Singapore Budget 2017 Synopsis

Transcription

1 Singapore Budget 2017 Synopsis

2 MCI (P) 013/01/2017 Printed by Hock Cheong Printing Pte Ltd

3 At a glance Introduction The Singapore way 3 Business tax Corporate income tax rate and rebate 7 Enhancing the Global Trader Programme 9 Introducing an intellectual property regime that 11 encourages the exploitation of IP arising from R&D activities of the taxpayer Introducing a safe harbour rule for payments under 14 Cost Sharing Agreements for R&D projects Extending and refining the Aircraft Leasing Scheme 15 Extending the withholding tax exemption on payments 17 for international telecommunications submarine cable capacity under an Indefeasible Rights of Use agreement Refining the Finance and Treasury Centre Scheme 18 Extending the tax incentive schemes for project 20 and infrastructure finance Extending and refining the Integrated Investment 21 Allowance Scheme Extending the withholding tax exemption on payments 22 made to non-resident non-individuals for structured products offered by financial institutions Withdrawing the tax deduction for computer 23 donation scheme Withdrawing the Accelerated Depreciation Allowance 24 for Energy Efficient Equipment and Technology Scheme Allowing the accelerated writing-down allowances 25 for acquisition of intellectual property rights for media and digital entertainment content scheme to lapse Allowing the International Arbitration Tax Incentive 26 to lapse Singapore Budget 2017 Synopsis 1

4 At a glance Personal income tax Personal income tax rebate and tax rate 29 Goods and services tax Imposing GST on the digital economy 33 Withdrawing the GST Tourist Refund Scheme for tourists 37 departing by international cruise Miscellaneous Strengthening enterprises capabilities through 39 scaling up globally Digitalisation and innovation 40 Defering foreign worker levy changes 43 Allowing property tax exemption for Approved 43 Building Project Scheme to lapse Additional Special Employment Credit 44 Final thoughts 46 Tax services in Singapore 48 Singapore Tax Partners, Executive Directors 50 and Directors Glossary of terms 52 2 Singapore Budget 2017 Synopsis

5 Introduction The Singapore way Our journey towards SG100 story from Budget 2016 continues with moving forward together the Singapore way in Budget The world is undergoing a period of great uncertainty and rapid technological change. In this year s budget, the Finance Minister reaffirms the Singapore way to respond to such challenges. Singapore must take a learning and adaptive approach, try new methods, draw on feedback, adjust and refine our plans as we move forward together with a can-do spirit. Budget 2017 builds on the foundation laid out in Budget The Industry Transformation Maps have been launched for six sectors and will continue to be rolled out for the remaining 17 sectors within FY2017. The Adapt and Grow initiative introduced last year will be enhanced for both Professionals, Managers, Executives and Technicians, and rank-and-file workers in transition. It is not surprising that the measures taken to build our capabilities for the long term are largely based on the strategies and recommendations put forth by the Committee on the Future Economy (CFE) two weeks ago. Go digital, go international Small-and-medium enterprises (SME) form the bulk of our enterprises and we can only be successful in transforming our economy if SMEs are able to use digital technology, embrace innovation and scale up. SMEs will receive support in adopting digital technologies to transform their businesses. Under the SMEs Go Digital Programme, SMEs will receive step-by-step advice, in-person help and funding on the technologies to use at each stage of their growth. Enterprises can also tap on the enhanced International Finance Scheme to co-share risk on cross-border project financing. A new S$600m International Partnership Fund will co-invest with enterprises to help them scale up and internationalise. Singapore Budget 2017 Synopsis 3

