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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.
With a low headline corporate tax rate of 17%, generous tax exemptions for small and medium-sized 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 activities reflect the direction in which the state plans to steer economic development.
Some of the key tax incentives include:
Liberalization of the Withholding Tax Exemption Regime for Banks: With effect from April 1 2011, interest and other qualifying payments that are made to all non-resident persons in relation to their trade or business will be granted a withholding tax exemption. The withholding tax exemption will be applicable to payments liable to be made between 1 April 2011 and 31 March 2021, for contracts which take effect before 1 April 2011; and payments liable to be made on contracts which take effect on or after 1 April 2011 to 31 March 2021. According to Budget 2012, the withholding tax exemption (which was previously not extended to permanent establishments) will also apply to permanent establishments in Singapore. This change will take effect for payments to be made from 17 Feb 2012 to 31 Mar 2021 (for contracts already in force before 17 Feb 2012); and all payments arising from contracts effective on or after 17 Feb 2012 to 31 Mar 2021. This exemption is applicable to:
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.
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:
A qualifying investor also enjoys tax exemptions on income derived from qualifying funds. A qualifying investor is:
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:
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.
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.
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.
Derivative instruments such as interest-rate swaps and forex derivatives are not covered under the GTP. According to the 2011 Budget, the existing list of qualifying derivative instruments under the GTP will be expanded to include all derivative instruments. This enhancement will apply to income from qualifying trades in the new qualifying derivative instruments, derived by a GTP company from Year of Assessment 2012. A sunset clause will be introduced for the GTP scheme viz. 31 March 2021. Companies can be approved as a GTP company or GTP (Structured Commodity Finance) company on or before 31 March 2021. The GTP company can enjoy the benefits under the various enhancements during their award tenure of up to five years.
The Maritime and Port Authority of Singapore (MPA) has developed a number of incentive schemes to encourage shipping companies to grow and enhance their business further. The Maritime Sector Incentive (MSI) outlines incentives for companies engaged in international shipping operations, maritime (ship or container) leasing, shipping support services.
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.
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.
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.
The Singapore government has introduced two specific schemes in order to encourage companies to use Singapore as their regional or global headquarters base.
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.
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. This will include all legal services connected to land and goods outside Singapore, and intangible legal services provided to overseas clients. Furthermore, approved law firms can avail of a 50% tax exemption on incremental qualifying income derived from international arbitration cases heard in Singapore.
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