This article is relevant for candidates sitting the ATX-SGP exam. Although some dates referred to in this article may be in the past and some of the rates used are historic ones, the underlying principles and concepts covered in the article are still examinable and remain relevant for current candidates. Candidates are advised to read this article in conjunction with the syllabus and study guide and examinable documents which are relevant for the exam session they are preparing for.
On 18 February 2020, Singapore’s Deputy Prime Minister (DPM) and Minister for Finance, Heng Swee Keat, unveiled a highly anticipated expansionary Unity Budget against a backdrop of the on-going Covid-19 pandemic.
DPM Heng later introduced the Resilience Budget on 26 March 2020, followed by the Solidarity Budget on 6 April 2020 and subsequently the Fortitude Budget on 26 May 2020. Two Ministerial Statements were separately issued on 17 August 2020 and 5 October 2020. The supplementary budgets and the Ministerial Statements complement the main Budget 2020 to address the impact the pandemic is having on Singapore’s economy and society.
None of the temporary financial or legislative measures implemented as a result of Covid-19 will be examinable. As such, this update will focus on the specific tax measures which were introduced in the main Budget 2020, it does not cover any temporary measures implemented in response to the pandemic.
The Minister did not attempt to change the personal income tax rate structure, which was last revised in 2017. The personal income tax rates range from 2% (for income above a tax-free threshold of $20,000) to 22% (for income in excess of $320,000).
He also decided not to revise any of the 15 personal reliefs currently claimable by resident individuals.
Last year, he phased out the Not Ordinarily Resident scheme which would have benefited mainly foreigners who work in Singapore.
This time, he opted to end the Angel Investors Tax Deduction scheme after 31 March 2020. This scheme was introduced a decade ago to stimulate angel investor investments. Under this scheme, it accords an approved angel investor a special tax deduction of 50% of the cost of his qualifying investments, subject to conditions. Angel investors, with approved angel investor status, commencing on or before 31 March 2020, are not affected by the change and will continue to enjoy the benefits of this scheme.
Meanwhile, withholding tax exemptions, currently granted to non-resident mediators and non-resident arbitrators, will be extended by two years to 31 March 2022. Technically, these two groups of individuals should be subject to withholding tax of 15% on their gross income from their profession carried on in Singapore, as is the case for other non-resident professionals. This is unless they elect to be taxed at 22% on their net income. However, as a concession, they are exempted from tax on the income earned in Singapore and as such, there is no withholding tax applied to their fees.
Lastly, non-resident public entertainers currently enjoy a reduced withholding tax rate of 10% on their gross income in respect of services performed in Singapore. Due to expire after 31 March 2020, this concession will now be extended for two years before it ends after 31 March 2022. On expiry, the applicable withholding tax rate will revert to 15%.
As expected, there was no announcement of a rate change for corporate income tax (CIT). There seemed to be a general view that the CIT rebates would come to an end soon, given they have been in place since 2013. Hence, the announcement of a 25% CIT rebate for the year of assessment (YA) 2020 was very welcome news. A cap of $15,000 means that companies with tax payable of at least $60,000 in the financial year of 2019 can enjoy this maximum tax saving. Loss-making companies do not benefit from this measure at all.
When introduced in 2013, the CIT rebate was part of a number of temporary tax measures to provide support for enterprises with the hope of assisting with cash-flow. Other selected short-term measures are discussed below.
Enterprises with unabsorbed capital allowances or trade losses incurred in the YA 2020 can elect to carry back such qualifying deductions for up to three immediately preceding YAs, instead of carrying back only to the immediately preceding YA, under the current scheme. This additional option may result in the enterprise obtaining a tax refund of up to a maximum of $17,000, based on a cap of $100,000 (which remains unchanged) at the CIT rate of 17%. To accelerate the tax refund, eligible enterprises may elect to carry back an estimated amount of qualifying deductions before the actual filing of their YA 2020 tax returns. Loss-making companies should welcome this additional option as it may prove useful in the event that a company incurs current YA 2020 unabsorbed capital allowances or trade losses, and they had paid taxes in YA 2017 and/or YA 2018, but did not pay any taxes in YA 2019.
Taxpayers are currently able to claim accelerated capital allowances for capital expenditure incurred on plant and machinery. Essentially, this means that for most assets which do not fall under the immediate 100% claim, they can still claim capital allowances over three years. For qualifying assets acquired in the financial year 2020, they now have another option to claim accelerated capital allowances over two years instead – 75% of the cost in YA 2021 and the remaining 25% in YA 2022. Under this new option, once a claim has been made in YA 2021, no deferment of the 25% claim in the YA 2022 is allowed.
