, IA grants an additional allowance in Singapore”?
based on a specified percentage not exceeding
100% of the capital expenditure incurred on ►► What is considered strategic?
specified items on an approved project. To
►► Can equipment ancillary to the submarine
further incentivise and spur e-commerce and
cable system be covered under the extension
digital activities across the industry, it is hoped
of the IA scheme?
that the percentage of IA claim under the
proposed extension can be up to 100% of the ►► Can capital expenditure incurred to upgrade
capital expenditure. or enhance any existing submarine cable
systems landing in Singapore be covered
►► The eligibility for the current IA scheme is subject
under the extended IA scheme?
to the following restrictions:
►► What other conditions must be met in order to
►► The productive equipment needs to be used
qualify for the extended IA scheme?
in Singapore (except where specific approval
is given for the equipment to be used outside ►► It is noted that the sunset clause of the proposed
Singapore, such as capital expenditure IA’s coverage on capital expenditure incurred
incurred for a project for the operation of in relation to submarine cable systems is set as
any space satellite). the same date for other projects under the IA
scheme as provided under the current legislation.
►► The productive equipment cannot be sold,
leased out or disposed during the IA qualifying
period or within two years after the end of
the qualifying period.
►► Under the proposed extension, the permissions
granted for the submarine cable systems to
be used outside Singapore and to be leased
out under the IRU arrangements will allow
the grantors of IRUs who incur the capital
expenditure on the submarine cable systems
landing in Singapore to benefit from this
incentive scheme. However, the current
restriction under the IA scheme on the sale,
lease or disposal of the productive equipment
on which IA is granted should continue to apply.
20 Singapore Budget 2018 SynopsisBusiness tax
Extend the tax transparency treatment for
S-REITs to REITs ETFs
Current Proposed
Distributions made by S-REITs to REITs ETFs out To have parity in tax treatments between investing
of specified income derived by S-REITs are subject in individual S-REIT and via REITs ETF with
to tax at the prevailing corporate tax rate of 17% investments in S-REITs, the following tax treatment
in the hands of REITs ETFs. All investors of REITs will be accorded to REITs ETFs:
ETFs will not be taxed on the distributions made
►► Tax transparency treatment1 on the distributions
out of such income from REITs ETFs.
received by REITs ETFs from S-REITs, which are
made out of the latter’s specified income.
►► Tax exemption on such REITs ETFs distributions
received by individuals, excluding individuals who
derive any distribution:
►► Through a partnership in Singapore
►► From the carrying on of a trade, business
or profession
►► 10% concessionary tax rate on such REITs ETFs
distributions received by qualifying non-resident
non-individuals2.
Subject to conditions, the tax concessions for
REITs ETFs will take effect on or after 1 July 2018,
with a review date of 31 March 2020, which is the
same as that for other tax concessions for S-REITs.
Application for the tax transparency treatment can
be submitted to the IRAS on or after 1 April 2018.
The MAS and IRAS will release further details of the
change by March 2018.
1
Tax transparency treatment means that the trustee of the REITs ETF is not subject to tax on the specified income that is distributed to the unit
holders. Instead, such distributions are taxed in the hands of the unit holders depending on their profile. For example:
(i) Individuals who derive any distribution through a partnership in Singapore or from the carrying on of a trade, business or profession: tax at
the individual’s tax rates
(ii) Other individuals: exempt from tax
(iii) Qualifying non-resident non-individuals: tax at a 10% concessionary tax rate
(iv) Companies incorporated and resident in Singapore: tax at the prevailing corporate tax rate
2
This refers to a non-resident non-individual unit holder who:
(i) Does not have any permanent establishment in Singapore
(ii) Carries on any operation through a permanent establishment in Singapore, where the funds used by that person to acquire the units in that
REITs ETF are not obtained from that operation
Singapore Budget 2018 Synopsis 21Business tax
Points of view ►► The tax transparency treatment accorded
to S-REITs is subject to various conditions.
►► The proposed tax change for REITs ETFs is a Amongst others, the conditions include:
long awaited tax change, since the listing of the
first REITs ETF in Singapore in 2016. It will be ►► To distribute at least 90% of the S-REIT’s
very welcomed by the markets, fund managers specified income to its unit holders in
and investors. the same year in which the income is
derived by the trustee.
