Singapore Taxes: Industry Specific Tax Incentives

With a low headline corporate tax rate of 18% (further reduced to 17% from 2010), generous tax exemptions for small-to-midsize companies, and industry-specific tax incentives, Singapore is well positioned to maintain its economic competitiveness in today's global environment. The Government of Singapore provides a comprehensive package of tax concessions and incentives to businesses whose business activities reflect the direction in which the state plans to steer economic development.

The purpose of this article is to provide an overview of the various industry-specific and investment related tax incentives provided under the Singapore Income Tax Act and its subsidiary legislations. Note that the information presented here is for general guidelines only and not meant to replace professional tax advice.

Related Topics:

• General tax rates and incentives for Singapore companies

Tax Incentives For Financial Services Industry

Some of the key tax incentives include:

• Trading Income. Capital gains and income made by financial service companies trading investments for and on behalf of their non-resident clients are often tax exempt both in the hands of the financial services company and in the hands of the non-resident client. The effect of this incentive is to make Singapore an attractive location for foreigners to base their investments.
• Fee Income. Concessionary tax rates are levied on profits earned by financial services companies in respect of income earned billing clients for investment services rendered.

Tax Incentives for Fund Management Industry

Singapore has emerged as the most popular Asian location for fund management companies. The key factors spurring the growth include attractive tax benefits and the relatively short time taken to register a fund in the city-state. 

Tax Exemptions for Offshore Funds 

An offshore fund that is managed by a Singapore-based fund manager is exempt from Singapore tax on specified income from designated investments, provided the offshore fund is a qualifying fund. Specified income refers to profits, gains, dividends and interest from designated investments. Designated investments include traditional investments such as stocks, shares, securities, bonds, deposits, futures contracts etc. A qualifying fund is one that:

• Is not 100% beneficially owned by Singapore investors including Singapore resident individuals, Singapore resident corporate entities and Singapore-based permanent establishments of non-residents,
• Does not have a Singapore presence, and
• Can only be in the form of companies, trusts or individual accounts. 

A qualifying investor also enjoys tax exemptions on income derived from qualifying funds. A qualifying investor is:

• An individual investor
• A bona fide non-resident non-individual investor that:
  • does not have a Singapore presence or business activity (other than a fund manager), or
  • has a Permanent Establishment in Singapore but does not use funds from its operation in Singapore to invest in the qualifying fund.
• Certain specified Singapore government entities
• A Singapore resident corporate investor that owns not more than 30% or 50% (if the fund has 10 or more investors) of the qualifying fund.

Tax Exemptions for Onshore Funds

In 2006, the Singapore government introduced the Singapore Resident Fund Scheme, under which the above mentioned tax exemption scheme for offshore funds was extended to funds constituted in Singapore as well, subject to the following conditions:

• The fund vehicle must only be a company, 
• The fund must be constituted in Singapore and have its administration performed in Singapore, and
• The fund must be approved by the MAS. 

This scheme has boosted the fund management industry in Singapore as it offers an additional advantage of Singapore's extensive treaty network that helps to reduce tax liability in treaty countries that the fund invests in. 

Enhanced Tier Fund Management Scheme

With effect 1 April 2009 to 31 March 2014, an enhanced tier has been introduced to the existing fund management incentives for funds with a minimum size of S$50 million, at the point of application, amongst other conditions. Under the enhanced tier there will are no restrictions imposed on the residency status of the fund vehicles as well as that of investors. The enhanced tier also applies to funds that are constituted in the form of Limited Partnerships. Additionally, the 30% or 50% investment limit imposed on resident non-individual investors has been lifted for funds that come under this enhanced tier.

Concessionary Tax Rate for Fund Managers

Under the Financial Sector Incentive Scheme for Fund Managers, fund managers in Singapore are taxed at a concessionary rate of 10% on fee income, subject to certain conditions and MAS approval. This scheme applies to fund managers who employ at least three fund management or investment advisory professionals. The professionals' basic monthly income must exceed S$3,500.  

Note that according to the 2010 Budget, the Approved Start-up Fund Manager Scheme that was introduced in 2005 will be allowed to lapse on its expiry in February 2010. 

Tax Incentives for Global Trading Companies

Under the Global Trader Scheme, an approved global trading company is granted concessionary tax rates of 5%-10% for 5-10 years on qualifying offshore trade incomes, depending on the company’s turnover and business spending. Global Trader status is typically granted only to well-established players in their respective industries with a proven track record of international trade, procurement and transportation of qualifying products.

