Singapore Budget 2014 – Brief highlights of tax changes for business

The Singapore Budget in 2014 is targeted at transforming the Economy, Promoting Economic Growth and Achieving a Fair and equitable society. 

Corporate Tax Rate 

The Corporate tax rate remains at 17%. 

Tax Changes 

Productivity and Innovation Credit (PIC) Scheme 

Six qualifying activities:-

- Acquisition/lease of PIC Information Technology and automation equipment 

- Training of employees

- Acquisition and in-licensing of Intellectual Property Rights 

- Registration of patents, trademarks, designs - Investment in approved design 

- Research & Development 

Current: 

Maximum $400,000 of expenditure per YA per activity, or $1.2 million of expenditure per activity over YA 2013 to YA 2015 

$100,000 of expenditure may be converted to cash payout of $60,000 per YA, subject to meeting the 3-local-employee condition. 

Extension of Productivity and Innovation Credit (PIC) Scheme 

The PIC scheme will be extended for three years till YA 2018. 

For enhanced tax deductions, the expenditure cap of $400,000 per qualifying activity per YA can be combined across YA 2016 to YA 2018 (i.e. $1.2 million per qualifying activity). 

For PIC cash payout, the expenditure cap of $100,000 per YA for all six qualifying activities cannot be combined across the three YAs, as is the case currently. 

PIC+ Scheme

The PIC+ Scheme is introduced to provide support to Small and Medium Enterprises (“SMEs”) who are making more substantial investments to transform their businesses.

[An entity qualifies as an SME if its annual turnover is not more than $100 million or employment size is not more than 200 workers (criterion applied at group level). Businesses will self-assess their eligibility] 

Under the PIC+ scheme, the expenditure cap for qualifying SMEs will be increased from $400,000 to $600,000 per qualifying activity per YA. This means that these SMEs that invest beyond the current combined expenditure cap of $1.2 million for each qualifying activity can claim 400% enhanced tax deduction on an additional $200,000 of qualifying expenditure. 

PIC+ will take effect for expenditure incurred in YA 2015 to YA2018. The combined expenditure cap will be up to $1.4 million for YA 2015, and up to $1.8 million for YA 2016 to YA 2018. 

PIC benefits to training of individuals under centralised hiring arrangements 

With effect from YA 2014, the PIC scheme will be enhanced to allow businesses to claim PIC benefits on training expenses incurred in respect of individuals hired under centralised hiring arrangements.

Research and Development (R&D) Tax Measures 

To continue encouraging private R&D and to give certainty to businesses, the additional 50% tax deduction will be extended for ten years till YA 2025. 

To attract businesses to conduct large R&D projects in Singapore, the further tax deduction accorded will be extended for five years till 31 Mar 2020. 

In line with the above extensions, businesses can continue to claim tax deductions/ allowances on R&D expenditure incurred for R&D in areas unrelated to their existing trade or business as long as the R&D is conducted in Singapore. 

Businesses can also continue to claim a further deduction of up to 300%, on qualifying R&D expenditure up to $400,000 under the PIC scheme, which has been extended till YA 2018. 

Research & Development Expenditure 

To build Singapore as an IP hub, the writing Down Allowance (‘ WDA”) will be extended for five years till YA 2020. The accelerated WDA for Media and Digital Entertainment (“MDE”) companies will be extended for three years till YA 2018. 

Tax Deduction Scheme for Registration Costs of Intellectual Property 

To encourage businesses to protect their intellectual property, the 100% tax deduction will be extended for five years till YA 2020. 

Land Intensification Allowance (LIA) Scheme 

To encourage businesses to optimise land use, the LIA scheme will be extended for five years till 30 Jun 2020. 

The LIA will be extended to: 

a) Logistics sector, in recognition of the close nexus between this sector and qualifying activities supported by LIA and 

b) Businesses carrying out qualifying activities on airport and port land. 

A new condition requiring existing buildings that have already met or exceeded the GPR ( Gross Plot Ratio) benchmark to meet a minimum incremental GPR criterion of 10% will be introduced. This is to encourage businesses, especially those already in the top quartile of the relevant GPR benchmark, to continue intensifying their land use. 