►► The types of S-REIT income that qualify for tax
transparency treatment under section 43(2A) ►► To comply with the necessary WHT
of the ITA (specified income) are: requirements.
i) Rental income or income from the ►► To ensure that mechanism will be put in
management or holding of immovable place to allow the trustee to ascertain
property but not including gains from the whether or not tax is to be deducted from
disposal of immovable property. a distribution (including the content of any
prescribed form that has to be completed
ii) Income that is ancillary to the management and submitted by the unit holders, and the
or holding of immovable property but retention period of such form).
not including gains from the disposal of
immovable property. ►► To ensure that there is sufficient information
and documentation (besides the declaration
iii) Income that is payable out of rental income forms submitted by the unit holders and
or income from the management or holding nominees) to verify the identity of the unit
of immovable property in Singapore, but holders and beneficiaries and be satisfied
not out of gains from the disposal of such that they qualify for a waiver of WHT, the
immovable property. final WHT rate of 10% or exemption of tax.
iv) Distribution from an approved sub-trust of the ►► To obtain confirmation from the ultimate
S-REIT out of income referred to in paragraphs beneficiaries that they are qualifying unit
(i), (ii) and (iii) above. holders or qualifying non-resident non-
v) Rental support payment that is paid to the individual unit holders, where the units are
trustee on or after 29 December 2016 by: held through more than one tier of nominees.
►► The seller who sold to the trustee the ►► The conditions that REITs ETFs will have to
property or any interest in the owner of meet in order to qualify for tax transparency
the property treatment will be released by March 2018. It
►► A person who wholly owns (directly or is expected that REITs ETFs will be required
indirectly) the seller to comply with conditions similar to those
►► Any other person approved by applicable to S-REITs for tax transparency
the Comptroller treatment. Hence, there will be a compliance
cost to be incurred by REITs ETFs.
22 Singapore Budget 2018 SynopsisBusiness tax
►► Under the tax transparency treatment accorded ►► The tax concessions for REITs ETFs is subject
to S-REITs, the trustee of S-REITs will not be to a review date of 31 March 2020, which is
subject to tax on specified income distributed to the same as that for other tax concessions for
unit holders. Qualifying unit holders of S-REITs S-REITs. However, it is noted that for S-REITs, the
will receive distributions out of specified income review date of 31 March 2020, in relation to the
without deduction of tax. Such distributions proposed change, is only applicable to the 10%
will be taxed in the hands of the unit holders, concessionary tax rate on distributions made out
unless the unit holders or the distributions of specified income to qualifying non-resident
are specifically exempt from tax. REITs ETFs, non-individuals. It is hoped that the review
being domestic unit trusts, are not qualifying date of 31 March 2020 will not apply to the tax
unit holders and hence they currently receive transparency treatment as this treatment is not
distributions from S-REITs out of specified subject to the review date of 31 March 2020 in
income after deduction of tax at the prevailing the case of S-REITs. Further, the tax exemption
corporate tax rate of 17%. With the proposed for individuals is not a concession granted
change, presumably the definition of qualifying specifically to investments in S-REITs.
unit holders for S-REITs should be expanded to
►► The YA in which a unit holder will be assessed on
include REITs ETFs that are accorded the tax
specified income distributed by an S-REIT follows
transparency treatment so that they can receive
the YA in which that income is derived by the
gross distributions from S-REITs, i.e., without
S-REIT. Given that the S-REITs that REITs ETFs
deduction of tax.
invest in are likely to have a different financial
►► Under the current treatment, Singapore year end, it is hoped that an exception will be
corporate investors who finance their made such that unit holders of REITs ETFs who
investments in REITs ETFs with interest-bearing are liable to tax on distributions they receive
borrowing are not able to claim tax deduction from REITs ETFs, e.g., Singapore corporate unit
on the attributable interest expense as the holders will be assessed on the distributions in
distributions from REITs ETFs are exempt from the YA which follows the YA of the REITs ETFs, or
tax in their hands. With the proposed change, perhaps to simplify further, which follows the YA
Singapore corporate investors should be able of the unit holders.
to obtain a tax deduction on such interest
expense attributable to the taxable portion
of the distributions received from REITs ETFs
and thus reducing the effective tax payable on
such distributions.
