Singapore Budget 2018 Seminar Redefine. Reinvent. Reimagine. 6 March 2018

Transcription

1 Singapore Budget 2018 Seminar Redefine. Reinvent. Reimagine. 6 March 2018

2 Content Summary of key Singapore tax developments in 2017 Budget 2018 changes and updates Tax implications arising from changes to accounting standards Singapore transfer pricing updates GST updates The impact of US Tax Reform and BEPS developments in Asia Pacific 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 2

3 Summary of key Singapore tax developments in 2017 Redefine. Reinvent. Reimagine. Chai Sook Peng, Tax Partner, Deloitte Singapore

4 Agenda Recent tax cases Singapore tax treaties Other tax updates Legislative updates Subsidiary legislation Pertinent information Conclusion 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 4

5 Recent tax cases 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 5

6 Singapore tax cases Comptroller Taxpayer Inconclusive SGCA SGHC BOR to to to to Note: Excludes Property tax, stamp duty, GST and tax evasion cases Deloitte & Touche LLP Singapore Budget 2018 seminar

7 Singapore tax cases BML v Comptroller of Income Tax [2017] SGHC 118 Deductibility of interest expenses GBT v The Comptroller of Income Tax [2017] SGITBR 2 Deductibility of commission expenses GBU v The Comptroller of Income Tax [2017] SGITBR 3 Taxability of gains derived by a company from the sale of shares GCA and GCB v The Comptroller of Income Tax [2017] SGITBR 5 Taxability of gains or profits derived from the sale of residential properties GBS v The Comptroller of Income Tax [2017] SGITBR 1 Taxability of sum received upon the cessation of employment as employment income GBX v The Comptroller of Income Tax [2017] SGITBR 4 Taxability of cash remuneration received as trade or employment income 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 7

8 BML v Comptroller of Income Tax [2017] SGHC Deloitte & Touche LLP Singapore Budget 2018 seminar 8

9 Singapore tax cases BML v Comptroller of Income Tax [2017] SGHC 118 BML, a company, owns and operates a shopping mall. Briefly, BML underwent a capital reduction exercise following a financing exercise. Instead of returning cash to the shareholders following the reduction of capital, the company converted the amount outstanding into fixed rate bonds owing to the shareholders. Co.A Co.B 50% 50% Capital reduction, but no cash returned BML Instead, amount outstanding converted to fixed rate bonds 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 9

10 Singapore tax cases BML v Comptroller of Income Tax [2017] SGHC 118 (cont ) Decision High Court ruled in favour of IRAS, interest expenses not deductible: Money borrowed had no observable effect on income produced. Not sufficient to merely demonstrate that the debt is represented by income-producing assets. Direct link is required between money borrowed and income produced Deloitte & Touche LLP Singapore Budget 2018 seminar 10

11 GBT v Comptroller of Income Tax [2017] SGITBR Deloitte & Touche LLP Singapore Budget 2018 seminar 11

12 Singapore tax cases GBT v The Comptroller of Income Tax [2017] SGITBR 2 B Co. GBT GBT GBT s wife Employment contract Commissions Commission expense Deductible? C Co. GBT Purported provision of consultancy and management services 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 12

13 Singapore tax cases GBT v The Comptroller of Income Tax [2017] SGITBR 2 (cont ) Decision Board held that commission paid to C not deductible against GBT s personal income, because such payment to C was not wholly and exclusively incurred by GBT to earn commission from B. No evidence that an arrangement for services existed between GBT and C. Also, such an arrangement does not make sense payment for the services rendered by C = income made by GBT! Marginal tax rates for individuals have increased to 22% w.e.f. YA 2017 this may be an example of corporatisation. Also, benefits under partial tax exemption and start-up tax exemption will be reduced w.e.f. YA 2020 as announced in Budget Deloitte & Touche LLP Singapore Budget 2018 seminar 13

14 GBU v The Comptroller of Income Tax [2017] SGITBR Deloitte & Touche LLP Singapore Budget 2018 seminar 14

15 Singapore tax cases GBU v The Comptroller of Income Tax [2017] SGITBR 3 Case facts Taxpayer (GBU) is in the business of operating supermarkets. In or around 2009, GBU acquired various share counters. Subsequently, gains were derived from the disposal of these share counters in Year of Assessment 2010 and Reason for purchase To earn a better return on excess funds. Reason for sale Due to impending IPO, advisors told company it is better to concentrate on its core business of operating supermarkets Deloitte & Touche LLP Singapore Budget 2018 seminar 15

16 Singapore tax cases GBU v The Comptroller of Income Tax [2017] SGITBR 3 (cont ) Key takeaways: Intention is key Whether gains from the sale of shares are assessable under s10(1)(g) or revenue hinges on the intention of the company at the time of acquiring the shares. Intention to hold investment for long term is a safe harbor However, no intention to hold for long term does not automatically render the gain taxable. All facts and circumstances of the case must be considered. Must an asset yield income before being considered an investment? No, IRAS agrees that shares can be bought for investment purposes even if it did not yield dividends Deloitte & Touche LLP Singapore Budget 2018 seminar 16

17 GCA and GCB v The Comptroller of Income Tax [2017] SGITBR Deloitte & Touche LLP Singapore Budget 2018 seminar 17

18 Singapore tax cases GCA and GCB v The Comptroller of Income Tax [2017] SGITBR 5 Case facts: GCA and GCB, husband and wife, bought and sold 3 properties between April 2005 and November 2010 and made an aggregate net profit in excess of S$16 million. Holding period of properties ranged from 2.7 months to 10.1 months. Reason for purchase of properties one for own use, other two for rental. Reason for sale of properties to realise profit Deloitte & Touche LLP Singapore Budget 2018 seminar 18

19 Singapore tax cases GCA and GCB v The Comptroller of Income Tax [2017] SGITBR 5 (cont ) Decision: Board was not convinced by taxpayer s reasons for purchasing the properties and held that gains from all three properties are revenue in nature. Evidence adduced by appellant and other witnesses Property was too big. Wife and children are uncomfortable moving in. Large old tree on premises of one of the properties poses danger to children, cannot be felled as it was conserved under the Parks and Trees Act. Property was sold via an unsolicited offer to purchase. Evidence adduced by IRAS Net floor area of Property 3 was actually smaller than their current residence, although total land area was bigger. No such tree on premises. There was a tree on an adjacent plot of land, and in any case no evidence to suggest the tree was conserved. Advertisement placed by property agent for sale of property Deloitte & Touche LLP Singapore Budget 2018 seminar 19

20 Singapore tax treaties 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 20

21 Singapore tax treaties Overview Country Entry into force Effective India (3 rd protocol) 27 February February 2017, 1 April 2017 Uruguay 14 March January 2018 Ethiopia 8 December January 2018 Cambodia 29 December January 2018 Sri Lanka (Revised treaty) 31 December January 2018 Country Treaties/Protocol signed but not ratified Ghana 31 March 2017 Latvia 20 April 2017 Nigeria 2 August Deloitte & Touche LLP Singapore Budget 2018 seminar 21

22 India 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 22

23 Singapore tax treaties Singapore India treaty (3 rd Protocol) Exemption on capital gains Previously, the Singapore India treaty provides for exemption on capital gains derived from the sale of shares in a company in India by a Singapore resident, subject to qualifying conditions. The exemption would apply so long as the capital gains benefit continues to be in force under the India-Mauritius treaty. Amendments were made to India-Mauritius treaty which removed the capital gains exemption in that treaty. Capital gains tax exemption in Singapore-India treaty similarly required amendment Deloitte & Touche LLP Singapore Budget 2018 seminar 23

24 Singapore tax treaties Singapore India treaty (3 rd Protocol) (cont') Shares acquired Shares sold Treatment Before 1 April 2017 Grandfathered Gains on sale of shares held in Indian company by a Singapore company will be exempt in India under the treaty so long as the limitation on benefits clause in the treaty is satisfied. On or after 1 April 2017 On or after 1 April 2017 On or before 31 March 2019 After 31 March % of prevailing tax rate (in India) provided conditions in limitation on benefits clause are satisfied. Taxable in India at prevailing rate Deloitte & Touche LLP Singapore Budget 2018 seminar 24

25 Uruguay 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 25

26 Singapore tax treaties Singapore Uruguay treaty Article Dividends Interest Royalties Capital Gains Details 5% if beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends; 10% in all other cases; Singapore granted most favoured nation status. 10%; Singapore granted most favoured nation status. 5% for specific royalties payments; 10% in all other cases. Gain derived from sale of shares should be exempt, except shares in unquoted land-rich companies Deloitte & Touche LLP Singapore Budget 2018 seminar 26

27 Ethiopia 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 27

28 Singapore tax treaties Singapore Ethiopia treaty Article Details Dividends 5% Interest 5% Royalties Capital gains 5%; definition of royalties excludes payments for the use of or the right to use equipment. Gain derived from sale of shares should be exempt, except shares in land-rich companies Deloitte & Touche LLP Singapore Budget 2018 seminar 28

29 Cambodia 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 29

30 Singapore tax treaties Singapore Cambodia treaty Article Dividends Details 10%; reduced rate also applicable to Additional Tax on Dividend Distribution. Interest 10% Royalties Fees for technical services Capital gains 10%; includes rental of industrial, commercial or scientific equipment. 10% Gain derived from sale of shares should be exempt, except shares in land-rich companies Deloitte & Touche LLP Singapore Budget 2018 seminar 30

31 Sri Lanka 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 31

32 Singapore tax treaties Singapore Sri Lanka treaty Article Old Treaty New Treaty Dividends 15% 7.5%*/10% Royalties 15% 10%; Protocol clarified that in relation to payments for computer software, such payments are royalties only if the payments are made for the right to use and exploit the copyright in the program. Capital gains Not included Gain derived from sale of shares should be exempt, except shares in land-rich companies. * If the beneficial owner is a company which holds directly at least 25% of the capital of the company paying the dividends 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 32