6 Budget 2017 placed great emphasis on building partnerships between different parts of society to create a more dynamic and resilient economy. The government is also committed to building an inclusive and caring society, which is important for the fruits of our growth to be enjoyed by all people in Singapore. Go green We are beginning to feel the effects of climate change, such as prolonged drier and warmer weather. The government is planning to introduce carbon tax in 2019 to reduce greenhouse gas emissions. The proposed carbon tax will be applied upstream on power stations and other large direct emitters and the impact on most businesses and households is expected to be modest. The carbon tax will be implemented after consultation with stakeholders. We hope the upstream industries take steps to reduce emissions by adopting clean energy and newer technologies. Changes are also made to the pricing and tax regime of diesel, motor vehicles and water to curb their consumption and usage. Water prices last adjusted in 2000 will now increase by 30%. Go deep The efforts to re-skill and up-skill our workers continue. Funding support for Singaporeans to take approved courses will continue to be available through SkillsFuture. A Global Innovation Alliance will be set up for Singaporeans to gain overseas experience and collaborate with their counterparts in other innovative cities. There will be programmes to enable our tertiary students to connect with start-ups overseas. This will hopefully help to change the mindset of our students and cultivate the entrepreneurial spirit in them. Tax reform One of the CFE recommendations calls for a review of Singapore s tax system, so that it remains broad-based, progressive and fair, and at the same time, be competitive and pro-growth. Countries, large and small, are reviewing their corporate tax regimes to keep them competitive. No major changes have been introduced in this budget to reform our tax system, but the Minister alluded to what is coming. We can expect tax refinements in response to the Base Erosion and Profit Shifting project. Businesses can also expect the government to raise revenues through new taxes or raise tax rates in order to fund rising expenditure in the mid to long term. One such option being studied by the government is the requirement for foreign-based e-commerce businesses to be GST-registered, as digital transactions are expected to boom. With the creation and loss of jobs in different fields arising from the increased use of robots and artificial intelligence, the day may come where we cannot rule out that robots and artificial intelligence will be subject to taxation too. 4 Singapore Budget 2017 Synopsis

7 Go together Budget 2017 placed great emphasis on building partnerships between different parts of society to create a more dynamic and resilient economy. The government is also committed to building an inclusive and caring society, which is important for the fruits of our growth to be enjoyed by all people in Singapore. Our economic strategies for the next five to ten years will be shaped by the strategies recommended by the CFE. Whether we can achieve the long-term economic growth target of two to three percent per year will depend on how well we partner one another to implement them. As Martin Luther King Jr. said: If you can t fly, then run; if you can t run, then walk; if you can t walk, then crawl; but whatever you do you have to keep moving forward. And the reason is simple. Borrowing the words of Henry Ford, If everyone is moving forward together, then success takes care of itself. Chung-Sim Siew Moon Partner and Head of Tax 20 February 2017 Singapore Budget 2017 Synopsis 5

8 Business tax Business tax 6 Singapore Budget 2017 Synopsis

9 Business tax Corporate income tax rate and rebate The enhancement of the corporate tax rebate with a S$25,000 cap for YA2017 is indeed welcomed news and the extension of the rebate to YA 2018 with a cap of S$10,000 is a bonus to businesses. Current The corporate income tax rate is 17% with a partial tax exemption for normal chargeable income of up to S$300,000 as follows: 75% exemption of up to the first S$10, % exemption of up to the next S$290,000. Companies enjoy a 50% corporate income tax rebate for YA 2016 and YA 2017, with a cap of S$20,000 rebate per YA. Proposed The Minister did not propose any change to the corporate income tax rate and the partial tax exemption threshold remains the same. To help companies cope with the economic uncertainty and continue restructuring, the corporate income tax rebate will be enhanced and extended: (a) Corporate income tax rebate cap will be raised from S$20,000 to S$25,000 for YA 2017 (with the rebate rate unchanged at 50%). (b) Corporate income tax rebate will be extended for another year to YA 2018, but at a reduced rate of 20% of tax payable and capped at S$10,000 rebate. Points of view The corporate income tax rate has remained at 17% since YA At 17%, Singapore s headline corporate income tax rate continues to be one of the lowest in the world. This rate is only 0.5% higher than the current Hong Kong corporate income tax rate of 16.5%. In the current changing international tax environment where countries are coming together to address Base Erosion and Profit Shifting (BEPS), there is increasing attention and focus on a country s corporate income tax rate. Going forward, Singapore thus faces the challenge of managing its corporate income tax rate to remain competitive while addressing the concerns of BEPS. Singapore Budget 2017 Synopsis 7

