2016 - Budget 2016 - Sector Specific Initiatives Part 1
The budget also includes measures such as SME loan assistance, enhanced corporate tax rebate, wage credit scheme etc, to help companies wade through the cyclical headwinds. Budget 2016 incorporates measures to bolster the competitiveness of Singapore’s key sectors and also proposes initiatives to streamline the existing sector specific schemes. The following is an overview of the sector specific measures unveiled in Budget 2016. Part 2 will include the FTC and Maritime sector initiatives.
Asset and Wealth Management Sector – Trustee Company Scheme
Existing
Approved trustee companies enjoy a concessionary tax rate of 10% on qualifying incomes derived from performing services in the capacity of a trustee or custodian or from providing trust management or administration services in prescribed areas. This scheme was scheduled to lapse after 31 March 2016.
Proposed
- The scheme will be subsumed under Financial Sector Incentive scheme from 1 April 2016. Thereafter qualifying activities will be aligned with the activities listed in FSI Standard Tier (FSI-ST) Scheme.
- The concessionary tax rate will be revised upwards to 12% for new awardees existing awardees will enjoy the 10% concessionary rate until the expiry of their award and may apply for renewal under FSI thereafter.
- The change will take effect from 1 April 2016
- Monetary Authority of Singapore (MAS) will release further details by June 2016.
Our Comments
Considering the administrative and compliance costs involved, the revised concession rate may not be attractive to new entrants. Originally, the scheme was launched to drive the growth of the asset and wealth management industry in Singapore. Aided by Singapore’s strong reputation for transparency and regulatory standards, the total asset under management in Singapore has grown to $2.4 trillion. The government seeks to streamline the incentives for the financial sector, and the proposed initiative for the trustee companies is in line with this objective. However we have to observe the impact of the reduced concession. Also previously, the awardees under the scheme enjoyed the benefits for 10 years from the grant date, now with the scheme being subsumed under the FSI, which typically awards incentive for five- year period, more clarity is needed regarding the new incentive period.
Insurance Sector
Existing
A range of incentive schemes is available for the sector, offering total tax exemptions or concessionary tax rates for qualifying incomes.
Insurance Business Development Scheme
Under the IBD scheme, approved insurers are granted a concessionary tax rate of 10% on qualifying income derived from the carrying on of offshore insurance business. The scheme is scheduled to lapse after 31 March 2020.
Marine Hull and Liability Insurance
Due to lapse on 31 March 2016, the scheme offers tax exemption or 5% tax on qualifying expenses.
Specialised Insurance Scheme
The scheme exempts tax on qualifying incomes of approved insurers providing coverage for offshore risks such as, terrorism, political, agricultural, energy, aviation & aerospace and catastrophic risks. The scheme is set to lapse on 31 August 2016.
Captive Insurance scheme
The scheme grants a tax exemption for 10 years to an approved captive for qualifying income derived from accepting offshore captive insurance business. The scheme is scheduled to lapse on 31 March 2018.
Proposed
The IBD scheme remains intact without any specific changes to the existing benefits however it will be enhanced to an umbrella scheme. The tax incentive provided under Marine Hull and Liability Insurance scheme, Specialised Insurance scheme and Captive Insurance scheme will be subsumed under the IBD umbrella scheme with the following change
Marine Hull and Liability Insurance
A concessionary tax of 10% will be charged on qualifying incomes of new awards and renewal awards from 1 April 2016.
Specialised Insurance Scheme
It has been extended by another five years to 31 August 2021. However, the applicable tax rates offered under the new IBD-SI scheme will be revised as follows:
New awards granted up to 31 August 2016 – 0%
New awards granted between 1 September 2016 and 31 August 2019 – 5%
New awards granted from 1 September 2019 – 8%
Renewal of awards up till 31 August 2016 – 0%
Renewals awards between 1 September 2016 and 31 August 2019 – 10%
With effect from 1 September 2016, the IBD-SI scheme will be expanded to cover onshore specialised business.
Captive Insurance Scheme with effect from 1 April 2018, all new and renewal awards under the Captive Insurance scheme will only enjoy a 10% concessionary tax rate.
Our Comments
The extension of the incentive schemes for the sector signals the government’s commitment to support the growth of high value insurance business in the country. The robust tax incentive framework will underscore Singapore’s position as an insurance hub in Asia and attract new players and enhance the insurance products available in the country.
It must also be noted that insurers who enjoyed tax exemptions on their incomes under the Specialised and Captive Insurance scheme will not be happy with the exemption being lifted. The higher tax rate, twice that of existing, for the Marine Hull and Liabilities insurers will definitely take the wind out of their sails. The enhancement to the Specialised Insurance scheme to include onshore risks covered is a welcome move. The streamlining of the diverse scheme under an umbrella scheme makes it more simple and cohesive. Insurance is a key segment in the Financial Services sector, the impact of the changes are to be closely watched.
Global Trader Program (Structured Commodity Finance)
Existing
Approved GTP (SCF) companies are subjected to a concessionary tax rate of 5% or 10% on the qualifying incomes derived from the following prescribed activities.
i. Factoring
ii. Forfeiting
iii. Prepayment
iv. Countertrade
v. Warehouse receipt financing
vi. Export receivable financing
vii. Project finance
viii. Islamic trade finance;
ix. Transacting in derivatives to hedge against risks relating to any of the activities from (i) to (viii) and
x. Advisory services in relation to any of the activities from (i) to (viii)
Proposed
The scheme will be enhanced to include the following qualifying activities:
- Consolidation, management and distribution of funds for designated investments;
- M&A advisory services; and
- Streaming financing.