33 Other tax updates 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 33

34 Other tax updates Income tax Legislative updates at a glance 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 34

35 Legislative update Income tax At a glance Transfer Pricing* Mandatory transfer pricing documentation requirements and penalties for non-compliance. Surcharge applicable on certain transfer pricing adjustments. Clarification of existing Comptroller s power to enforce arm s length principle for related party transactions. Accounting standards* FRS 109 tax treatment prescribed. Tax treatment for adjustments arising from adoption of FRS 115 prescribed. * To be covered in a separate session 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 35

36 Legislative update Income tax At a glance (cont ) Industry specific Enhancement of the Global Trader Programme. Extension and refining the Aircraft Leasing scheme. Refining the Financial Sector Incentive scheme. Extension of tax incentive schemes for Infrastructure Project. Refining the Insurance Business Development scheme and insurance broking scheme. Refining the Maritime Sector Incentive Shipping related Support Service (MSI-SSS) scheme. Clarifying the scope of corporate Services under the MSI-SSS scheme. Clarifying the definition of ship management services under MSI Deloitte & Touche LLP Singapore Budget 2018 seminar 36

37 Legislative update Income tax At a glance (cont ) International tax Business tax updates Enabling the Minister for Finance to make an order to modify the provisions of an Avoidance of Double Taxation Agreement. Enabling the Minister for Finance to declare competent authority agreements entered into between competent authorities of two or more contracting jurisdictions as international tax compliance agreements. Liberalising tax deduction for payments under the Cost Sharing Agreements for R&D projects. Introduction of a tax framework for re-domiciliation Deloitte & Touche LLP Singapore Budget 2018 seminar 37

38 Other tax updates Summary of pertinent legislative tax changes 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 38

39 Summary of pertinent legislative tax changes Liberalising tax deduction for payments under the Cost Sharing Agreements for R&D projects Scope Payments under Cost Sharing Agreement for qualifying R&D projects. Application Allowing a full tax deduction without the need to provide a breakdown of the expenditure covered by the CSA payments and does not need to be related to trade or business. Effective Payments made from YA Deloitte & Touche LLP Singapore Budget 2018 seminar 39

40 Summary of pertinent legislative tax changes Introduction of a tax framework for re-domiciliation Scope Foreign companies re-domiciling into Singapore. Application Effective The law prescribes the tax basis or treatment of certain balance sheet items (doubtful debts, trading stocks), amounts qualifying for deduction, as well as assets qualifying for capital allowance or writing down allowance claims. A re-domiciling company may have income that is subject to tax in its former place of incorporation and Singapore. Subject to qualifying conditions, tax credits are available to provide relief from double taxation. Effective from 26 October Deloitte & Touche LLP Singapore Budget 2018 seminar 40

41 Other tax updates Subsidiary legislation 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 41

42 Other tax updates Subsidiary legislation Insurance Sector Income Tax (Concessionary Rate of Tax for Approved Insurance Brokers) Regulations 2017 Income Tax (Exemption and Concessionary Tax Rate for Income from General Business) Regulations 2017 Income Tax (Exemption and Concessionary Tax Rate for Income from Life Reinsurance Business) Regulations 2017 Streamlines and simplifies tax incentives for insurance sector. No change to tax rate. Effective for new or renewal awards approved on or after 1 June Deloitte & Touche LLP Singapore Budget 2018 seminar 42

43 Other tax updates Subsidiary legislation (cont ) Finance and Treasury Centre Financial Services Sector Income Tax (Concessionary Rate of Tax for Approved Finance and Treasury Centre) Regulations 2017 Income Tax (Concessionary Rate of Tax for Financial Sector Incentive Companies) Regulations 2017 Qualifying counterparties relaxed (now includes onshore parties) for certain transactions and services performed by FTCs. Tax rate remains at 8%. Applies to new or renewal awards on or after 21 February FSI schemes streamlined to remove currency, counterparty and investment instrument restrictions to alleviate administrative and compliance burden of FSI award holders. Change in tax rate for FSI-ST incentive from 12% to 13.5% to maintain tax neutrality. Effective for new or renewal awards approved on or after 1 June Deloitte & Touche LLP Singapore Budget 2018 seminar 43

44 Other tax updates Pertinent information 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 44

45 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument) Scope Facilitates implementation of tax treaty related BEPS measures by updating Singapore s DTAs without the need for Singapore to re-negotiate each DTA. Singapore s position on the Multilateral Instrument Preventing treaty abuse by, amongst others, adoption of Principal Purpose Test as an antiabuse measure. Enhancing dispute resolution via Mutual Agreement Procedure and Mandatory binding arbitration Deloitte & Touche LLP Singapore Budget 2018 seminar 45

46 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting What is the Principal Purpose Test (PPT)? Application of PPT will deny treaty benefits if it is reasonable to conclude from the facts that the principal purpose or one of the principal purposes of entering into an arrangement or transaction is to obtain that benefit. Exception applies where the granting of the benefit would be in accordance with the object and purpose of the treaty this may entail taxpayer proving that the arrangement/transaction is connected with a core commercial activity and its form is not contrived. There may be uncertainty over manner in which other jurisdictions applies PPT Deloitte & Touche LLP Singapore Budget 2018 seminar 46

47 Multilateral Competent Authority Agreements (MCAAs) MCAA on Automatic Exchange of Financial Account Information under the Common Reporting Standard MCAA on Exchange of Country-by-Country Reports Although MCAA is a multilateral instrument, AEOI relationships remain bilateral Singapore retains control over which jurisdictions it exchanges information with. Principles when establishing AEOI relationships for both CRS and CbCR: Ensuring confidentiality. Full reciprocity. Level playing field (CRS) and wide network of exchange relationships (CbCR) Deloitte & Touche LLP Singapore Budget 2018 seminar 47

48 E-Tax Guide: Avoidance of Double Taxation Agreements Scope Provides guidance on application of common provisions included in Singapore s tax treaties. Details mutual agreement procedure if Singapore and its treaty partner adopts differing positions on a treaty provision. Notable clarifications OECD Commentary is useful as a guide to the interpretation of Singapore s DTA. Singapore will continue to request for the removal of the limitation of relief provision in existing treaties. Tax credits to relieve double taxation will be provided to Singapore tax residents regardless of whether the income taxed in Singapore is treated as Singapore-sourced or foreignsourced under the Income Tax Act, as long as the foreign tax is paid in accordance with the provisions of the DTA Deloitte & Touche LLP Singapore Budget 2018 seminar 48

49 E-Tax Guide: Research and Development (R&D) Enhancement to tax treatment of CSA payments 100% deduction on CSA payment. R&D project need not be related to taxpayers trade or business. R&D tax claim review process Can be initiated by taxpayer. Pre-claim scheme Available to large and complex projects with estimated R&D expenses exceeding S$20 million Deloitte & Touche LLP Singapore Budget 2018 seminar 49

50 E-Tax Guide: Additional Conveyance Duties (ACD) on Residential Property-Holding Entities (PHE) Scope Provides guidance on application of ACD, which was introduced in Budget 2017 to provide parity in stamp duty treatment when residential properties are acquired. What are the rates? Relief applicable? In addition to existing stamp duty on shares (0.2%): For buyers Existing Buyer s Stamp Duty at 1% to 4%. Additional Buyer s Stamp Duty at 15% (flat rate). For sellers Seller s Stamp Duty at 12% (flat rate). No relief applicable to transfer involving residential PHE where ACD is applicable Deloitte & Touche LLP Singapore Budget 2018 seminar 50

51 In summary 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 51

52 In summary. Transfer pricing will continue to be an area of focus, in particular with the implementation of mandatory transfer pricing documentation from YA Distinction between capital/revenue and deductibility of interest continues to dominate Board/Court decisions. Authorities are actively negotiating new treaties with emerging markets and re-negotiating old treaties to ensure they remain competitive Deloitte & Touche LLP Singapore Budget 2018 seminar 52

53 Budget 2018 changes and updates Redefine. Reinvent. Reimagine. Shantini Ramachandra, Tax Partner, Deloitte Private Tax Leader, Deloitte Singapore and Southeast Asia

54 Agenda Overview Business tax Personal tax Other taxes 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 54

55 Overview of Budget 2018 Budget 2018 A vibrant and innovative economy A smart, green and liveable city A caring and cohesive society A fiscally sustainable and secure future 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 55

56 Overview of Budget 2018 (cont ) Budget 2018 Enhancement of R&D, IP and DTDi. Changes to SUTE and PTE. Extension of 250% tax deduction for qualifying donation and BIPS. Framework for carbon tax introduced. Changes to BSD rates for residential properties. Introduction of delayed GST hikes and GST on imported services. This will be covered in a separate session Deloitte & Touche LLP Singapore Budget 2018 seminar 56

57 Business tax 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 57

58 Corporate income tax rate and rebate Currently 17%. No change to tax rates announced in Budget However, there are changes to effective tax rate due to revisions in PTE, SUTE, corporate tax rebate. Corporate income tax rate YA Current Proposed Corporate income tax rebate 20% of tax payable 40% of tax payable 2018 Capped at $10,000 Capped at $15, None 20% of tax payable Capped at $10, Deloitte & Touche LLP Singapore Budget 2018 seminar 58

59 Enhanced tax deduction for qualifying expenditure on qualifying R&D projects performed in Singapore R&D performed in Singapore Proposed Productivity and Innovation Credit (PIC) scheme: Additional 250%/300% enhanced deduction on qualifying R&D expenditure. Subject to expenditure cap. Lapses after YA Current Additional 50% tax deduction for staff costs and consumables. No expenditure cap. 100% base tax deduction for qualifying R&D expenditure. Additional 150% tax deduction for staff costs and consumables. No expenditure cap. Effective from YA 2019 to Deloitte & Touche LLP Singapore Budget 2018 seminar 59

