Highlights of Recent Tax Amendments in Singapore

The Singapore Government responds to a global environment that is becoming more complex and less predictable, by maintaining its position as a tax friendly and tax competitive nation. Every year, the Finance Minister of Singapore announces certain progressive tax changes in his Annual Budget Speech. Some of the significant changes in recent years include, reduction in corporate and individual tax rate to 18% and 20% respectively, abolition of estate duty, increase in GST from 5% to 7% etc. Detailed below are the highlights of recent amendments to Singapore taxation applicable to businesses, individuals and other bodies.

Recent Amendments to taxation - 2008

Income tax changes for businesses

• Liberalisation of the tax exemption scheme for new start up companies: With effect from Year of Assessment 2009, the tax exemption scheme for new start-up companies, presently available to new companies with not more than 20 shareholders all of whom are individuals, is extended to new start-up companies with corporate shareholders. The company should have at least one shareholder who is an individual holding not less than 10% of the total number of issued ordinary shares in the company throughout the basis period relating to the YA of claim. With the relaxation of the above condition, start-ups with equity funding by corporations and venture capital can enjoy the start-up tax exemption as well.
• Tax credit for foreign sourced income: All Singapore companies that earned income from countries that don’t have double tax agreement with Singapore, will be allowed a tax credit on their foreign-sourced income from those countries.
• Tax deduction for medical expenses: With effect from YA 2008, employers are allowed to claim medical expenses for any YA beyond the existing 1% (but not exceeding 2%) of the total remuneration of their employees for the relevant basis period, subject to conditions.
• Extension of further tax deduction scheme for expenses incurred in recruiting or relocating overseas talent to 30th September 2013.
• Tax incentives for fixtures, fittings and installations: A special allowance is granted on the costs of renovation and refurbishment works (subject to an expenditure cap of S$150,000) incurred, from 16 February 2008 to 15 February 2013, by any person for the purposes of his trade, business or profession.
• Measures to encourage Research and Development in Singapore: Until YA 2013, R&D expenses incurred for R&D carried out in Singapore can qualify for tax deduction regardless of whether they are incurred in respect of the taxpayer’s existing trade or business. The deduction for R&D expenses has been enhanced from 100% to 150% of the actual R&D expenditure incurred.

  From YA 2009 to 2013, companies with chargeable income will be granted R&D tax allowance (RDA) for each year based on 50% of their chargeable income for that year, up to a maximum amount of SGD 150,000.

  New R&D incentive for start-up enterprise (RISE). Under RISE, a qualifying start-up company is allowed to surrender their tax adjusted losses in exchange for a cash grant of up to SGD 20,250 so long as it incurs qualifying R&D expenditure of at least SGD 150,000 during the year.

• Tax exemption for qualifying Family Investment Holding Company (FIHC): In other words, family owned investment holding companies will enjoy the same scope of exemptions that individuals currently enjoy on Singapore and foreign-sourced income.
• 10% concessionary rate of tax for approved insurance brokers on the income they derive from offering insurance broking and advisory services to offshore clients.
• 10% concessionary rate of tax for approved company, managing qualifying infrastructure business.
• Shipping companies to enjoy a concessionary tax rate of 5-10% on income from container leasing activities.
• Extension and enhancement of Financial Sector Incentive (FSI) Scheme until 2013.
• 5% concessionary tax rebate for qualifying Islamic financial activities.

Income tax changes for individuals

• Abolition of estate duty: Estate duty for death occurring on or after 15 February 2008 has been abolished to encourage high net worth individuals to bring their assets into Singapore and thus supporting the growth of the wealth management industry.
• One-time income tax rebate of 20% (capped at $2000) for all resident taxpayers for Year of Assessment 2008.
• Enhancement to course fees relief: A taxpayer who has incurred course fees to attend any course of study, seminar or conference leading to an approved vocational qualification can claim for course fees relief of up to SGD 3,500 with effect from YA 2009. The period for claiming course fees relief has also been extended to 2 YAs from the YA relating to the year in which he has completed the course, or attended the seminar or conference.
• Changes to tax relief for Central Provident Fund: Employees and self-employed persons are allowed to claim tax relief for their voluntary cash contributions made specifically to their own Medisave Accounts, subject to conditions. Resident individuals who are Singapore citizens or permanent residents can claim tax relief for cash top-ups to their own and their family members’ (i.e. siblings, spouses, parents and grandparents) Minimum Sums now regardless of the age of the recipients.
• Changes to tax for Supplementary Retirement Scheme (SRS) Contributions:  With effect from YA 2009, employers can contribute to their employees’ SRS accounts on the employees’ behalf, subject to the current SRS contribution cap for each individual. The employees can claim tax relief on this amount. With effect from YA 2009, individuals deriving only passive income in the preceding year are allowed to contribute to his SRS account in the current year. 

  SRS members can now continue to contribute beyond the prevailing prescribed retirement age, up to the point of their first penalty-free withdrawal.

• Changes to Not Ordinarily Resident (NOR) tax payers scheme: The previous qualifying criteria of a minimum 10% qualifying tax rate has been replaced with minimum Singapore employment income threshold of SGD 160,000. Enhancement of current NOR scheme to also cover benefits-in-kind (e.g. leave pay). Tax exemption is only allowed if the NOR taxpayer derives at least SGD 160,000 from his Singapore employment and the employer does not claim a tax deduction for the contributions made to non-mandatory overseas pension or provident fund and social security scheme. 