10 Business tax The effective tax rate of a company in Singapore with S$500,000 of normal chargeable income will be only 11.8%. It is further reduced to 6.8% (YA 2017) and 9.8% (YA 2018) if we factor in the full corporate income tax rebate for YA 2017 and YA This is notably lower than the existing tax rate of 16.5% in Hong Kong. With the tax rebate, a company in Singapore would need to have normal chargeable income exceeding S$9.2m to have an effective tax rate higher than 16.5%. The effective tax rate in Singapore could also be reduced further through tax incentives. The difference between the current corporate income tax rate of 17% and the top marginal personal income tax rate of 22% (with effect from YA 2017) is five percent. Self-employed individuals, depending on their level of income, may consider corporatising their businesses in view of the lower corporate income tax rate and partial tax exemption. However, the tax benefit may be reduced or eliminated since an arm s length salary will need to be paid from the company to an owner working in the business. In addition, the costs of operating a company (e.g., audit and secretarial fees) should be taken into account before such a decision is made. The IRAS has clarified that: The corporate income tax rebate will be given to all companies including registered business trusts, non-resident companies and companies that receive income taxed at a concessionary tax rate. The rebate, however, will not apply to the income derived by a non-resident company that is subject to final withholding tax. Companies need not factor in the corporate income tax rebate when filing their estimated chargeable income and income tax returns (Form C/C-S) as the IRAS will compute and allow the corporate income tax rebate automatically. the tax payable by the due date according to these notices of assessment. The IRAS will issue revised notices of assessment to affected companies by May 2017 and refund any excess tax paid. If a company is paying taxes by instalments, it will need to continue with the payment schedule based on the instalment plan. The revised notices of assessment and instalment plan will be issued by the IRAS to the company by May The proposed increase in the corporate income tax rebate cap to S$25,000 for YA 2017 (with the rebate rate unchanged at 50%) and the proposed extension for another year to YA 2018 (but at a reduced rate of 20% capped at S$10,000) are part of the continued measures to support businesses, in particular targeted at SMEs as they cope with the current uncertain economic conditions. The proposed changes also recognise that SMEs may need more immediate cash flow relief, thus the increase in corporate income tax rebate for YA 2017 and a reduced amount in YA However, the proposed increase and extension will only benefit those that are tax-paying since the corporate income tax rebate is computed on tax payable. Companies may consider deferring capital allowances claims or planning their group loss relief claims to optimise the amount of corporate income tax rebate. If the corporate income tax rebate is not extended after YA 2018 and with the phasing out of the PIC Scheme, companies, especially SMEs, may need to look towards other avenues such as grants to ease their cash flow pressures going forward. For companies that have already received their notices of assessment for YA 2017 and YA 2018 reflecting the lower or no corporate income tax rebate, they do not have to submit a revised estimated chargeable income. They are however required to make payment of 8 Singapore Budget 2017 Synopsis

11 Business tax Enhancing the Global Trader Programme Current The Global Trader Programme (GTP) grants a concessionary tax rate of 5% or 10% on qualifying income derived by approved global trading companies from qualifying transactions. Proposed To facilitate and encourage more trading activities in Singapore and to simplify the GTP, the GTP will be enhanced as follow: a) The requirement for qualifying transactions to be carried out with qualifying counterparties will be removed. Consequently, concessionary tax rate will be granted to approved global trading companies on income derived from qualifying transactions with any counterparty. b) Concessionary tax rate will be granted to approved global trading companies on physical trading income derived from transactions in which the commodity is purchased for the purposes of consumption in Singapore or for the supply of fuel to aircraft or vessels within Singapore. c) Concessionary tax rate will be granted to approved global trading companies on physical trading income attributable to storage in Singapore or any activity carried out in Singapore, which adds value to the commodity by any physical alteration, addition or improvement (including refining, blending, processing or bulk-breaking). d) The substantive requirement to qualify for the GTP will be increased. The enhancements in (a) to (c) will apply to qualifying income derived on or after 21 February 2017 by approved global trading companies from qualifying transactions. The enhancement in (d) will apply to new or renewal incentive awards approved on or after 21 February The IE Singapore will release further details of the change by May Points of view The proposed enhancements in (a) to (c) above will certainly simplify the overall tax compliance and reporting requirements and related costs for approved global trading companies. These enhancements have addressed the concerns faced by the approved global trading companies and is therefore a welcomed move. They also resonate well with Singapore s important role as a commodity trading hub for Asia and will encourage more activities to be anchored out of Singapore. Such trading activities are expected to have a multiplier effect for the economy. Before 21 February 2017, approved global trading companies are required to keep track of all trading transactions and ensure that only qualifying income from qualifying transactions with qualifying counterparties are taxed at the concessionary tax rate. Currently, where a GTP company buys and sells with both qualifying and non-qualifying counterparties, the company is required to track that both its buy and sell leg of its trading transactions are with qualifying counterparties. This can be a challenge where transactions are voluminous and are not back-toback arrangements. Hence, we applaud this bold move to remove the counterparty requirement as it takes into consideration the practical challenges faced by GTP companies. Singapore Budget 2017 Synopsis 9