60 Enhanced tax deduction for costs on protecting intellectual property (IP) Current Proposed Qualifying costs Qualifying IP registration costs (as defined in the Income Tax Act). No change Tax deduction 100% base deduction (no expenditure cap). 300% enhanced deduction (subject to expenditure cap). 100% base deduction (no expenditure cap). 100% further deduction on first $100,000 of qualifying costs. Reduced Period of claim Up till YA Up till YA Up till YA Effective from YA 2019 to YA Deloitte & Touche LLP Singapore Budget 2018 seminar 60

61 Enhanced tax deduction for costs on IP in-licensing Current + Enhanced 300% deduction on qualifying IP in-licensing costs, subject to expenditure cap. Enhanced 300% allowance on acquisition of qualifying IP, subject to expenditure cap. Proposed 100% base deduction/ allowance on licensing/ acquisition of qualifying IP (no expenditure cap). + Lapse after YA Enhanced 100% deduction on first $100,000 of qualifying IP in-licensing costs. Lapse after YA No proposed changes announced in Budget Effective from YA 2019 to YA Deloitte & Touche LLP Singapore Budget 2018 seminar 61

62 Enhanced Double Tax Deduction for Internationalisation (DTDi) scheme Qualifying activities under DTDi scheme Overseas business development trips/missions. Overseas investment study trips/missions. Participation in overseas trade fairs. Participation in approved local trade fairs. Other qualifying activities, including (but not limited to): Market surveys/feasibility studies. Overseas advertising and promotional campaigns. Overseas trade office. Current Proposed Automatic 200% tax deduction on first $100,000 of qualifying expenses. 200% deduction on qualifying expenses in excess of $100,000 subject to approval from IE Singapore or STB. Automatic 200% tax deduction on first $150,000 of qualifying expenses. 200% deduction on qualifying expenses in excess of $150,000 subject to approval from IE Singapore or STB. 200% tax deduction on qualifying expenses incurred on qualifying activities. Subject to approval from IE Singapore or Singapore Tourism Board Deloitte & Touche LLP Singapore Budget 2018 seminar 62

63 Changes to Startup Tax Exemption (SUTE) and Partial Tax Exemption (PTE) scheme SUTE PTE Lowering of exempt amount. Changes to the effective tax rate? Effectiveness to help the SMEs? 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 63

64 Changes to the SUTE scheme Current exempt amount Proposed exempt amount 100% on first $100,000 of normal CI $100,000 75% on first $100,000 of normal CI $75,000 50% on next $200,000 of normal CI $100,000 50% on next $100,000 of normal CI $50,000 Maximum exempt amount $200,000 Maximum exempt amount $125,000 Effective from YA 2020 for all qualifying companies. Transition rules apply for companies with their first YA beginning in YA 2018 or All other conditions remain unchanged. Illustration 1: Assuming Company has normal CI of $300,000 CI (after exempt amount) $100,000 CI (after exempt amount) $175,000 Tax thereon at 17% $17,000 Tax thereon at 17% $29,750 Effective tax rate 5.67% Effective tax rate 9.92% Illustration 2: Assuming Company has normal CI of $3,000,000 CI (after exempt amount) $2,800,000 CI (after exempt amount) $2,875,000 Tax thereon at 17% $476,000 Tax thereon at 17% $488,750 Effective tax rate 15.87% Effective tax rate 16.29% 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 64

65 Changes to the PTE scheme Current exempt amount Proposed exempt amount 75% on first $10,000 of normal CI $7,500 75% on first $10,000 of normal CI $7,500 50% on next $290,000 of normal CI $145,000 50% on next $190,000 of normal CI $95,000 Maximum exempt amount $152,500 Maximum exempt amount $102,500 Effective from YA 2020 for all qualifying companies All other conditions remain unchanged Illustration 1: Assuming Company has normal CI of $300,000 CI (after exempt amount) $147,500 CI (after exempt amount) $197,500 Tax thereon at 17% $25,070 Tax thereon at 17% $33,575 Effective tax rate 8.36% Effective tax rate 11.19% Illustration 2: Assuming Company has normal CI of $3,000,000 CI (after exempt amount) $2,847,500 CI (after exempt amount) $2,897,500 Tax thereon at 17% $484,075 Tax thereon at 17% $492,575 Effective tax rate Effective tax rate 16.42% 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 65

66 Extend the 250% tax deduction for qualifying donations 31 December December % 250% Current Proposed 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 66

67 Extend the Business and IPC Partnership Scheme (BIPS) A qualifying person can, subject to conditions, enjoy a total of 250% tax deduction on qualifying expenditure such as wages incurred by him from 1 July 2016 in respect of: Provision of services by his qualifying employees to an IPC during that period. Secondment of his qualifying employees to an IPC during that period. Current: Scheme to lapse after 31 December Proposed: Scheme to extend till 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 67

68 Introduce a tax framework for Singapore Variable Capital Companies Sections 13CA, 13R and 13X of ITA Companies Trusts Limited partnerships Current Fund exemption schemes currently applicable only to funds structured as aforementioned entities. GST remission available. Approved FSI-FM will qualify for 10% concessionary tax rate from managing the incentivised funds Deloitte & Touche LLP Singapore Budget 2018 seminar 68

69 Introduce a tax framework for Singapore Variable Capital Companies (cont') What it entails? Treated as a company and a single entity for tax purpose. S-VACC What is it? New structure designed for collective investment schemes. Section 13R and 13X will be applicable to S- VACCs. GST remission available. 10% tax rate under FSI-FM extended to cover incentivised S- VACC. Tax framework Regulatory framework What is going to happen? MAS is in the midst of formulating regulatory framework Deloitte & Touche LLP Singapore Budget 2018 seminar 69

70 Enhance the Enhanced-Tier Fund scheme under Section 13X of the ITA Current Tax exemptions under the Enhanced-Tier Fund scheme are available for: Proposed Extended to fund vehicles constituted in all forms if they meet all the qualifying conditions. All other conditions of the scheme remain the same. The changes will take effect for new awards approved on or after 20 February The MAS will release further details of the change by May Companies Trusts Limited partnerships 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 70

71 Extend the tax transparency treatment for Singapore-listed Real Estate Investment Trusts (S-REITs) to S-REIT Exchange-Traded Funds (REIT ETFs) Current: 1st level S-REIT level: Tax transparency treatment applies S-REIT $ Specified income Not taxable at S-REIT level Distributions out of specified income Individuals Individuals who derive such distributions through a partnership or from the carrying on of a trade business or profession Non-resident non-individual* All other persons (including REIT ETFs) Exempt Individual s marginal tax rate, presently 0% to 22% Subject to WHT at a concessionary 10% rate Subject to tax at the prevailing corporate income tax rate of 17% * Who does not have a PE in Singapore, or who carries on operations in Singapore through a PE in Singapore but the funds used by that person to acquire the units in such S-REITs are not obtained from such operations Deloitte & Touche LLP Singapore Budget 2018 seminar 71

72 Extend the tax transparency treatment for Singapore-listed Real Estate Investment Trusts (S-REITs) to S-REIT Exchange-Traded Funds (REIT ETFs) (cont ) Current: Specified income 1st level S-REIT level: Tax transparency treatment applies 2nd level REIT-ETF level: Tax transparency treatment does not apply S-REIT REIT-ETF $ Distributions made by S-REIT to REIT-ETF taxed at 17% Individuals Individuals who derive such distributions through a partnership or from the carrying on of a trade business or profession Non-resident non-individual* All other persons (including REIT ETFs) 0% 0% 0% 0% * Who does not have a PE in Singapore, or who carries on operations in Singapore through a PE in Singapore but the funds used by that person to acquire the units in such REIT ETFs are not obtained from such operations Deloitte & Touche LLP Singapore Budget 2018 seminar 72

73 Extend the tax transparency treatment for Singapore-listed Real Estate Investment Trusts (S-REITs) to S-REIT Exchange-Traded Funds (REIT ETFs) (cont ) Proposed: Specified income 1st level S-REIT level: Tax transparency treatment applies 2nd level REIT-ETF level: Tax transparency treatment applies S-REIT REIT-ETF $ Distributions made by S-REIT to REIT-ETF not taxable Individuals Exempt Individuals who derive such distributions through a partnership or from the carrying on of a trade business or profession Individual s marginal tax rate, presently 0% to 22% Non-resident non-individual* Subject to WHT at a concessionary 10% rate All other persons (including REIT ETFs) Subject to tax at the prevailing corporate income tax rate of 17% * Who does not have a PE in Singapore, or who carries on operations in Singapore through a PE in Singapore but the funds used by that person to acquire the units in such REIT ETFs are not obtained from such operations Deloitte & Touche LLP Singapore Budget 2018 seminar 73

74 Extend the tax transparency treatment for Singapore-listed Real Estate Investment Trusts (S-REITs) to S-REIT Exchange-Traded Funds (REIT ETFs) (cont ) Proposed Subject to conditions, take effect on or after 1 July Review date of 31 March 2020, which is the same as that for other tax concessions for S-REITs. Applications by REIT ETFs for the tax transparency treatment can be submitted to the IRAS on or after 1 April The MAS and IRAS will release further details of the change by March July April March 2020 Application for tax transparency treatment is open Tax concessions for REIT ETFs will take effect Review date 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 74

75 Extend and enhance the Financial Sector Incentive (FSI) scheme Concessionary tax rate 5%, 10%, 12% and 13.5%: Current Income from qualifying banking and financial activities, headquarter and corporate services, fund management, and investment advisory services. Trading in loans and related collateral, excluding immovable property, is a qualifying activity that is accorded a concessionary tax rate of 13.5%. Proposed Expanded scope to include collaterals that are prescribed infrastructure assets or projects applies to income derived on or after 1 January 2019 in respect of new and renewal awards approved on or after 1 June Scheduled to lapse after 31 December 2018 Extended till 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 75