EDB will release the implementation details by end May 2014. 

Withholding Tax Requirement for Payments made to Branches in Singapore 

Payers will no longer need to withhold tax for interest, technical fees, management fees and royaltieon sections made to Permanent Establishments (“PEs”) that are Singapore branches of non-resident companies. 

These branches in Singapore will continue to be assessed for income tax on such payments that they receive and will be required to declare such payments in their annual tax returns. 

This change will take effect for all payment obligations that arise on or after 21 Feb 2014. 

For Financial Sector 

Tax Changes - Summary 

Treating Basel III Additional Tier 1 Instruments as Debt for Tax Purposes 

Singapore-incorporated banks which issue Basel III Additional Tier 1 instruments, such instruments other than shares, will be treated as debt for tax purposes. Hence, distributions on such instruments will be deductible for issuers and taxable in the hands of investors, subject to existing rules. 

The tax treatment will apply to distributions accrued in the basis period for YA 2015 and thereafter, in respect of such instruments issued by Singaporeincorporated banks (excluding their foreign branches) that are subject to MAS Notice 637. 

Recovery of GST for Qualifying Funds

As a concession, qualifying funds that are managed by a prescribed fund manager in Singapore are allowed to claim GST incurred on expenses at a fixed rate. 

This concession will be extended for five years till 31 Mar 2019. 

The Monetary Authority of Singapore (MAS) will release further details of the change by end March 2014. 

Other Tax Incentives for Businesses 

Tax Changes -Summary 

Allowing the Investment Allowance (IA) Scheme for Aircraft Rotables to Lapse 

As the scheme is assessed to be no longer relevant, the IA scheme for aircraft rotables will be allowed to lapse after 31 Mar 2015. 

Extending and Refining Tax Incentive Schemes for Qualifying Funds 

The tax exemption scheme will be extended for five years till 31 Mar 2019 and will be refined as follows: 

a) The scheme will be expanded to include trust funds with resident trustees with effect from 1 Apr 2014; 

b) The investor ownership levels will be computed based on the prevailing market value of the issued securities on that day instead of the historical value. This will take effect from 1 Apr 2014; and 

c) The list of designated investments will be expanded to include loans to qualifying offshore trusts, interest in certain limited liability companies and bankers acceptance. This will apply to income derived on or after 21 Feb 2014 from such investments. 

Other existing conditions of the schemes remain unchanged. 

MAS will release further details of the changes by end May 2014. 

Enhancing the Foreign-Sourced Income Exemption Scheme for Listed Infrastructure Registered Business Trusts (RBTs) 

To accord listed infrastructure RBTs in Singapore greater tax certainty, thereby facilitating the listing of more infrastructure assets in Singapore, the foreignsourced income exemption for listed infrastructure RBTs will be enhanced as follows: 

a) The specified scenarios will be expanded to cover dividend income originating from foreign-sourced interest income so long as it relates to the qualifying offshore infrastructure project/ asset and qualifying conditions are met for all specified scenarios; and 

b) Interest income derived from a qualifying offshore infrastructure project/ asset will automatically qualify exemption provided certain conditions are met. 

IRAS will release further details, including the effective date of these enhancements, by end May 2014. 

Refining the Designated Unit Trust (DUT) Scheme 

The DUT scheme will be streamlined and rationalised through the following changes: 

a) The scheme (such that specified income is not taxed at trustee level but in the hands of certain investors ) will be limited to unit trusts offered to retail investors with effect from 21 Feb 2014. Non-retail unit trusts may consider other fund schemes; 

b) Existing non-retail unit trusts that were approved under the scheme prior to 21 Feb 2014 may continue to retain their DUT status; and 

c) From 1 Sep 2014, subject to the fulfilment of conditions, unit trusts do not have to apply for the DUT scheme to enjoy the benefits of the scheme. 

Other existing conditions of the DUT scheme remain unchanged. 

MAS will release further details of the changes by end May 2014.

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