12 Business tax The removal of the counterparty requirement also helps to address mismatch in tax treatment in certain transactions. For instance, in hedging transactions, the tax treatment between the derivative transaction and the corresponding underlying physical trading transaction may differ, depending on whether the counterparties are approved or not. This can result in a mismatch in the tax treatment of the derivative profit or loss and the physical trading profit or loss and in some cases, can be undesirable if a profit on one side is taxed at 17% and the loss on the other side is deductible at the concessionary tax rate. The removal of the counterparty requirement in such cases will remove such mismatch in tax treatment. demands. Having said the above, the increased substance requirements can be seen to be in line with Singapore s status as a Base Erosion and Profit Shifting Associate, where one of the standards requires tax incentives to be aligned with the location of economic substance and nexus of value creation. The granting of concessionary tax rates to approved global trading companies on physical trading income derived from the supply of fuel to vessels within Singapore will further enhance and complement Singapore s status as a major regional bunkering hub, as such tax savings may translate into more competitive bunker prices in the region, besides easing the tracking requirements for determination of GTP versus non-gtp income. The determination of the value-add income attributable to commodities by any physical alteration, addition or improvement through any activities carried out in Singapore has in practice posed challenges for GTP companies in terms of the methodology to adopt for determining the attributable value-add income and is often a subject of controversy with the IRAS. The removal of this requirement will provide certainty in the determination of qualifying income. The increase in substantive requirement to qualify for the GTP, given the enhancements in (a) to (c) above, is likely to translate into higher thresholds on the substance requirements of headcount, total local business spending and activities conducted in Singapore, in addition to the value of gross annual physical turnover. Depending on how significant the increases in the thresholds will be, new GTP applicants and existing approved global trading companies seeking to renew their applications will need to evaluate their abilities to meet the increased 10 Singapore Budget 2017 Synopsis

13 Business tax Introducing an intellectual property regime that encourages the exploitation of IP arising from R&D activities of the taxpayer Current Currently, the Pioneer-Services/Headquarters Incentive and the Development and Expansion Incentive (DEI)-Services/Headquarters cover intellectual property (IP) income if the income arises from qualifying activities. The Pioneer-Services/Headquarters Incentive and the DEI-Services/Headquarters encourage companies to use Singapore as a base for conducting headquarters management activities to oversee, manage and control their regional and global operations and businesses. The incentives are awarded for carrying out substantial level of regional or global headquarters activities in Singapore and offer concessionary tax rates of 0%, 5% or 10% on qualifying income. Qualifying income under the incentives include sales, service fees, licensing fees, franchise fees, commissions and management fees from qualifying activities. Proposed To encourage the use of IPs arising from taxpayer s R&D activities, IP income will be incentivised under a new IP regime named the IP Development Incentive (IDI). The IDI incorporates the Base Erosion and Profit Sharing (BEPS)-compliant modified nexus approach. Accordingly, such income will be removed from the scope of Pioneer-Services/Headquarters Incentive and the DEI-Services/Headquarters for new incentive awards approved on or after 1 July Existing incentive recipients will continue to have such income covered under their existing incentive awards until 30 June The IDI will take effect on 1 July 2017 and will be administered by the EDB. The EDB will release further details of the change by May Qualifying activities covered under the incentives include, amongst others: Strategic business planning and development. Marketing control, planning and brand management. General management and administration. Corporate training and personnel management. IP management. Singapore Budget 2017 Synopsis 11

14 Business tax Points of view Adopting BEPS-compliant modified nexus approach: As a BEPS associate, Singapore is committed to implementing the four minimum standards under BEPS, one of which is BEPS Action 5 countering harmful tax practices. Through the adoption of the modified nexus approach in the IDI, it sends a strong signal of Singapore s commitment to maintaining and improving transparency and its proactive support of the BEPS initiative. Under BEPS Action 5, preferential IP regimes should not be regarded as harmful tax practices if the tax benefits are linked to substantial activities being carried on. The modified nexus approach where R&D spend is used as a proxy for substantial activities was determined to be the most appropriate approach to define substantial activity requirement in relation to IP regimes. The proposed IDI introduces a specific IP regime that carves out IP income into a stand-alone incentive, which incorporates the modified nexus approach to determine the amount of income that may benefit from the tax incentive. Under the modified nexus approach, the proportion of income that may benefit from an IP regime (the nexus ratio) is the same proportion as that of qualifying expenditures compared to overall expenditures. The nexus ratio is determined using the following formula: A + B (*) A + B + C + D where: A represents R&D expenditures incurred by the taxpayer itself B represents expenditures for unrelatedparty outsourcing C represents acquisition costs of IP D represents expenditures for relatedparty outsourcing (*) a 30% uplift may be applied on A and B but only to the extent where there are non-qualifying expenditures (i.e., C and D ) As noted from the above formula, R&D expenses paid to third party R&D service providers are included in the numerator but not R&D expenses paid to related party R&D service providers. It is unclear how payments under Cost Sharing Agreements (CSA) will be treated. The tax benefit under IDI may be limited for taxpayers who outsource R&D to related parties, especially for multinationals, which typically have significant R&D operations world-wide. The ability to combine the IDI with other incentives such as the DEI, will be important to ensure that Singapore remains attractive as a location to host other critical functions that are complementary to IP ownership. Design and features of IDI The EDB will release further details of the IDI by May We expect the details to include how qualifying IP income is defined, the applicable concessionary tax rate or tax benefit, whether R&D work can be performed outside Singapore and how the regime may complement the existing Pioneer-Services/ Headquarters Incentive and the DEI -Services/ Headquarters. Under the BEPS recommendation, qualifying income should only include income derived from the IP asset and may include royalties, capital gains, other income from the sale of an IP asset and embedded IP income from the sale of products and the use of processes directly relating to the IP asset. If the scope of IP income under the IDI were to include sales income, there will be a need to implement a consistent and coherent method (e.g., based on transfer pricing principles) for separating income unrelated to IP (e.g., marketing and manufacturing returns) from the income arising from IP. 12 Singapore Budget 2017 Synopsis