Singapore Budget 2018 Synopsis 233Personal
income tax
24 Singapore Budget 2018 SynopsisPersonal income tax
Personal income tax rate and tax rebate
Current Points of view
The income tax rates for Singapore tax resident ►► T
► he implementation of higher income tax
individuals with effect from YA 2017 range from rates with effect from YA 2017 as well as the
zero percent for the first S$20,000 of chargeable personal income tax relief cap with effect
income to 22% for chargeable income exceeding from YA 2018 affect mainly the higher income
S$320,000. A tax rebate of 20% of tax payable, earners. The government is of the view that
capped at S$500 per taxpayer, was available to all the current personal income tax regime is
tax resident individual taxpayers for YA 2017. With sufficiently progressive and equitable. As such,
effect from YA 2018, the total amount of personal no further change or enhancement is required at
income tax relief that an individual can claim will be the moment.
capped at S$80,000 per YA.
►► T
► ax rebates accorded by the government in prior
years provided welcomed relief to individuals who
Proposed pay personal income tax but such a tax rebate
will not benefit a non-taxpayer. For example, the
There is no change to the personal income tax
tax rebate accorded for YA 2017 benefited only
rates and the personal income tax relief cap. There
tax resident individual taxpayers who earned
will not be any tax rebates accorded for YA 2018.
an annual income of more than S$42,5001. As
Instead, the government has declared a one-off SG
such, we see the announcement of the one-off
Bonus of S$100, S$200 and S$300 (depending on
and tiered SG bonus in Budget 2018 as a more
income) to be given to all Singaporeans aged 21 and
equitable approach.
above in 2018.
1
Active national service reservist man married to a non-working spouse with two dependent children
Singapore Budget 2018 Synopsis 254Goods and
services tax
26 Singapore Budget 2018 SynopsisGoods and services tax
Impending GST rate increase
Current Points of view
GST was first implemented in Singapore at a low ►► I t is not certain if the GST increase will be an
rate of 3% on 1 April 1994. The GST rate was immediate step-up from the current GST rate or
subsequently raised to 4% in 2003, 5% in 2004 and staggered in a two-step approach.
then 7% in 2007, where it has remained since.
►► Although not primarily a tax on businesses, the
GST increase will result in additional irrecoverable
Proposed GST costs to the following groups of businesses:
To support the recurrent needs from healthcare, ►► Businesses which are not registered for
security and other social spending, the Minister has GST, as they are not entitled to claim
announced that the government plans to raise GST from the government the GST incurred on
by two percentage points, from 7% to 9%, sometime their purchases.
in the period from 2021 to 2025. The exact timing
of the GST increase will depend on the state of the ►► Residential property developers or mixed
economy, how much Singapore’s expenditures grow developers and businesses in the financial
and how buoyant are the existing taxes. services sector, as these businesses are
partially exempt and are likely not able to
The Minister also announced that the GST increase claim the GST incurred on their purchases
will be implemented in a progressive manner and in full.
the government will:
►► Charities and non-profit organisations which
►► Continue to absorb GST on publicly-subsidised are engaged mostly in non-business activities,
education and healthcare due also to the inability to fully recover the
GST incurred on their purchases.
►► Enhance the permanent GST Voucher scheme
when the GST is increased, so as to provide more
help to lower-income households and seniors
►► Implement an offset package for a period to
help Singaporeans, especially the lower-income
and middle-income households, adjust to the
GST increase
Singapore Budget 2018 Synopsis 27Goods and services tax
►► As the GST increase is only expected sometime
from 2021 to 2025, businesses will have
sufficient time to prepare for the GST increase
including addressing their accounting system
and procedure changes, transitional issues and
communication strategy. New supplies and
purchase contracts that will straddle into 2021
and beyond should take into consideration
the GST increase. The action plan should
also include training the relevant staff within
the organisation so that they understand the
impact on the business, particularly during the
transition period.
►► B
esides Utilities-Save and service and
conservancy charges rebates, from the past
GST increase, we can expect the offset package
to include top ups to Post-Secondary Education
Accounts, property tax rebate, assistance for
low income families with children and assistance
for pensioners.
►► Notwithstanding the proposed increase in
GST, the Singapore GST rate remains low by
comparison with VAT and GST rates elsewhere
in the world, as indicated in the tables of
comparative rates on the next page.