76 Extend the Insurance Business Development Insurance Broking Business (IBD-IBB) scheme and allow the Insurance Business Development Specialised Insurance Broking Business (IBD-SIBB) scheme to lapse Proposed IBD-IBB IBD-SIBB Grants approved insurance and reinsurance brokers a concessionary tax rate of 10% on commission and fee income derived from insurance broking and advisory services. Grants insurance and reinsurance brokers a concessionary tax rate of 5% on commission and fee income from specialty insurance broking activities relating to qualifying specialised insurance risks. IBD-IBB scheme will be extended till 31 December All conditions of the IBD IBB scheme remain the same. IBD-SIBB scheme will be allowed to lapse after 31 March With the lapsing of the IBD-SIBB scheme, specialty insurance broking and advisory services will be incentivised under the IBD-IBB scheme, at a concessionary tax rate of 10%. The MAS will release further details of the change by May Deloitte & Touche LLP Singapore Budget 2018 seminar 76

77 Extending the tax deduction for impairment allowances in respect of non-credit impaired financial instruments made by banks, merchant banks and qualifying finance companies Banks and qualifying finance companies can claim tax deduction on: Section 14I Impairment losses on non-creditimpaired loans and debt securities made under the FRS 109. Any additional loss allowances as required under MAS Notices 612, 811 and 1005, subject to a cap. Current: scheduled to lapse after YA 2019 for banks and qualifying finance companies with a December financial year-end or YA 2020 for banks and qualifying finance companies with a non- December year-end Deloitte & Touche LLP Singapore Budget 2018 seminar 77

78 Extending the tax deduction for impairment allowances in respect of non-credit impaired financial instruments made by banks, merchant banks and qualifying finance companies Banks and qualifying finance companies can claim tax deduction on: Section 14I Impairment losses on non-creditimpaired loans and debt securities made under the FRS 109. Any additional loss allowances as required under MAS Notices 612, 811 and 1005, subject to a cap. Proposed: extended till YA 2024 for banks and qualifying finance companies with December financial year-end or YA 2025 for banks and qualifying finance companies with non-december year-end Deloitte & Touche LLP Singapore Budget 2018 seminar 78

79 Rationalising the WHT exemptions for the financial sector Current Proposed Interest payments made by a tax resident or PE in Singapore to non-tax residents are generally subject to WHT at a rate of 15%, subject to provisions under relevant DTAS. A range of WHT exemptions for the financial sector which apply to different financial institutions for payments made under different types of financial transactions. Review date of 31 December 2022 for the current WHT exemptions for certain payments. Introduce new withholding tax exemptions (review date of 31 December 2022). Withdraw the current WHT exemptions on certain payments. What are these withholding tax exemptions? 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 79

80 Rationalising the WHT exemptions for the financial sector (cont') Proposed a) To ensure that the relevance of the tax concessions is periodically reviewed, a review date of 31 December 2022 will be introduced for the current WHT exemptions for the following payments: i. Payments made under cross-currency swap transactions made by Singapore swap counterparties to issuers of Singapore dollar debt securities; ii. iii. Payments made under interest rate or currency swap transactions by financial institutions; Payments made under interest rate or currency swap transactions by the MAS; and iv. Specified payments made under securities lending or repurchase agreements by specified institutions. b) The following WHT exemptions will be introduced, along with a review date of 31 December 2022: i. Interest on margin deposits paid by members of approved exchanges for transactions in futures; and ii. Interest on margin deposits paid by members of approved exchanges for spot foreign exchange transactions (other than those involving Singapore dollars). 1 January February 2018 The change in (b) will take effect for payments under agreements entered into on or after 20 February Deloitte & Touche LLP Singapore Budget 2018 seminar 80

81 Rationalising the WHT exemptions for the financial sector (cont') Proposed c) The current WHT exemptions for the following payments will be withdrawn: i. Interest from approved Asian Dollar Bonds; and ii. Payments made under over-the-counter financial derivative transactions by companies with FSI-Derivatives Market awards that were approved on or before 19 May January January 2018 The change in (c) will take effect for payments under agreements entered into on or after 1 January Unless the WHT exemptions under (a) and (b) are extended, the WHT exemptions will cease to apply to payments that are liable to be made under agreements entered into on or after 1 January WHT exemptions will continue to apply to payments that are liable to be made on or after 1 January 2023, under agreements entered into on or before 31 December All other conditions of the schemes remain the same. The MAS will release further details of the changes by May Deloitte & Touche LLP Singapore Budget 2018 seminar 81

82 Extending the tax incentive scheme for Approved Special Purpose Vehicle (ASPV) engaged in asset securitisation transactions (ASPV Scheme) Tax exemptions on income derived by an ASPV from approved asset securitisation transactions. ASPV Scheme WHT exemption on payments to qualifying non-residents on over-the-counter financial derivatives in connection with an asset securitisation transaction. GST recovery on its qualifying business expenses at a fixed rate of 76%. Current: Scheme to lapse after 31 December 2018 Remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved assets securitisation transactions Deloitte & Touche LLP Singapore Budget 2018 seminar 82

83 Extending the tax incentive scheme for Approved Special Purpose Vehicle (ASPV) engaged in asset securitisation transactions (ASPV Scheme) (cont ) Tax exemptions on income derived by an ASPV from approved asset securitisation transactions. ASPV Scheme WHT exemption on payments to qualifying non-residents on over-the-counter financial derivatives in connection with an asset securitisation transaction. Proposed: Scheme to extend till 31 December 2023 GST recovery on its qualifying business expenses at a fixed rate of 76% Deloitte & Touche LLP Singapore Budget 2018 seminar 83

84 Qualifying Debt Securities (QDS) incentive scheme Current Extending the QDS incentive scheme The QDS scheme offers the following tax concessions on qualifying income from QDS: i. 10% concessionary tax rate for qualifying companies and bodies of persons in Singapore; and ii. Tax exemption for qualifying non-residents and qualifying individuals. To qualify as QDS, debt securities must be substantially arranged by financial institutions in Singapore. This scheme is scheduled to lapse after 31 December Extended till 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 84

85 Qualifying Debt Securities Plus (QDS+) incentive scheme Current Allowing the QDS+ incentive scheme to lapse The QDS+ scheme grants tax exemptions for all investors on qualifying income derived from QDS that are: i. Debt securities (excluding Singapore Government Securities) with an original maturity of at least 10 years; and ii. Islamic debt securities or sukuk. Scheduled to lapse after 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 85

86 Qualifying Debt Securities Plus (QDS+) incentive scheme (cont ) Proposed Debt securities with tenures beyond 10 years, and Islamic debt securities that are issued: 1 January December 2018 On or before 31 December 2018: can continue to enjoy the tax concessions under the QDS+ scheme if the conditions of the QDS+ scheme are satisfied. After 31 December 2018: can enjoy tax concessions under the QDS scheme if the conditions of the QDS scheme are satisfied. The MAS will release further details of the change by May Deloitte & Touche LLP Singapore Budget 2018 seminar 86

87 Extending the tax exemption on income derived by primary dealers from trading in Singapore Government Securities (SGS) Current A tax exemption is currently granted on income derived by primary dealers from trading in SGS. The tax exemption is scheduled to lapse after 31 December Extended till 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 87

88 Extending the Investment Allowance (IA) scheme to include qualifying investment in submarine cable systems landing in Singapore Current Proposed Proposed IA of up to 100% Expanded to include capital expenditure incurred on newly constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions. Investment Allowance Normal capital allowance Take effect for capital expenditure incurred between 20 February 2018 and 31 December Deloitte & Touche LLP Singapore Budget 2018 seminar 88

89 Introducing a review date for the current WHT exemption on container lease payments to non-resident lessors Current A WHT exemption is currently allowed on lease payments made to non-resident lessors (excluding PEs in Singapore) for the use of qualifying containers for the carriage of goods by sea. Proposed A review date of 31 December 2022 will be introduced to ensure that the relevance of the scheme is periodically reviewed. Unless this exemption scheme is extended, such payments accruing to a non-resident lessor under any lease or agreement entered into on or after 1 January 2023 in respect of the use of a qualifying container for the carriage of goods by sea will be subject to WHT Deloitte & Touche LLP Singapore Budget 2018 seminar 89

90 Personal tax 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 90

91 Personal tax Tax rates and Rebates No changes in personal income tax rates Deloitte & Touche LLP Singapore Budget 2018 seminar 91

92 Personal tax Changes to Foreign Maid Levy (FML) relief arising from adjustments to Foreign Domestic Worker (FDW) levy Type of levy Current monthly rate Revised monthly rate (from 1 April 2019) Normal 1 st FDW $265 $300 2 nd FDW $265 $450 Concession $60 $60 (no change)* * The qualifying age for levy concession under the aged person scheme will be raised from 65 to 67 years. However, all households with persons aged 65 and 66, which are enjoying or have enjoyed the levy concession under the aged person scheme before 1 April 2019, will continue to pay the monthly levy rate of $60 on and after 1 April Deloitte & Touche LLP Singapore Budget 2018 seminar 92

93 Other taxes 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 93

94 Extension of Wage Credit Scheme Extended for 3 more years (i.e to 2020), albeit with downward adjustment annually: Years Level of co-funding 20% of qualifying wage increase. 15% of qualifying wage increase. 10% of qualifying wage increase Deloitte & Touche LLP Singapore Budget 2018 seminar 94

95 Changes to Buyer s Stamp Duty (BSD) for residential properties Revised rates for BSD on residential properties to ensure a more progressive tax system. BSD for non-residential properties remains unchanged. Effective 20 February Revised tiers and rates are as follows: Purchase price/market value of residential properties (whichever is higher) BSD rates First S$180,000 1% Next S$180,000 2% Next S$640,000 3% Remaining amount exceeding S$1 million 4% 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 95

96 Changes to Foreign Worker Levy (FWL) No change to FWL rates for all sectors. FWL rates increase for Marine Shipyard and Process sectors will be deferred for another year, from 1 July 2018 to 30 June Deloitte & Touche LLP Singapore Budget 2018 seminar 96