15 Business tax However, it is noted that the UK Patent Box regime may apply to profits from sales of patented products (i.e., sales of patented product or products incorporating the patented invention or bespoke spare parts) and not just to embedded IP income. In designing the IDI, one key consideration ought to be whether or not to include sales income as qualifying IP income and if so, whether or not to restrict it to just embedded IP income. Perhaps some flexibility can be retained in this respect for sales income to be covered under other appropriate tax incentive schemes, which are also targeted at attracting substantive activities into Singapore. IP income from qualifying activities will be removed from the scope of Pioneer-Services/ Headquarters Incentive and the DEI-Services/ Headquarters. We note that other incentives such as the Pioneer Manufacturing Incentive and DEI Manufacturing Incentive are not impacted. Therefore, for businesses which have been awarded these incentives, their IP income from licensing of IP that are also used in their own manufacturing operations ought to be covered under their existing tax incentives and not subject to the removal arising from the introduction of IDI. Given the direction of the government in carving out the IP income from the Pioneer- Services/Headquarters Incentive and the DEI-Services/Headquarters and since the IDI will be administered by the EDB, it appears likely that there may be conditions attached to the granting of the IDI and the incentive may be granted on a case-by-case approval basis. It is noted that similar IP regimes, such as the UK Patent Box regime, are broad-based and non-discretionary incentives. To encourage innovation across the board, it may be worthwhile to consider whether the IDI regime can be administered in the same manner such that all taxpayers can avail of the tax incentive as long as they meet the specified conditions. Definition of R&D To-date, it has been rather challenging for companies to qualify for the R&D deduction under section 14D of the ITA. For example, it has been immensely difficult for software projects to qualify for section 14D/DA R&D enhanced deduction. In this respect, it is noted that copyrighted software is recognised under the BEPS Action 5 guidelines as qualifying IP under the nexus approach as it shares the fundamental characteristics of patents such as being novel, non-obvious, and useful. It is hoped that the definition of R&D under the IDI will be broader so as to make the IDI more attractive. Strengthening Singapore tax treaties The introduction of IDI should send a strong signal of Singapore s intent to develop itself as an IP hub. To complement this, there is also a need to refresh Singapore tax treaties or expand its tax treaty network such that a favourable royalty withholding tax rate is granted on royalties derived by Singapore tax residents. Currently, a majority of Singapore tax treaties provides for royalty withholding tax rates of more than five percent, which is not that attractive and may erode the attractiveness of the IDI. Singapore Budget 2017 Synopsis 13

