Budget 2016 - Sector Specific Initiatives Part 2

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.

Finance and Treasury Centre (FTC) Scheme

Existing

Under this scheme, approved FTCs enjoy a concessionary tax rate of 10% on qualifying incomes derived from qualifying activities or services. In order to qualify for the concessionary rate, the funds should be obtained from qualifying sources, namely financial institutions in Singapore, banks outside Singapore and approved offices or associated companies. Prescribed payments made by the FTC to qualifying non-residents are also exempted from withholding tax. The scheme was scheduled to expire on 31 March 2016.

Proposed

  • The concessionary tax rate will be slashed further to 8% from the existing 10%.
  • The substantive requirements to qualify for the scheme will be tightened.
  • Funds obtained indirectly from qualifying sources will also be eligible for concessionary tax rate and measures will be in place to prevent risks of round tripping.
  • Withholding tax will be exempted on interest payments on deposits placed with the FTC by its non-resident approved companies, provided the funds are used for qualifying activities.
  • The scheme will be available from 25 March 2016 and expire on 31 March 2021.
  • Singapore Economic Development Board (EDB) will release further details by June 2016.

Our Comments

The regional tax environment is changing and tight competition is brewing for Singapore from its neighbours. Malaysia and Hong Kong are rolling out attractive incentives to grow their share of corporate treasury centre activities. Hong Kong, in its attempt to play catch-up with Singapore in the treasury centre realm, has proposed to slash its rate to 8.25% on qualifying incomes. Malaysia has also demonstrated strong ambitions to grab a share of this segment and has doled out attractive incentives to treasury management centres. Singapore had no choice but to up its ante in order to sustain its competitiveness.

We have to wait for the full details to emerge on the qualifying threshold, it must not be too demanding for the existing FTCs that will soon be applying for renewals. Prospective new entrants will have to ensure that they meet or exceed the qualifying thresholds in terms of business spending, headcount etc.

We welcome the enhancement of tax concessions to include indirect funding; this will ease the challenges of multi-nationals that operate multiple treasury centres. However we will have to wait for what is in-store in the safeguard measures to prevent round tripping. If it is too stringent it will be counter productive.

The extension of withholding tax exemption to interest payments will boost cash pooling activities by FTCs thus empowering multi- national companies locating their treasury centre in Singapore with greater control and visibility of cash while managing foreign exchange risks and reducing finance costs.

Maritime Sector Incentive

Existing

Currently, ship operators enjoy tax exemption on qualifying income derived from operating Singapore ships and foreign ships as well as the provision of specified ship management services under the MSI-Singapore Registry of Ships Award (MSI-SRS) and MSI-Approved International Shipping Enterprise Award (MSI-AIS).

Tax is exempted on income derived from the chartering or finance leasing of ships used for qualifying activities to qualifying counterparties for use outside the port limits of Singapore under the MSI-Maritime Leasing (Ship) Award (MSI-ML(Ship)).

Proposed

  • The MSI-SRS and MSI-AIS will be extended to cover income from operation of ships used for exploration/exploitation/ancillary activities involving offshore energy or offshore minerals.
  • Likewise MSI –ML (Ship) will include income derived from leasing of ships for exploration/exploitation/ancillary activities involving offshore energy or offshore minerals.
  • The qualifying counterparties requirement under the MSI-ML(ship) will be removed and incomes derived from leasing of ships for qualifying activities to any counterparties for use outside the port limits of Singapore will be eligible for tax exemption.
  • The changes will take effect from 25 March 2016.
  • Maritime & Ports Authority (MPA) will release further details by June 2016.

Our Comments

This move will cement the dominance of Singapore as a global maritime centre. The tax exemption being extended to income derived from operating or leasing for vessels to offshore energy and mineral exploration is laudable because of the evolving scenario in the oil & gas industry landscape. Many O&G operators are looking for diversification into deep-sea mining, given the lacklustre oil price. Operators and leasing companies catering to niche segments in alternative energy companies or offshore mineral companies will stand to benefit. This will attract international ship owners and operators to base their operations in Singapore. With the qualifying counterparty requirement being lifted, ship lessors can enjoy tax exemption as well as reduced administrative hassles of tracking counterparties. It will open up their market space during the tough times that the sector is currently sailing through.

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