97 Introduce carbon tax Reason for carbon tax? Part of Government s commitment to address climate change and reduce emissions. How carbon tax works? $5 per tonne of greenhouse gas emissions from 2019 to 2023 to be imposed on all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year. Review period? Carbon tax rate will be reviewed again by 2023; intention is to increase the rate to between $10 and $15 per tonne of emissions by Exemption available? None, applies uniformly to all sectors. No additional carbon tax on diesel, petrol and compressed natural gas Deloitte & Touche LLP Singapore Budget 2018 seminar 97

98 Increase in excise duties on tobacco products 10% increase in excise duties on all tobacco products with immediate effect (19 February 2018) Deloitte & Touche LLP Singapore Budget 2018 seminar 98

99 In conclusion 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 99

100 In conclusion Making innovation pervasive in Singapore s economy a right first step but more could be done. Continued shift towards targeted help for businesses instead of relying on broad-based tax measures. Ensuring that everyone, corporate or individuals, are paying their fair share of taxes Deloitte & Touche LLP Singapore Budget 2018 seminar 100

101 Tax implications arising from changes to accounting standards Redefine. Reinvent. Reimagine. Daniel Ho, Tax Partner, M&A Tax Leader, Deloitte Singapore and Southeast Asia; Chua Kong Ping, Tax Senior Manager, Deloitte Singapore

102 Agenda Overview FRS 115 Revenue from Contracts with Customers FRS 116 Leases FRS 109 Financial Instruments 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 102

103 Overview 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 103

104 Overview At a glance FRS Tax follows accounting? Legislation FRS 115 Revenue from Contracts with Customers Generally yes. Section 34I (deals with transitional adjustments). FRS 116 Leases No. Yet to be passed. FRS 109 Financial Instruments Generally yes, for revenue financial instruments. Section 34AA Deloitte & Touche LLP Singapore Budget 2018 seminar 104

105 Overview At a glance (cont ) FRS Cash tax impact # Tax adjustments # FRS 115 Revenue from Contracts with Customers Depends on industry/whether enjoying tax incentives. Not expected to be significant. FRS 116 Leases FRS 109 Financial Instruments Should be Nil based on proposed treatment*. Not expected to be significant unless financial instruments are on revenue account. Depends on number of leases*. Depends on whether financial instruments are on capital or revenue account. # Whether taxes needs to be paid earlier or later, compared to previous tax treatment * Based on proposed treatment (yet to be finalised) 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 105

106 FRS 115 Revenue from Contracts with Customers 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 106

107 FRS 115 Introduction Financial statements generally form the starting point for the computation of taxable profits. In general, if accounts are prepared in a normal commercial manner and in accordance with current accountancy practice, the profit shown by those accounts will be taken as the taxable profit, subject to any specific statutory provisions and to the overriding power of the court... Whiteman on Income Tax (3rd edition) 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 107

108 FRS 115 Introduction (cont ) The term accruing in Section 10 of the Income Tax Act sets the point in time when income sourced in Singapore is to be recognised for taxation purposes. In Pinetree Resort Pte Ltd v CIT [2000] SGCA 48, CJ Yong Pung How opined that: accrue means to which any person has become entitled 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 108

109 FRS 115 Introduction (cont ) In ABD Pte Ltd v CIT [2010] SGHC 107, JA Andrew Phang, after reviewing a series of Commonwealth tax cases, held that: the stage at which a taxpayer is entitled to income is when he has done all that is required of him to earn the income, and whether he has done all that is required of him depends on the particular trade he is engaged in Deloitte & Touche LLP Singapore Budget 2018 seminar 109

110 FRS 115 Key takeaway Accounting recognition of income Tax recognition of income Upon satisfaction of performance obligations: Tax follows accounting, unless accounting principles deviate significantly from tax principles. When a taxpayer has done all that is required of him to earn the income: 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 110

111 FRS 115 Core accounting approach 1. Identify the contract 2. Identify performance obligations 3. Determine transaction price 4. Allocate transaction price 5. Recognise revenue when/as performance obligation is satisfied Deliver equipment $100 When delivered Contract with customer Provide training services Provide ongoing services $5 $4 When performed When provided Provide warranty $1 When provided 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 111

112 FRS 115 What s different? The timing of revenue recognition under FRS 115 may differ from previous accounting practices: Example: 24 month mobile phone $100/month, free mobile handset. Possible current tax treatment Revenue recognised based on amount charged to subscriber over life of contract. FRS 115 tax treatment Contract with customer Deliver equipment Provide ongoing services $400 $83.33/mth When delivered When performed 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 112

113 FRS 115 What s different? (cont ) The timing of revenue recognition under FRS 115 may differ from previous accounting practices: Example: Sale of car along with maintenance package costing $100,000, payment collected from customer upfront. Possible current tax treatment Entire transaction price recognised and taxed upfront. FRS 115 tax treatment Contract with customer Deliver equipment Provide ongoing services $95,000 $5,000 When delivered When performed 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 113

114 FRS 115 What s different? Notional interest charge Contract to deliver goods Manufacturer Customer Scenario 1: Customer makes payment upfront, manufacturer delivers goods two years after receipt of payment. Scenario 2: Manufacturer delivers goods upfront, customer makes payment two years after delivery. Assume manufacturer s incremental borrowing rate is 5% Deloitte & Touche LLP Singapore Budget 2018 seminar 114

115 FRS 115 What s different? Notional interest charge (cont ) Scenario 1: Customer makes upfront payment, goods delivered in Year 2 Year 0 Year 1 Year 2 Cash $50,000 $0 $0 Accounting Interest expense <$5,125> Revenue $55,125 Tax $0 $0 $50,000 Tax adjustments required Scenario 2: Goods delivered upfront, customer makes payment in Year 2 Year 0 Year 1 Year 2 Cash $0 $0 $50,000 Accounting Revenue $45,351 Interest income $4,649 Tax $50,000 $0 $0 Tax adjustments required 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 115

116 FRS 115 Transitional adjustments Tax treatment for transitional adjustments is prescribed. Profits or losses arising from such adjustments will be subject to tax (or granted deduction) in the YA relating to the year in which FRS 115 is first adopted Generally YA 2019 or 2020 (for non-dec year-end). A prescribed formula applies if the taxpayer enjoys tax incentives in the assessment year when the transitional adjustments are subject to tax (or granted deduction) Deloitte & Touche LLP Singapore Budget 2018 seminar 116

117 FRS 115 Example Transitional adjustments (single tax rate in year of transition) Scenario: Taxpayer entered into a 3-year contract totalling $60,000, which under previous revenue recognition standards is accounted for on a straight-line basis over three years. FRS 115 is to be applied from Year 2. As a result of applying FRS 115, there is under-recognition of income in prior years. Year 1 Year 2 Year 3 Previous treatment $20,000 $20,000 $20,000 Under FRS 115 $40,000 $10,000 $10,000 Adjustment to RE - $20,000 - Taxable income $20,000 $30,000 ($20K + $10K) $10, Deloitte & Touche LLP Singapore Budget 2018 seminar 117

118 FRS 115 Summary of tax impact In some instances, taxable revenue may be accelerated or deferred vis-à-vis the previous accounting standard. Tax adjustments required if accounting principles differ materially from tax principles (such as in the example of notional interest charges). Taxes arising from transitional adjustments Payment via instalments? 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 118

119 FRS 116 Leases 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 119

120 FRS 116 At a glance Objective To improve transparency of lessee s financial leverage and comparability of financial statements Impact Lessees will have to recognise all leases on balance sheet Recognition exemptions Short-term lease (<12 months) Low-value assets Generally, FRS 116, from an accounting and tax perspective, is expected to have a larger impact on lessees Deloitte & Touche LLP Singapore Budget 2018 seminar 120

121 FRS 116 At a glance (cont ) Example: Taxpayer enters into a 5 year lease for equipment that is used in its manufacturing business. Annual lease payments are $60,000 payable at the end of each year. The interest rate implicit in the lease cannot be readily determined. Taxpayer s incremental borrowing rate at the commencement date is 6% per annum. Taxpayer measures the lease liability at the present value of the 5 payments of $60,000 discounted at the interest rate of 6% per annum, which is $252, Deloitte & Touche LLP Singapore Budget 2018 seminar 121

122 FRS 116 At a glance (cont ) If lease/rou asset is not treated as a finance lease treated as a sale, lessee will claim tax deduction based on contractual lease payments: Year Start of Year 1 Lease payment (contractual) Interest expense 6% (A) Principal repaid Depreciation (B) P&L (A) + (B) End of Year 1 60,000 15,165 44,835 50,548 65,713 End of Year 2 60,000 12,474 47,526 50,548 63,022 End of Year 3 60,000 9,623 50,377 50,548 60,171 End of Year 4 60,000 6,600 53,400 50,549 57,149 End of Year 5 60,000 3,396 56,604 50,549 53,945 Total 300,000 47, , ,000 Deducted Reduces lease liability Reduces ROU asset Tax adjustment required unlike FRS 17, the P&L charge annually is likely to be different from contractual payments 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 122

123 FRS 116 At a glance (cont ) If lease/rou asset is treated as a finance lease treated as a sale, lessee will claim CA on principal repayments and tax deduction for interest expenses: Year Lease payment (contractual) Interest expense 6% (A) Principal repaid Depreciation (B) P&L (A) + (B) Start of Year 1 End of Year 1 60,000 15,165 44,835 50,548 65,713 End of Year 2 60,000 12,474 47,526 50,548 63,022 End of Year 3 60,000 9,623 50,377 50,548 60,171 End of Year 4 60,000 6,600 53,400 50,549 57,149 End of Year 5 60,000 3,396 56,604 50,549 53,945 Total 300,000 47, , ,000 Deducted CA claimed on principal repayments Added back 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 123