16 Business tax Introducing a safe harbour rule for payments under Cost Sharing Agreements for R&D projects Current The IRAS has adopted the position that taxpayers claiming tax deductions for R&D expenditure under section 14D of the ITA for payments made under Cost Sharing Agreements (CSA) are subject to specific restriction rules for certain categories of expenditure disallowed under section 15 of the ITA. As such, the breakdown of the expenditure covered by CSA payments is examined by the IRAS so as to exclude the disallowed expenditure. Proposed To ease compliance, taxpayers may opt to claim tax deduction under section 14D for 75% of the payments made under a CSA incurred for qualifying R&D projects instead of providing a breakdown of the expenditure covered by the CSA payments. The change will apply to the CSA payments made on or after 21 February The IRAS will release further details of the change by May Points of view The deduction of CSA payments for R&D projects has been a contentious issue between taxpayers and the IRAS. Taxpayers have objected to the position taken by the IRAS on the basis that the ITA allows for a 100% tax deduction on CSA payments without having the need to look beyond the payments to strip out disallowable expenditures (such as stock-based compensation expenses). This basis is consistent with that underlying the IRAS current treatment of payments made to outsourced R&D service providers claimed under section 14D and in line with the IRAS previous treatment of approved CSA payments for R&D projects under section 19C of the ITA, i.e., before deduction for such payments was subsumed under section 14D. Accordingly, the proposed safe harbour rule appears to have been introduced as a compromise for taxpayers who disagree with the IRAS position. However, it remains to be seen how this proposed safe harbour rule would be received as a 25% disallowance of deductions relating to CSA payments appears to be significantly higher than the typical proportion of expenditure included in CSA payments that relates to certain expenditure disallowed under section 15 of the ITA. It is hoped that the IRAS will provide details on the types of specific expenditure items within a CSA payment that will be disallowed under section 15 of the ITA to help taxpayers assess if they should opt for the proposed safe harbour rule and how current deduction claims for CSA payments prior to 21 February 2017 under dispute with the IRAS will be resolved. It should also be noted that the proposed safe harbour rule only applies to CSA payments for qualifying R&D projects. From an administrative point of view, taxpayers who opt to apply the safe harbour rule may still be required to provide breakdowns of CSA payments by qualifying R&D projects and furnish information to the IRAS to verify that each project indeed qualifies as an R&D project in accordance with current tax law and practice. This could be challenging practically as many R&D organisations track costs at an R&D department or facility level and not on a per project basis. The IRAS current position and the proposed safe harbour rule to limit deduction to 75% of CSA payments could be viewed as a negative factor by businesses when considering the attractiveness of Singapore as an intellectual property hub to anchor R&D activities. 14 Singapore Budget 2017 Synopsis

17 Business tax Extending and refining the Aircraft Leasing Scheme Current Under the Aircraft Leasing Scheme (ALS), approved aircraft lessors and aircraft investment managers can enjoy the following tax benefits: Approved aircraft lessors enjoy concessionary tax rate of 5% or 10% on income derived from the leasing of aircraft or aircraft engines and qualifying ancillary activities under section 43Y of the ITA. Approved aircraft managers enjoy concessionary tax rate of 10% on income derived from managing the approved aircraft lessor and qualifying activities under section 43Z of the ITA. Qualifying ancillary activities under section 43Y of the ITA include incidental income derived from the provision of finance in the acquisition of any aircraft or aircraft engines by any airline company. In addition, automatic withholding tax (WHT) exemption is granted on qualifying payments made by approved aircraft lessors to non-tax residents (excluding a permanent establishment in Singapore) in respect of qualifying loans entered into on or before 31 March 2017 to finance the purchase of aircraft and aircraft engines, subject to conditions. The scheme is scheduled to lapse after 31 March Proposed To continue encouraging the growth of the aircraft leasing sector in Singapore, the ALS will be extended and refined as follows: a) The ALS will be extended until 31 December b) The scope of qualifying ancillary activities for approved aircraft lessors under section 43Y of the ITA will be updated to cover incidental income derived from the provision of finance in the acquisition of aircraft or aircraft engines by any lessee. c) The concessionary tax rate on income derived from leasing of aircraft or aircraft engines and qualifying ancillary activities will be streamlined from 5% and 10% to a single rate of 8%. The enhancement for (b) will apply to income derived on or after 21 February 2017 for all incentive recipients. The refinement in (c) will apply to new or renewal incentive awards approved on or after 1 April In addition, the automatic WHT exemption regime will be extended to qualifying payments made on qualifying loans entered into on or before 31 December The EDB will release further details of the change by May Singapore Budget 2017 Synopsis 15

