Highlights of relevant tax changes in Singapore Budget for 2014

28 March 2014

On 21 February 2014, the Deputy Prime Minister and Minister for Finance delivered the Budget Statement in Parliament for the fiscal year 2014/2015, commencing 1 April 2014.

The general thrust of the Budget for 2014 is to promote innovation and productivity with a particular focus on assistance to help small and medium local businesses as well as foreign multinational enterprises, through a variety of tax and non-tax measures.

Tax Rates

There were no changes to income tax rates, nor to the tax rate for goods and service tax which remains at 7%. The corporate tax rate remains at 17% on the chargeable income of a company. Personal tax rates remain at 20% for chargeable income of a non-resident individual on income other than employment income which is taxed at a 15% rate. A resident individual is taxed at marginal ranging rates from 0% on the first SGD20,000 of chargeable income to a maximum rate of 20% on chargeable income exceeding SGD320,000.

Withholding Tax

Singapore payers are required to withhold tax on payments deemed to be derived from Singapore (e.g. interest, royalties, and technical service fees) which are made to Singapore branches of non-resident companies.  Waivers have previously been given for payments to Singapore branches of certain non-resident banks on a blanket basis, and to some non-bank enterprises whose applications were approved on a case-by-case and subject to conditions. The tax change is that withholding is not required for all payment obligations which arise on or after 21 February 2014, in respect of payments to recipients who are permanent residents who are Singapore branches of non-resident companies. Singapore branches are assessed to tax on the payments which are to be included in their tax returns filed annually.

Enhancements on tax deductions and allowances for IP related expenditure under PIC scheme

The Productivity and Innovation Credit (PIC) scheme was introduced in Budget 2010 for businesses, providing for 400% tax deductions or allowances for expenditure incurred in 6 qualifying activities. Among these activities are the acquisition and in-licensing of Intellectual Property Rights (IPRs) for use in a trade or business, and the registration of patents, trademarks, designs and plant varieties. The PIC scheme, originally intended to last for 5 years, has been extended for another 3 years until Year of Assessment 2018. The expenditure cap of SGD400,000 of qualifying expenditure per qualifying activity remains, but may be combined for the 3 additional Years of Assessment. As before, a business may elect to convert tax deductions or allowances into a cash grant, which is non-taxable, of up to SGD60,000 for each Year of Assessment. However, going forward, with effect from Year of Assessment 2016, this is subject to at least 3 employees of the business having been employed for at least 3 months before the claim for the cash grant is made.

Extension of R&D tax incentive

The existing tax incentive for research and development (R&D) expenditure, under which an additional 50% tax deduction is available, is extended for another 10 years until Year of Assessment 2025.  The scope of claim continues to cover R&D expenditure incurred for R&D in areas unrelated to the existing trade or business of the taxpayer, provided the R&D is carried out in Singapore.

Refinement of WDA scheme for building Singapore as an IP hub

The current Writing Down Allowance (WDA) scheme for expenditure incurred on IPRs until Year of Assessment 2015 is extended for five years until Year of Assessment 2020. The scheme allows businesses that have incurred capital expenditure in acquiring IPRs for use in their existing trade or business to write-down the expenditure fully over a period of 5 years.

Extension of tax incentive schemes for qualifying local and foreign investment funds

Three tax incentives schemes for qualifying local and foreign investment funds by fund managers in Singapore, due to expire on 31 March 2014, have been extended for 5 years until 31 March 2019, namely:

a. The "Qualifying Fund Scheme", which applies to non-resident or offshore companies and trusts that satisfy the Income Tax (Exemption of Income of Non-residents Arising from Funds Managed by Fund Manager in Singapore) Regulations;

b. The "Resident Fund Scheme", which applies to Singapore incorporated companies which are also resident in Singapore that satisfy the Income Tax (Exemption of Income of Approved Companies Arising from Funds Managed by Fund Manager in Singapore) Regulations; and

c. The "Enhance-Tier Fund Scheme" under the Income Tax (Exemption of Income Arising from Funds Managed Fund Manager in Singapore) Regulations.

These schemes provide for exemption from tax where the various conditions are satisfied. The relevant sets of regulations are expected to be amended to reflect the proposed tax changes, particularly to the Qualifying Fund Scheme and the Resident Fund Scheme.

Conclusion

The focus in this year's Budget has been on fine-tuning certain existing tax incentives and schemes, as opposed to major changes being made in tax policy.

This article is part of the International Tax Bulletin for April 2014.