124 FRS 116 Other issues A key issue for the lessee is to identify ROU asset regarded as finance lease treated as a sale current legislation may need to be refined accordingly? Does lease arrangement meet the definition of a finance lease under section 10D(3) of Income Tax Act*? No Yes Are any of the conditions under paragraphs (a) to (e) of Regulations 4(1) of the Section 10D Regulations met? No Yes Lease payment is a finance lease treated as a sale arrangement for tax purposes Lease arrangement is an operating lease for tax purposes * Defined as a lease of any machinery or plant (including any arrangement or agreement in connection with the lease) which has the effect of transferring substantially the obsolescence, risks or rewards incidental to ownership of such machinery or plant to the lease Deloitte & Touche LLP Singapore Budget 2018 seminar 124

125 FRS 116 Proposed tax treatment For lessors Lessor Finance lease treated as a sale agreement* Finance lease not treated as a sale agreement Operating lease Income tax treatment Tax on interest income on accrual basis. Principal repayment not taxable. No capital allowance (CA) allowed on leased asset. Tax on lease income (i.e., interest and capital repayment). CA allowed on leased asset (quarantined and offset against finance lease income only). Tax on lease CA allowed on leased asset. * Subject to the conditions listed under Income Tax (Income From Finance Leases) May elect for administrative concession where lessors will be taxed on the effective rent method Deloitte & Touche LLP Singapore Budget 2018 seminar 125

126 FRS 116 Proposed tax treatment For lessees Lessee Lease is treated as FLTS Lease is not FLTS Income tax treatment Interest portion of lease payment deductible. Principal repayment not deductible. CA allowed on leased asset. Lease payments deductible on contractual lease payments incurred (i.e., tax adjustments required where ROU asset is recognised). No CA allowed on leased asset Deloitte & Touche LLP Singapore Budget 2018 seminar 126

127 FRS 116 Key issues From lessee s perspective, accounting treatment no longer first port of call, subject to determining whether leases are FTLS or otherwise. Withholding tax on payments made to non-resident lessors: For finance lease treated as a sale, lease payment attributable to interest repayment regarded as payment under Section 12(6). Otherwise, contractual lease payments regarded as payment under Section 12(7)(d) Deloitte & Touche LLP Singapore Budget 2018 seminar 127

128 FRS 109 Financial Instruments 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 128

129 FRS 109 Overview Complexity of FRS 109 vis-à-vis FRS 39 (pages): FRS 39 e-tax guide 18 FRS 109 e-tax guide Deloitte & Touche LLP Singapore Budget 2018 seminar 129

130 FRS 109 Overview (cont ) When should FV gains or losses of financial instruments be taxed or deducted? How much interest income or interest expenses is taxable or deductible? 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 130

131 FRS 109 Background FRS 109 introduces new requirements for the classification and measurement of financial assets and financial liabilities, hedge accounting and impairment. Helpful tip in understanding measurement of fair value gains or losses under FRS 109 from a TAX perspective: There are financial instruments whose fair value gain or losses are reflected, or eventually reflected, in the P&L; There are financial instruments whose fair value gain or losses will not reflected in P&L; and NO OPT OUT OF FRS 109 TAX TREATMENT Deloitte & Touche LLP Singapore Budget 2018 seminar 131

132 FRS 109 Fair Value Gains When taxable? (1 of 4) Fair Value Through Profit and Loss (FVTPL) Balance Sheet Balance Sheet Debit FV Gain Balance Sheet Debt Debt Debt Asset Asset Asset Equity Equity Equity RE* FV gains taxable where instrument is on revenue account, no adjustments required Profit and Loss Credit FV Gain *Retained Earnings 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 132

133 FRS 109 Fair Value Gains When taxable? (2 of 4) New category introduced in FRS 109 Fair Value Through Other Comprehensive Income (FVOCI Debt) Balance Sheet Debit FV Gain Debt Balance Sheet Debt Balance Sheet Debt Asset Equity Asset Equity Equity OCI OCI RE* *Retained Earnings OCI Credit FV Gain FV gains taxable where instrument is on revenue account, no adjustments are required P&L Credit FV Gain 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 133

134 FRS 109 Fair Value Gains When taxable? (3 of 4) New category introduced in FRS 109 Fair Value Through Other Comprehensive Income (FVOCI Equity) Balance Sheet Debit FV Gain Debt Balance Sheet Debt Balance Sheet Debt Asset Equity Asset Equity Equity OCI OCI RE* *Retained Earnings OCI Credit FV Gain FV gains taxable where instrument is on revenue account, adjustments are required 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 134

135 FRS 109 Fair Value Gains When taxable? (4 of 4) FV changes reflected/eventually reflected in P&L FV changes not reflected P&L For revenue, instrument, FV gains or losses taxable or deductible on mark-to-market basis FVTPL (Equity & Debt) FVOCI (Equity) For revenue instruments, FV gains or losses taxable or deductible on a realised basis FVOCI (Debt) 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 135

136 FRS 109 Interest income/expenses How much is taxable? (1 of 2) Example: Taxpayer buys 10-year, $100,000 bond issued at 6% annual coupon in a 6.5% market. Present value of bond is $96,406, therefore bond sold at discount of $3,594. Bond is measured at amortised cost and is on capital account. End of Yr 1 Yr 2 Yr9 Yr 10 Total Amortised cost 96,672 96,956 99, ,000 EIR (6.5%) [A] 6,266 6,284 6,441 6,469 63,594 CIR (6%) [B] 6,000 6,000 6,000 6,000 60,000 Taxable amount 6,000 6,000 6,000 9,594 63,594 Tax Adjustment [A]-[B] (266) (284) (441) 3,125 0 * EIR Effective interest rate CIR Contractual interest rate 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 136

137 FRS 109 Interest income/expenses How much is taxable? (2 of 2) Debt instrument is Revenue Capital Taxation of interest income/expenses Based on EIR. No tax adjustments required. Based on CIR, tax adjustments required. Discount/premium taxed/deducted upon maturity of debt instrument. For lender, debt instrument prima facie revenue if lender is in the business of providing credit or intends to trade in the instrument. For borrower, debt instrument is prima facie revenue if borrowing is for a revenue purpose (i.e., funds used to buy inventory, etc.) Deloitte & Touche LLP Singapore Budget 2018 seminar 137

138 FRS 109 Other issues Foreign exchange gains/losses. Hedging instruments. Impairment losses. Treatment of own credit risk. Imputed interest arising from interest-free/below market-rate loans/non-arm s length loans. Impact on Total Asset Method for computing interest adjustment. Transitional issues when implementing FRS 109 tax treatment Deloitte & Touche LLP Singapore Budget 2018 seminar 138

139 FRS 109 Other issues (cont ) Transitional issues Transitional adjustments: Pre-FRS 39 FRS 109 FRS 39 FRS 109 Only transitional accounting adjustments (unrealised gain/loss/impairment) that are recognised in opening retained earnings at date of initial application is subject to adjustments (where applicable). Generally, the transitional adjustments should have the effect of adjusting the tax base of the financial instrument such that the FRS 109 tax treatment can be applied going forward Deloitte & Touche LLP Singapore Budget 2018 seminar 139

140 FRS 109 Other issues (cont ) Example: Taxpayer is on pre-frs 39 tax treatment. Upon transition to FRS 109, its revenue equity asset costing 100 is classified as FVTPL. The re-measured value as at the date of initial application (DIA) of FRS 109 is 150. There are no previous deductible impairment losses/unrealised losses. Tax Adjustments = Re-measured amount at DIA - Cost + Net deductible impairment/unrealised losses 50 = $50 taxable in first YA of taxpayer adopting FRS 109 (generally YA 2019/YA 2020). Additional three months instalment given upon request to ease cash-flow when taxpayer transits from pre-frs 39 to FRS 109 tax treatment; requests for longer instalment periods will be handled on a case-by-case basis Deloitte & Touche LLP Singapore Budget 2018 seminar 140

141 In conclusion 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 141

142 In conclusion. Tax follows accounting does not mean no impact. In most instances, impact on tax payable should be timing in nature, but cash flow implications should not be ignored. Advisable to make early assessment of impact of transitional adjustments outlay may be material Deloitte & Touche LLP Singapore Budget 2018 seminar 142

143 Singapore Transfer Pricing updates Redefine. Reinvent. Reimagine. See Jee Chang, Tax Partner, Transfer Pricing Leader, Deloitte Singapore

144 Transfer Pricing 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 144

145 Introduction of new transfer pricing legislations and rules Income Tax (Amendment) Act 2017 (Act 40 of 2017) gazette on 26 October New sections in the Singapore Income Tax Act (SITA) legislating mandatory transfer pricing documentation (TPD) requirement as well as penalties for non-compliance. With effect from Year of Assessment (YA) Income Tax (Transfer Pricing Documentation) Rules 2018 ( the new Rules ) were gazetted on 23 February Revised Transfer Pricing Guidelines (5th edition) concurrently issued by IRAS on 23 February Deloitte & Touche LLP Singapore Budget 2018 seminar 145

146 Introduction of mandatory TPD requirement and penalties for non-compliance Section 34F (new) TPD requirements (referred to as TPD under Section 34F ) largely similar to those under current requirements (referred to: TPD is required to be prepared no later than the filing deadline of the tax return; Submission of TPD to IRAS is required to be made within 30 days of such request; and TPD required to be retained for 5 years. Introduction of an additional exemption from preparing TPD based on a test of whether entity s annual gross revenue (trade and business) exceeds S$10 million. Two conditions under new exemption: Annual gross business for the basis period concerned does not exceed S$10m; and Taxpayer was not required to prepare TPD under Section 34F for the immediate preceding year (if it was, it can still fulfil this condition if for the two preceding years, its annual gross revenue does not exceed S$10m). Serves as additional safe-harbour to existing thresholds Deloitte & Touche LLP Singapore Budget 2018 seminar 146