Currently, taxpayers who incur qualifying expenditure on renovation and refurbishment for the purposes of their trade, or business, can claim the tax deduction on such expenditure over three years. As a concession, taxpayers who incur such expenditure for YA 2021 can now have the option to claim the deduction in year one, instead. There is no change to the current condition which imposes a cap of $300,000 for every relevant period of three consecutive YAs.
Beyond the immediate short-term measures, a number of long-term tax measures were rolled out to ensure the resilience and competitiveness of the tax system. Several tax schemes that remain relevant to Singapore have been extended and refined. These are discussed below.
The Double Tax Deduction for Internationalisation (DTDi) scheme will be extended until 31 December 2025. The scope of the DTDi scheme, which allows businesses a tax deduction of 200% on qualifying market expansion and investment development expenses, will be expanded, for example, to cover certain categories of expenses, including third-party consultancy costs to identify suitable talent and build up a business network, from 1 April 2020. Other features of the scheme remain unchanged.
The Mergers and Acquisitions (M&A) scheme, which encourages enterprises to grow through strategic acquisitions, will be extended to cover qualifying acquisitions made on or before 31 December 2025. However, the stamp duty relief (currently capped at $80,000) under the M&A scheme will be removed for deals completed on or after 1 April 2020. Requirements regarding the need for the holding company of the acquiring group to be incorporated and tax resident in Singapore will be strictly enforced.
The safe harbour rules under section 13Z of the Income Tax Act, which provides upfront certainty of non-taxation of gains on disposal of ordinary shares by enterprises in certain prescribed circumstances will be extended to 31 December 2027. However, it will no longer apply to disposals of unlisted shares in an investee company which is in the business of trading, holding or developing immovable properties, whether situated in Singapore or overseas, from 1 June 2022.
The Finance and Treasury Centre (FTC) incentive will be extended to 31 December 2026. The 8% concessionary tax rate will continue to apply to income from qualifying sources and activities. However, qualifying sources of funds under the FTC scheme will be expanded to include convertible debt, and qualifying activities will be expanded to include transacting or investing into certain private equity or venture capital funds, which are not structured as companies.
The Global Trader Programme (GTP) will be extended to 31 December 2026. Currently, eligible global trading companies can enjoy a concessionary tax rate of 5% or 10% on income derived from qualifying transactions. A 5% rate currently applies to the income derived by approved global trading companies from qualifying transactions in liquefied natural gas (LNG). But this rate will end after 31 March 2021, meaning that LNG will be treated no different from other GTP qualifying commodities under the GTP.
As the objective of the Land Intensification Allowance (LIA) scheme remains relevant given the scarcity of land in Singapore, it will be extended until 31 December 2025. This refers to the last date a building or structure may be approved for LIA.
To continue developing Singapore as an international maritime centre, the Maritime Sector Incentive (MSI) scheme will be extended until 31 December 2026. Similarly, the withholding tax exemption will be extended for qualifying payments made on qualifying financing arrangements entered into on or before 31 December 2026. In addition, there are a number of refinements to the MSI scheme.
Similarly, to continue encouraging venture capital funding for Singapore-based companies, the section 13H scheme and Fund Management Incentive will be extended until 31 December 2025. A number of refinements have also been made to these schemes.
Meanwhile, the Minister decided to end section 14E after 31 March 2020. The section 14E incentive provided a further tax deduction for research and development (R&D) expenditure incurred on approved R&D projects conducted in Singapore either by the business itself or by an R&D organisation on its behalf. Deduction under section 14E is subject to a cap of 200% after including other deductions for the same R&D expenditure under the Income Tax Act (ITA). Over the years, the Government has enhanced the broad-based tax deductions for R&D conducted in Singapore. These broad-based tax deductions are available for all businesses without a need for approval.
With the previous enhancement in Budget 2018, businesses conducting qualifying R&D projects in Singapore can enjoy up to a 250% tax deduction on qualifying expenses from YA2019 to YA2025.
To simplify capital allowance (CA) claims under section 19 of the ITA, the prescribed working life of plant and machinery (P&M) in the Sixth Schedule will be streamlined. Businesses claiming annual allowance under section 19 of the ITA may make an irrevocable election to write down their P&M as follows:
The above will apply for P&M acquired in or after the financial year (FY) 2022, and in cases where P&M were purchased prior to FY2022 and no claim for CA (both initial and annual allowances) has been made (ie the claim for CA in respect of the entire cost of the P&M has been deferred).
The Minister decided that it is not an appropriate time to increase the GST rate to 9% from 7% in 2021. However, he made a prudent decision not to make an announcement of the exact date of the increase. What this means is that the impending GST increase can still take place anytime between 2022 to 2025.
Meanwhile, the government has not decided whether to implement GST on low-value imported goods presumably because they feel that they need more time to resolve the implementation details.
Written by a member of the ATX-SGP examining team