18 Business tax Points of view The extension of the ALS is welcomed, especially in view of the competition from other jurisdictions to attract aircraft lessors (e.g., Ireland and Hong Kong). The enhancement for (b) simplifies the administrative burden of approved aircraft lessors in that they no longer need to segregate income from the provision of finance in the acquisition of any aircraft or aircraft engine to non-airline companies to bring it to tax at the prevailing corporate tax rate. Currently, many approved aircraft lessors do not have to pay any current taxes as the amount of capital allowances that they can claim on the cost of acquisition of their aircraft is more than the aircraft leasing income. The streamlining of the concessionary tax rate from 5% and 10% to a single rate of 8% is therefore unlikely to have an adverse impact on the current tax liabilities of approved aircraft lessors. The ALS is subject to the approved aircraft leasing companies meeting certain conditions. Currently, approved aircraft lessors that are granted the concessionary tax rate of 5% are subject to more extensive conditions than those that are granted the concessionary tax rate of 10%. It remains to be seen whether the conditions to be met to qualify for the concessionary tax rate of 8% will be moderated downwards from the set of more extensive conditions. The 8.25% tax rate will be applied on deemed taxable amount of rentals calculated at 20% of net rentals (i.e., gross rentals less deductible expenses, but excluding depreciation), thus resulting in an effective tax rate of 1.65% (i.e., 20% x 8.25%). The Hong Kong dedicated tax regime, unlike the ALS, does not cover onshore leasing and aircraft engine leasing. In addition, an approved aircraft lessors under the ALS is not likely to pay any current taxes as a result of claiming capital allowances on the cost of the aircraft acquired. The scope for aircraft lessors to not pay any current taxes in Hong Kong is, however, limited. However, unlike Singapore, the effective deemed deduction feature of the proposed dedicated tax regime in Hong Kong (in lieu of tax depreciation on the aircraft) will not result in a recapture of tax depreciation upon the disposal of the aircraft and may as such accord more certainty to aircraft lessors. To accord similar level of certainty and make the ALS more attractive, we hope the government can consider to refine the scheme further such that any recapture of tax depreciation (i.e., balancing charge) claimed under the incentive will be subject to tax at the concessionary tax rate even if the recapture occurs after the tax incentive period expires. In January this year, Hong Kong announced a proposed dedicated tax regime to attract companies to domicile their aircraft leasing business in Hong Kong. Under this proposed dedicated tax regime: Qualifying aircraft lessors and qualifying aircraft leasing managers will be taxed at 8.25% (i.e., 50% of the current Hong Kong profits tax rate of 16.5%) on their qualifying profits derived from leasing of aircraft to non- Hong Kong aircraft operators. 16 Singapore Budget 2017 Synopsis

19 Business tax Extending the withholding tax exemption on payments for international telecommunications submarine cable capacity under an Indefeasible Rights of Use agreement Current The withholding tax (WHT) exemption on payments for international telecommunications submarine cable capacity under an Indefeasible Rights of Use (IRU) agreement was introduced to encourage telecommunications operators to provide international connectivity. The scheme is scheduled to lapse after 27 February Proposed In line with the government s thrust to grow the digital economy and continue to build Singapore into a key hub for data flow, the WHT exemption on payments for international telecommunications submarine cable capacity under an IRU agreement will be extended until 31 December Points of view The above WHT exemption was first introduced in 2003 and has been extended every five years since then. The extension of the WHT exemption is in line with the government s initiative to keep Singapore competitive in the digital and telecommunications sector. It is a welcomed move on the part of the government to announce the proposed extension well in advance of the review date of 27 February It assures businesses of the continued government support for the sector. Writing down allowance (WDA) is currently available under section 19D of the ITA on the capital expenditure incurred on the acquisition of an IRU of any international telecommunications submarine cable system. The WDA is scheduled to lapse by 31 December Although the WDA under section 19D and the WHT exemption were both introduced at the same time in Budget 2003, they are not scheduled for review or renewal at the same time. The current WHT exemption applies to a contract for IRU, which takes effect or is renewed on or before 27 February Similarly, we expect the proposed extension to also apply to IRU contracts that take effect or are renewed at any time on or before 31 December Singapore Budget 2017 Synopsis 17

20 Business tax Refining the Finance and Treasury Centre Scheme Current The Finance and Treasury Centre (FTC) Scheme grants concessionary tax rate of eight percent on qualifying income derived by an approved FTC from carrying out qualifying activities on its own account or providing qualifying services to approved offices or associated companies (hereinafter referred to as approved network companies ). To qualify for the concessionary tax rate, the FTC must obtain funds from qualifying sources such as financial institutions in Singapore, banks outside Singapore and approved network companies. Withholding tax exemption under section 13(4) of the ITA is also granted, subject to conditions, on prescribed payments made by the approved FTC to qualifying non-residents (including approved network companies of the FTC). Proposed The qualifying counterparties for certain transactions of approved FTCs will be streamlined. This will help to ease the compliance burden of approved FTCs. The change will apply to new or renewal incentive awards approved on or after 21 February The EDB will release further details of the change by May Points of view There are no details provided on the extent of the streamlining of the qualifying counterparties for certain transactions of approved FTCs. Currently, to qualify for the concessionary tax rate and the withholding tax exemption, approved FTCs are required to carry out qualifying activities or qualifying services using funds obtained from qualifying sources. Tracking the sources of funds and the usage of the funds is a significant administrative challenge. Qualifying sources are funds obtained by an approved FTC from: Financial institutions in Singapore. Its paid-up capital. Its accumulated profits derived from qualifying activities and qualifying services. Approved network companies of the approved FTC, provided the funds are obtained by them from qualifying sources. The issuance of any bond, note, debenture or other debt security, which is not beneficially held or funded, directly or indirectly, at any time during the life of the issue by any office or associated company of the approved FTC, which is not an approved network company. Banks outside Singapore. Non-bank financial institutions outside Singapore, which are not its offices or associated companies. 18 Singapore Budget 2017 Synopsis