Tax Incentives For Shipping & Maritime Industry

To encourage the development of maritime industry in Singapore, a number of tax incentives are available with main ones listed below:

• Tax incentive for ship brokers and Forward Freight Agreement (FFA) traders: Ship brokers and FAA traders will be entitled to a concessionary tax rate of 10% on their taxable income, subject to conditions. The incentive applies until 31 March 2010.
• Ship management fees to be classified as "income exempt from tax": Ship management fees derived from rendering ship management services to related Special Purpose Vehicles (SPV) will be treated as qualifying income to be exempted from tax, subject to certain conditions.
• Ease in GST compliance for businesses that support the maritime industry: With effect from 1 July 2010, the GST zero-rating will be expanded to include pleasure and recreational ships that are wholly used for international travel. Additionally, it will apply to all goods (including stores and merchandises) supplied for use on board or installation on a qualifying ship, regardless of whether the ship calls on a port outside Singapore. Zero rating of GST also extends to the transport of goods or passengers via a ship to or from international waters, regardless of whether the ship calls on a port outside Singapore.
• Established international shipping companies with worldwide networks and a good track record, once approved, are exempt from tax on income from the operation of their ships outside of Singapore for a period of 10 years.
• Companies involved in the container leasing activities can enjoy a concessionary tax rate of either 5%-10% on its entire onshore and offshore container leasing income. A container investment manager will enjoy a 10% concessionary tax rate on its management fee income.
• Under the Block Transfer Scheme (BTS), withholding tax exemption can be granted in respect of interest payable on a loan taken by a shipping enterprise from a lender outside Singapore to acquire a Singapore-flagged ship. This withholding tax exemption is for ships registered with the Singapore Registry of Ships (SRS) on any date from 1 Jan 2009 to 31 Dec 2013.

Tax Incentive for Event Organizers

Event organizing Singapore companies that can bring mega events to Singapore are eligible for a 10% concessionary tax rate on the income derived from mega events.

Tax Incentives For e-Commerce Industry

To develop Singapore as an e-commerce hub, well-established e-commerce companies are eligible for a reduced tax rate of 10% for a period of five years on the income derived from e-commerce transactions with parties outside Singapore.

Tax Incentives for Approved Ventures

Income derived from approved investments of approved venture companies is eligible for a reduced tax rate of 0%-10% for a period as approved by authorities.

Tax Incentives for Insurance Companies

Currently, insurance companies in Singapore are also eligible for a concessionary tax rate of 10% on income derived from writing offshore insurance business. According to the 2010 Budget, with effect from April 2010 the incentive will be subject to a sunset clause of 5 years until 31 March 2015; the incentive will be awarded to an approved recipient for a period of 10 years; and a new headcount requirement will be imposed for incentive recipients. Life insurance companies are not taxed on their premiums income, but only pay tax on the investment income and profit on sale of investments. The part of the life insurance surplus of any life insurance fund of a life insurance company which is apportioned to the policyholders of the company is subject to a reduced tax rate of 10%.

Tax Incentives for Operational Headquarters (OHQ) Company

To encourage large multi-national companies to setup their regional or global headquarters in Singapore, an approved operational headquarters company that provides management, technical or other support services to its affiliates outside Singapore are taxed at a reduced tax rate of 10% on income derived from qualified activities such as services to its overseas associated companies, treasury and investment activities, trading in foreign exchange and offshore investments, etc for a period of 10 years. Moreover, a Singapore OHQ company is granted tax exemption on dividends received from foreign affiliates.

Tax Incentive for Processing Services Company

Qualifying processing services companies are taxed at a concessionary rate of 5% on income derived from the provision of prescribed services to financial institutes. The tax break is given for a period of 5-10 years.

Renovation Tax Incentive

Singapore companies are allowed to write down the cost of fixtures and fittings over a period of three years up to a maximum of S$150,000. They can do this every three years. However, businesses that incur qualifying renovation and refurbishment expenses in the basis periods for YA 2010 and YA 2011 can deduct such expenses in one year instead of over three years, subject to the cap of S$150,000, for each relevant three-year period.

Trade Promotion Tax Incentive

To encourage more companies to promote their products and services in overseas markets, Singapore companies are eligible for double tax deduction (DTD) on qualified expenses as approved by International Enterprise (IE) Singapore. You must apply for DTD by the prescribed time before the start of the proposed event.

Tax Incentive for Legal Firms

Approved law firms in Singapore will enjoy a 10% concessionary tax rate on incremental income from qualifying international legal services for 5 years. The incentive is valid from 1 April 2010 to 31 March 2015.

Tax Incentive for Innovation Focused Activities

Under the newly introduced Productivity and Innovation Credit Scheme, all businesses will be allowed to deduct 250% of their expenditure incurred on qualifying activities, from their taxable income. The tax deductions are capped at S$300,000 for each activity. The qualifying activities include Research & Development; Intellectual Property registration; Intellectual Property acquisition; Design activities, Automation through technology or software; and training of employees. Businesses with a low taxable income, can choose to convert up to S$300,000 of the tax deductions and allowances credited to them into a cash grant, up to a maximum of S$21,000 each year. The Productivity and Innovation Credit will be available for all businesses from YA 2011 to YA 2015.