147 Introduction of mandatory TPD requirement and penalties for non-compliance Section 34F (new) (cont ) If taxpayer meets the conditions of the new exemption, it does not need to prepare TPD. If taxpayer does not meet the conditions of the new exemption, it would need to prepare TPD but may avail certain specific/transaction exemption thresholds specifically codified as follows: Related party domestic transaction subject to same tax rate; Related party domestic loan; Related party loan where the safe harbour interest margin is applied; Provision of qualifying routine support services on which 5% cost mark-up is applied; Related party transaction covered by an APA; Related party transactions not exceeding the following values: 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 147

148 Introduction of mandatory TPD requirement and penalties for non-compliance Section 34F (new) (cont ) Type of transaction Purchase of goods Sale of goods Loan to related party Loan from related party Provision of service Receipt of service Grant of right to use property or lease Receipt of right to use property or lease Guarantee provided Guarantee received Any other transaction Value (S$) 15 million 15 million 15 million 15 million 1 million 1 million 1 million 1 million 1 million 1 million 1 million 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 148

149 Introduction of mandatory TPD requirement and penalties for non-compliance Section 34F (new) (cont ) A specific fine of up to S$10,000 may be imposed for each of the following legislated offences: Not preparing or maintain TPD based on the requirements under the new Rules; Not preparing TPD by the time for the marking of the tax return; Not retaining the TPD for a period of 5 years; Not submitting the TPD within 30 days from written request by the IRAS; or Providing any documentation or information that the taxpayer knows to be false or misleading Deloitte & Touche LLP Singapore Budget 2018 seminar 149

150 Updating of TPD Section 34F and the new Rules (new) Current Guidelines states [t]axpayers should update their TP documentation when there are material changes to the operating conditions that impact their functional analysis or transfer pricing analysis. In any case, IRAS encourages taxpayers to update their TP documentation at least once every three years. The Guidelines also urges taxpayers to review and confirm the relevance of existing TPD for the intervening two years. Formal framework for updating of TPD now prescribed under the new Rules [t]axpayers are to review and refresh TPD annually, however to reduce compliance burden, taxpayers are allowed to use the TPD prepared previously if that past TPD is a qualifying past TPD Deloitte & Touche LLP Singapore Budget 2018 seminar 150

151 Updating of TPD Section 34F and the new Rules (new) (cont ) A qualifying past TPD is a past TPD prepared in one or two preceding years (i.e., the same 3-year cycle as per current guidelines), provided also that the following specific conditions are met: The transaction documented in the past TPD is the same type as the transaction in the current year; The transaction documented in the past TPD are undertaken with the same related parties; The part TPD was prepared in accordance with the requirements under the Rules, properly dated and prepared in English; and The information contained in the past TPD on the following matters remain relevant in the current year: Commercial or financial relations between the taxpayer and its related parties; Conditions made or imposed between the taxpayer and its related parties; Transfer pricing method used for the transaction; and The arm s length conditions within the meaning of Section 34D, including comparability with the conditions/circumstances observed between independent parties 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 151

152 Updating of TPD Section 34F and the new Rules (new) (cont ) To adopt past TPD as a qualifying TPD for Years 2 and 3 (subsequent to the preparation of contemporaneous TPD in Year 1), taxpayers are required to prepare a simplified TPD comprising: A declaration, confirming that the conditions/circumstances (in Years 2 and 3) meet the conditions as listed; and The past TPD as an attachment. Where taxpayer qualified for simplified TPD, he nonetheless has the choice not to adopt the simplified TPD but to prepare new TPD. Onus is on taxpayers to demonstrate conditions are met to use past TPD, bearing in mind the risk of penalty/fine for wrong determination/reliance (rule-based) Deloitte & Touche LLP Singapore Budget 2018 seminar 152

153 Updating of TPD Section 34F and the new Rules (new) (cont ) For YA 2018 TPD: Many taxpayers have prepared new or undertaken major updates of their TPD for YA 2015, following the release of the mandatory TPD requirements. Major updates for these TPD are required for YA Past TPD prepared before the enactment of Section 34F (i.e., before YA 2019) can still be considered as qualifying TPD for future years (caters for seamless transition in new Section 34F regime). As such, taxpayers should prepare new TPD (or conduct a major update of the TPD prepared in YA 2015) for YA 2018, to ensure meeting the current requirements and the requirements under new Section 34F. Such TPD should be used as qualifying TPD (provided that conditions are met) in subsequent YAs Deloitte & Touche LLP Singapore Budget 2018 seminar 153

154 Introduction of surcharge on TP adjustments Section 34E (new) Surcharge of 5% of the amount of increase in income or reduction in deduction/allowance or loss arising from TP adjustments made by IRAS under Section 34D. Surcharge applies whether or not any additional tax is payable arising from the adjustments, and payable within one month starting from the date of notice of surcharge e.g., tax losses, or exempt income Deloitte & Touche LLP Singapore Budget 2018 seminar 154

155 Others 2018 indicative margin for related party loans Reduction in the indicative margin for related party loans not exceeding S$15 million for Related party loan not exceeding S$15 million obtained or provided during the period Indicative margin 1 January 2017 to 31 December bps (2.50%) 1 January 2018 to 31 December bps (1.75%) TP adjustments Substantial new guidance on IRAS approach to making TP adjustments (paragraphs to 5.124) arising from changes to Section 34D, which allows IRAS to assess whether the related party arrangement and conduct are arm s length Deloitte & Touche LLP Singapore Budget 2018 seminar 155

156 GST updates Redefine. Reinvent. Reimagine. Richard Mackender, Tax Partner, Indirect Tax Leader, Deloitte Singapore and Southeast Asia

157 Increase of GST standard rate Current The current standard GST rate applicable in Singapore is 7% Proposed To close the expected revenue and expenditure gaps in the years beyond 2020, the Government has announced that the standard GST rate will be increased from 7% to 9%. The rate change will happen in the period from 2021 to 2025 depending on factors such as the state of economy, expenditure growth and buoyancy of the existing taxes etc Deloitte & Touche LLP Singapore Budget 2018 seminar 157

158 Introduce GST on imported services Current Currently, Singapore does not impose GST on imported services provided by overseas suppliers which do not have an establishment in Singapore ( Overseas Businesses ). Proposed From 1 January 2020, GST will be imposed on imported services supplied by Overseas Businesses, which are received by customers who belong in Singapore for GST purposes. The change will apply to Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions. GST will be imposed via the following: i. B2B Reverse charge: Partially exempt businesses. Businesses that receive non-business receipts. Non-GST registered businesses that receive imported services exceeding S$1M per year Deloitte & Touche LLP Singapore Budget 2018 seminar 158

159 Introduce GST on imported services (cont ) Current Currently, Singapore does not impose GST on imported services provided by overseas suppliers which do not have an establishment in Singapore ( Overseas Businesses ) Proposed ii. B2C: Overseas vendor registration ( Pay only scheme): Overseas suppliers making sales of digital services to non-gst registered customers. An operator of a local or overseas electronic marketplace supplying digital services on behalf of suppliers and merchants. Suppliers with global revenue exceeding S$1 million and making supplies of digital services to customers in Singapore exceeding S$100,000. Operator must ascertain customer s GST registration status. Deeming by GST registered and non-gst registered supplier Deloitte & Touche LLP Singapore Budget 2018 seminar 159

160 Introduce GST on imported services (cont ) Current Currently, Singapore does not impose GST on imported services provided by overseas suppliers which do not have an establishment in Singapore ( Overseas Businesses ) Proposed Due to the above changes, the directly benefit test in the zero-rating provisions under Section 21(3)(j), 21(3)(k), 21(3)(s) and 21(3)(y) of the GST Act will be amended. From 1 January 2020, zero-rating will apply to the extent that the supply of services to an overseas recipient directly benefits a person belonging outside Singapore or a GST-registered person belonging in Singapore. If the supply to an overseas recipient directly benefits a non-gst registered recipient in Singapore, zerorating will not apply Deloitte & Touche LLP Singapore Budget 2018 seminar 160

161 Introduce GST on imported services Reverse charge Intercompany supplies Current Implications: Purchase (import of services) Service fee = $1.6M GST = N.A. Singapore subsidiary Co. B Overseas head office Singapore subsidiary Co. A *For a GST-registered person IRAS Reverse charge is not applicable on the import of services. The value of imported services will not count towards determining whether Co. A is liable for GST registration if it is not already a GST-registered person. Supply Service fee = $0.8M GST = $56K* GST reporting* Output tax = $56K less: Input tax = $0.00 GST payable = $56K Singapore subsidiary A makes partly exempt (50%) and partly taxable supplies (50%) for GST purposes. Singapore subsidiary A and B (through A) procure the rights to use a proprietary trading platform from its overseas head office for its operations. The costs are shared equally and A will recover the costs from B Deloitte & Touche LLP Singapore Budget 2018 seminar 161

162 Introduce GST on imported services Reverse charge Intercompany supplies (cont ) Proposed Purchase (import of services) Service fee = $1.6M GST = N.A. Singapore subsidiary Co. B Supply 2 Service fee = $0.8M GST = $56K Overseas head office Singapore subsidiary Co. A Supply 1 (Reverse charged by A) Service fee = $1.6M GST = $112K IRAS GST reporting Output tax = $168K ($112K+$56K) less: Input tax = $84K ($28K+$56K) GST payable = $84K Singapore subsidiary A makes partly exempt (50%) and partly taxable supplies (50%) for GST purposes. Singapore subsidiary A and B (through A) procure the rights to use a proprietary trading platform from its overseas head office for its operations. The costs are shared equally and A will recover the costs from B. Implications: Co. A will be liable for GST registration where the value of imported services exceeds $1M, if it is not already a GST-registered person. Co. A will be required to account for output tax of $112K ($1.6M x 7%) on the service fee. The reverse input tax of $112K will be subject to input tax apportionment and the value of input tax provisionally allowed would be $84K, comprising: 0.8M/1.6M x $112K x 50% = $28K (Co. A s part) 0.8M/1.6M x $112K x 100% = $56K (Co. B s part recharged by Co. A) The input tax recovery rate will, as of current rules, be adjusted over a longer period Deloitte & Touche LLP Singapore Budget 2018 seminar 162