What we said previously …
Extract from Singapore GST: past, present and Extract from Implications of an impending GST
future, published in EY’s Issue 4, 2015 of You and hike, published in EY’s Issue 4, 2017 of You and
the Taxman magazine: the Taxman magazine:
“To keep pace with the ever-changing economy “As a GST rate hike in the coming years becomes
and meet the demands of social spending, the more imminent, businesses will have to start
GST system would have to evolve. The question is considering the impact of a hike and ensure
would this involve changes to the tax rate, the tax that they have adequate resources to mitigate
rules or the tax base? the impact.”
Change is inevitable. To remain relevant,
Singapore has to continually reinvent itself in all
areas – be it taxation or otherwise. As the saying
goes 'The future belongs to those who prepare for
it today' ”.
28 Singapore Budget 2018 SynopsisGoods and services tax
Prevailing standard GST/VAT rates in selected countries
Asia-Pacific
Country
China 17
New Zealand 15
Philippines 12
Indonesia 10
Australia 10
Thailand 7
Malaysia 6
Taiwan 5
Japan 8
#
Singapore 7
0 2 4 6 8 10 12 14 16 18
Percentage
#
Rate to be increased from 7% to 9% between 2021 and 2025.
Europe
Country
Sweden 25
Denmark 25
France 20
Netherlands 21
Germany 19
UK 20
Luxembourg 17
Switzerland 8
0 5 10 15 20 25 30
Percentage
Singapore Budget 2018 Synopsis 29Goods and services tax
GST on imported services
Current
GST is not applicable on imported services provided
by an overseas supplier, which does not have an
establishment in Singapore.
Proposed
To ensure that the Singapore tax system remains
fair and resilient in a digital economy, the Minister
announced that with effect from 1 January 2020,
GST on imported services will be implemented.
Business-to-Business imported services will be taxed
via a reverse charge mechanism. Only businesses
that (i) make exempt supplies, or (ii) do not make
any taxable supplies need to apply reverse charge.
The reverse charge mechanism requires the local
business customer to account for GST to the IRAS
on the services it imports. The local business
customer can in turn claim the GST accounted
for as its input tax, subject to the GST input tax
recovery rules.
Business-to-Consumers (B2C) imported services, on
the other hand, 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 the IRAS
for GST. OVR will apply to overseas suppliers whose
annual global turnover exceeds S$1m and whose
sale of digital services to consumers in Singapore
exceeds S$100,000. Once GST-registered, they will
collect GST for the IRAS on their B2C supplies of
digital services.
The IRAS will release further details by
end-February 2018.
30 Singapore Budget 2018 SynopsisGoods and services tax
Points of view ►► From a financial services sector perspective,
Singapore is a well-established financial centre
►► The introduction of GST on imported services is and many financial institutions have either
designed to ensure a level playing field between their global or regional headquarters located
local and overseas suppliers. It is also in-line with here. The introduction of the reverse charge
increased calls for international co-ordination mechanism will carry with it an extra GST cost,
efforts in aligning GST treatment of cross-border both in terms of increased compliance and an
services and intangibles with international increase in irrecoverable GST incurred. Like many
practice and other tax administrations. countries, the OVR will most likely be a simplified
►► The proposed implementation of the reverse GST registration where overseas suppliers and
charge mechanism will impact certain groups of electronic marketplace operators, if registered
businesses, primarily financial institutions, mixed for GST, will charge and account for GST but not
and residential property developers and holding be entitled to claim any GST incurred. These
companies. For these impacted businesses, they overseas suppliers and electronic marketplace
will need to determine exactly how the reverse operators will most likely file a “pay only”
charge mechanism will impact their key business GST return.
processes and implement a strategy to ensure ►► Even with the introduction of simplified GST
that they are ready to meet the challenges of this registration for overseas suppliers and electronic
new requirement effective 1 January 2020. marketplace operators, enforcing the GST
►► For affected businesses, it is advisable that registration could be a challenge for the IRAS
impact assessments be undertaken addressing since these overseas suppliers and electronic
both purchases from overseas third party marketplace operators are all established
vendors and related parties to establish outside Singapore.
what the resulting financial impact could be, ►► The proposed OVR does not affect e-commerce
understand what information is needed and the for low value goods. For imports of low-value
steps required to meet the future compliance goods (where the goods are imported by air or
obligations and understand non-IT system post and the value is below S$400), it is still
impacts such as vendor communications, under review by the government.
contracting and pricing.
Singapore Budget 2018 Synopsis 31You can also read