Recent Amendments to taxation - 2007

Income Tax Changes for Businesses

• Reduction in rate of tax for companies: The rate of tax for companies will be reduced from 20% to 18% with effect from the Year of Assessment (YA) 2008.
• Increase in the partial tax exemption threshold for companies: With effect from YA 2008, the threshold for the partial tax exemption for all companies will be increased to SGD 300,000. The tax exemption will be given as follows:
  • up to the first SGD 10,000 of the normal chargeable income (excluding Singapore franked dividend), 75% of the income or an amount up to SGD 7,500 is exempt from tax; and
  • up to the next SGD 290,000 of such income, 50% of the income or an amount up to SGD 145,000 is exempt from tax.
• Lifting of the Sunset Clause for the Tax Exemption Scheme for New Start-Up Companies:  The sunset clause of YA 2009 for the tax exemption scheme for new start-up companies has been removed.

  Currently, full tax exemption is granted on up to SGD 100,000 of the normal chargeable income (excluding Singapore franked dividends) of a qualifying company, for any of its first three consecutive YAs that falls within YA 2005 to YA 2009 (inclusive). The YA 2009 expiry date will now be removed, but the tax exemption will continue to apply to only the first three consecutive YAs of a qualifying company.

  For companies that qualify for the scheme, normal chargeable income between SGD 100,000 - SGD 300,000 (excluding Singapore franked dividends) will be eligible for 50% tax exemption under the enhanced partial tax exemption scheme which takes effect from YA 2008.

• Accelerated Capital Allowance for New Vehicle to Replace Pre-Euro IV Diesel Goods Vehicles and Buses: One-year write-off will be allowed on capital expenditure incurred to purchase a new Euro IV diesel goods vehicle or bus, registered during the period from 15 February 2007 to 14 February 2012, subject to conditions.
• Extension of time period for Writing Down Allowances (WDA) in respect of capital expenditure incurred to acquire IP rights has been extended by another 5 years to 31 October 2013.
• Enhancement to the Investment Allowance (IA) Scheme: The maximum qualifying period for IA has been extended from 5 to 8 years for companies that purchase their qualifying equipment on hire purchase.
• Enhancement to Approved Shipping Logistics (ASL) Scheme: The incentive period for ASL companies has been extended from 5 years to 10 years.
• Enhancement to Aircraft Leasing Scheme (ALS): Offer of a concessionary tax rate of 5% (in addition to existing 10% rate)
  • on qualifying lease income for a period of 5 years, with a possible extension of another 5 years;
  • to a registered business trust or an approved company under an aircraft or aircraft engine financing arrangement;
  • to income from leasing of aircraft engines; and income from leasing of aircraft or aircraft engines to any person in Singapore i.e. onshore leasing
• Enhancement to Finance and Treasury Centre (FTC) Incentive: Expansion of the qualifying activities under the FTC Scheme to include transacting and investing in units in any unit trust (foreign, local or designated unit trust).
• New Tax Incentive on Incremental International Arbitration Income for Law Firms, to grant a 50% tax exemption on incremental qualifying income derived by an approved law firm from international arbitration cases heard in Singapore.
• Extension of Tax Exemption on Payments made to Non-Resident in respect of Over-The-Counter (OTC) Financial Derivatives:
  • by an approved special purpose vehicle (ASPV) engaged in asset securitisation transaction, to 31st December 2008 and
  • by a financial institution in Singapore, to 19th May 2012. 

Income Tax Changes for Individuals

• Increase in Employer’s Compulsory CPF Contribution Rate from 13% to 14.5% with effect from 1 July 2007.
• Changes to Tax Relief for CPF Top-Up, which is now expanded to cover CPF top-ups in cash by taxpayers for their siblings who are 55 years old or older and whose income does not exceed SGD 2,000 in the year preceding the year of top-up, with effect from YA 2008. 

Other Changes

• New Tax Exemption Scheme for approved Not-for-Profit Organisations (NPOs) for an initial period of not more than 10 years subject to conditions.
• Income Tax exemption for Registered Charities and Exempt Charities, without having the need to meet the 80% spending rule. This change will take effect from YA 2008.
• Enhancement to Qualifying Debt Securities Scheme to accord tax exemption or concessionary tax rates on prepayment fee, redemption premium and break cost that are derived by investors from Qualifying Debt Securities (issued from 15 February 2007 to 31 December 2008), subject to conditions.
• Tax Deduction for Certain Borrowing Costs (other than Interest Expense):  The scope of tax deduction for borrowings which are on capital account and employed to acquire income will be expanded to cover qualifying borrowing costs which are incurred as a substitute for interest expenses or to reduce interest costs, with effect YA 2008.
• Enhancements to the Foreign Investor Scheme, Resident Fund of Foreign Investor Scheme and Financial Sector Incentive.
• Goods and Services Tax (GST) Changes: GST rate will be increased from 5% to 7% with effect from 1 July 2007. Zero-rating of Sales and Lease of Containers for International Transportation of Goods and Services Performed on the Containers. 
• Property Tax Rebates: As part of the GST offset package, a property tax rebate of up to SGD 100 per year will be granted to all owner-occupied residential properties for the years 2008 and 2009. For owner-occupied residential properties with annual values of SGD 10,000 or less, this rebate will be granted on top of the existing GST rebate.