163 Introduce GST on imported services Reverse charge Inter-branch supplies Current Purchase (import of services) Service fee = $1.2M GST = N.A. Overseas head office Implications: Reverse charge is not applicable on the import of services. Inter-branch supplies are currently disregarded for GST purposes. Singapore customer Taxable supply Service fee = $0.8M Singapore branch The value of imported services will not count towards determining whether the Branch is liable for GST registration if it is not already a GST-registered person. Singapore branch is not liable for GST registration. It makes partly exempt (20%) and partly taxable supplies (80%) for GST purposes. Singapore branch procures management services from its head office Deloitte & Touche LLP Singapore Budget 2018 seminar 163

164 Introduce GST on imported services Reverse charge Inter-branch supplies (cont ) Proposed Purchase (import of services) Service fee = $1.2M GST = N.A. Singapore customer Supply 2 Service fee = $0.8M GST = $56K Overseas head office Singapore branch Supply 1 (Reverse charge) Service fee = $1.2M GST = $84K IRAS GST reporting Output tax = $140K ($84K+$56K) less: Input tax = $42K ($84K x 50%) GST payable = $98K Singapore branch is not liable for GST registration. It makes partly exempt (20%) and partly taxable supplies (80%) for GST purposes. Singapore branch procures management services from its head office. Implications: Inter-branch supplies will not be disregarded. The Branch will be liable for GST registration where the value of imported services exceeds $1M, if it is not already a GST-registered person. The Branch will be required to account for output tax of $84K ($1.2M x 7%) based on the consideration received or open market value, less the following (not applicable in our example): Value of services that will be exempt or qualify for zero-rating had the services been made by a taxable person belonging in Singapore; and Separately identifiable intercompany salaries or wages, and interest costs, including the proportionate mark-up (if any). The reverse input tax of $84K will be subject to input tax apportionment and the value of input tax provisionally allowed would be $42K. The input tax recovery rate will, as of current rules, be adjusted over a longer period Deloitte & Touche LLP Singapore Budget 2018 seminar 164

165 Introduce GST on imported services Reverse charge Intra-group supplies Current GST Group Implications: Purchase (import of services) Service fee = $1M GST = N.A. Overseas affiliate Service provider Reverse charge is not applicable on the import of services. Intra-group supplies are currently disregarded for GST purposes. Singapore affiliate IRAS Normal Group GST reporting Overseas affiliate contracts with service provider to procure IT support services for its Asia Pacific affiliates and allocates the costs to each affiliate, including a Singapore affiliate. The overseas affiliate and the Singapore affiliate are grouped together for Singapore GST purposes, and the GST group is partially exempt. Assume input tax recovery rate of 90% Deloitte & Touche LLP Singapore Budget 2018 seminar 165

166 Introduce GST on imported services Reverse charge Intra-group supplies (cont ) Proposed Purchase (import of services) Service fee = $1M GST = N.A. Supply (Reverse charge) Service fee = $1M GST = $70K GST Group Overseas affiliate Singapore affiliate Service provider IRAS GST reporting Output tax = $70K less: Input tax = $63K ($70K x 90%) GST payable = $7K Overseas affiliate contracts with service provider to procure IT support services for its Asia Pacific affiliates and allocates the costs to each affiliate, including a Singapore affiliate. The overseas affiliate and the Singapore affiliate are grouped together for Singapore GST purposes, and the GST group is partially exempt. Assume input tax recovery rate of 90%. Implications: Intra-group supplies will not be disregarded. The Singapore affiliate will be required to account for output tax of $70K ($1M x 7%) based on the consideration received or open market value, less the following (not applicable in our example): Value of services that will be exempt or qualify for zero-rating had the services been made by a taxable person belonging in Singapore; and Separately identifiable intercompany salaries or wages, and interest costs, including the proportionate mark-up (if any). The reverse input tax of $70K will be subject to input tax apportionment and the value of input tax provisionally allowed would be $63K. The input tax recovery rate will, as of current rules, be adjusted over a longer period Deloitte & Touche LLP Singapore Budget 2018 seminar 166

167 Introduce GST on imported services Overseas vendor registration Supplies of digital services Current Overseas supplier Implications: Supplies of digital services by an overseas supplier Singapore consumers is GST free. Supplies of digital services (such as downloadable content, subscription based media, etc.) Value of supplies = $200K GST = Not applicable Singapore consumer 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 167

168 Introduce GST on imported services Overseas vendor registration Supplies of digital services (cont ) Proposed Overseas supplier Value of global supplies = $1M Implications: Supplies of digital services by an overseas supplier with more than S$1m of such supplies globally and more than S$100k supplied to Singapore consumers will trigger a requirement to register for a simplified GST registration. Supplies of digital services (such as downloadable content, subscription based media, etc.) Value of supplies = $200K GST = $14K Supplier will need to collect GST from the Singapore consumer. Supplier will need to prepare a periodical GST return, reporting value of standard rated sales and corresponding output tax and to pay the output tax to IRAS. Singapore consumer 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 168

169 Introduce GST on imported services Overseas vendor registration Supplies of digital services (cont ) Current Places digital services (e.g., mobile app, software program, etc) on operator s marketplace. Singapore suppliers Value of supplies = $200K GST = Not applicable Overseas suppliers Overseas or local electronic marketplace Implications: Supplies of digital services by an overseas operator on behalf overseas suppliers to Singapore consumers are free of GST. Supplies of digital services by a local operator on behalf of local and overseas suppliers to Singapore consumers are not subject to GST. The supplies made on behalf of the overseas operator are not counted towards determining the local operator s GST registration liability (i.e. $1M taxable turnover threshold). Singapore consumer 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 169

170 Introduce GST on imported services Overseas vendor registration Supplies of digital services (cont ) Proposed Places digital services (e.g. mobile app, software program, etc) on operator s marketplace Singapore suppliers Supply 2 Value of supplies (Commission) = $900K GST = $63K Supply 1 (On behalf of overseas suppliers only) Value of supplies = $200K GST = $14K Overseas suppliers Local electronic marketplace Singapore consumer Supply 2 Value of supplies (Commission) = $100K GST = $0K (zero-rated) IRAS GST reporting Output tax = $77K ($63K+$14K) Input tax = $40K GST payable = $37K Implications: A local operator has to count its own supplies and the value of supplies made by overseas suppliers through its marketplace to determine its GST registration liability. If the operator is GST-registered, it has to charge GST on the following: Supplies made by overseas suppliers through its marketplace Commission earned from GST or non GST-registered Singapore suppliers that makes supplies through its marketplace. GST-registered operator has to deem a supply of digital services made to operator and account for the corresponding output tax Deloitte & Touche LLP Singapore Budget 2018 seminar 170

171 Introduce GST on imported services Overseas vendor registration Supplies of digital services (cont ) Proposed Places digital services (e.g. mobile app, software program, etc) on operator s marketplace Non-GST registered Singapore suppliers Supply 2 Value of supplies (Commission) = $100K GST = $7K Supply 1 Value of supplies = $200K GST = $14K Overseas suppliers Overseas electronic marketplace Singapore consumer IRAS GST reporting (simplified Pay only ) Output tax = $21K ($14K+$7K) Input tax = Not applicable GST payable = $21K Implications: An overseas operator has to consider its GST registration liability in Singapore, based on the two-tier registration threshold: First tier: Global revenue exceeding $1M Second tier: Supplies of digital services made to Singapore consumers exceeding $100K If the operator is GST-registered, it has to charge GST on the following: Supplies made by overseas suppliers through its marketplace. Commission earned from non GST-registered Singapore suppliers that makes supplies through its marketplace. Supplies made by non GST-registered local suppliers through its marketplace, subject to IRAS approval. Deemed supply made to operator non GST-registered operator has to count such supply for determining its liability for GST registration Deloitte & Touche LLP Singapore Budget 2018 seminar 171

172 GST on low value imported goods Current Currently, imports of goods into Singapore via courier not exceeding an import value of S$400 are not subject to import GST. Proposed The IRAS notes that a number of countries have reduced or eliminated the low value import rule, so that such imports are subject to import GST. The IRAS noted that they would like to similarly change the low value import rule, but for now are continuing to study how best to effect the changes for low value goods Deloitte & Touche LLP Singapore Budget 2018 seminar 172

173 Introduce GST on imported services IRAS consultation Current IRAS has issued two draft e-tax guides on the proposed changes for feedback by interested parties: Taxing imported services by way of reverse charge; and Taxing imported services by way of an overseas vendor registration regime. Implications: Interested parties can provide feedback using the feedback form at the back of each guide, or via other outlets, such as Deloitte, SIATP or the various Business Chamber tax committees. Deadline for providing feedback is 20 March Deloitte & Touche LLP Singapore Budget 2018 seminar 173

174 Extension of GST remission to Singapore Variable Capital Companies (S-VACC) Current GST remission granted to funds that can qualify for tax exemption under Sections 13C, 13CA, 13G, 13R and 13X of the ITA, as at the last day of their preceding financial year. Allows qualifying funds to claim GST on their costs at a fixed recovery rate, i.e. less than 100%. Proposed GST remission will be extended to S-VACCs. The MAS will release further details of the tax framework for S-VACCs by October Deloitte & Touche LLP Singapore Budget 2018 seminar 174

175 The impact of US Tax Reform and BEPS developments in Asia Pacific Redefine. Reinvent. Reimagine. Panel discussion

176 Agenda US tax reform and potential impact Overview of key international provisions End of deferral system of taxation/transition tax FDII and GILTI Potential impact on hub jurisdictions BEPS developments Singapore BEPS developments Asia Pacific 2018 Deloitte & Touche LLP Singapore Budget 2018 seminar 176