21 Business tax Where the funds are obtained by the approved FTC indirectly from an approved network company, all of the following conditions must be fulfilled: All parties involved in the arrangement must be approved network companies of the approved FTC. The approved network company must have bona fide operations. The approved network company must not be a company incorporated or branch registered in Singapore. It is noted that the changes will only apply to new or renewal incentive awards approved on or after 21 February Hence, the proposed streamlining of counterparties will not benefit the existing approved FTCs. Given that the proposed streamlining of counterparties is to ease the administrative burden of approved FTCs, it will be good for the refinement to also apply to new transactions entered into by existing approved FTCs on or after 21 February There is a bona fide commercial reason to flow the funds through multiple approved network companies. In addition, the approved FTC must be able to track the funds through all the intermediate approved network companies to the ultimate qualifying source of the funds and is expected to maintain proper documentation to substantiate to the Comptroller that the funds obtained directly or indirectly from the approved network companies originate from qualifying sources. In the absence of such documentation, the Comptroller reserves the right to tax the income arising at the prevailing corporate tax rate. This poses a significant administrative challenge to ensure that the sources of funds obtained by an approved FTC are qualifying, particularly where funds are fungible and may be comingled in terms of its usage in scenarios where an approved FTC has transactions with both approved network companies and non-approved network companies. In the event the approved FTC obtained funds indirectly from approved network companies, which could flow through multiple chains of entities, this administrative challenge is further exacerbated. It is hoped that the streamlining of qualifying counterparties will remove the need for tracing of funds to its ultimate qualifying sources and hence ease the compliance burden of the approved FTC. Singapore Budget 2017 Synopsis 19

22 Business tax Extending the tax incentives schemes for project and infrastructure finance Current The package of tax incentive schemes for project and infrastructure finance includes: a) Exemption of qualifying income from qualifying project debt securities (QPDS). b) Exemption of qualifying income from qualifying infrastructure projects or assets received by approved entities listed on the Singapore Exchange (SGX). c) Concessionary tax rate of 10% on qualifying income derived by an approved infrastructure trustee manager or fund management company from managing qualifying SGX-listed business trusts or infrastructure funds in relation to qualifying infrastructure projects or assets. d) Remission of stamp duty payable on the instrument of transfer relating to qualifying infrastructure projects or assets to qualifying entities listed, or to be listed, on the SGX. The scheme is scheduled to lapse after 31 March Proposed With the exception of the stamp duty remission, the existing package of tax incentive schemes for project and infrastructure finance will be extended until 31 December The stamp duty remission will be allowed to lapse after 31 March Points of view Infrastructure development in the emerging markets remains a key focus area for governments in Asia. With economic uncertainties and global economic slowdown, governments need to ensure that sustained growth in infrastructure continues in the next 10 to 15 years. Therefore, relying solely on bank lending and government funding for infrastructure projects may not be sufficient. Singapore, as a regional financial centre, is well placed to position itself in the capital markets to facilitate and promote alternative sources of funding. The extension of the tax exemption on qualifying income from QPDS is expected to further promote the attractiveness of non-bank infrastructure financing for investors seeking alternatives for long-term investments in infrastructure-related projects in Asia. This is the second time that the tax incentive schemes for project and infrastructure finance have been extended, signalling Singapore s intention to continue its growth and momentum as a hub for holding, developing and financing infrastructure projects or assets in Asian emerging markets. With the discontinuance of the stamp duty remission for real estate investment trusts in 2015, the stamp duty remission for transfers relating to qualifying infrastructure projects or assets has similarly been allowed to lapse. All other conditions of the schemes remain the same. The MAS will release further details of the extension by May Singapore Budget 2017 Synopsis

23 Business tax Extending and refining the Integrated Investment Allowance Scheme Current The Integrated Investment Allowance (IIA) Scheme was introduced to keep pace with the evolving business environment. The scheme grants a qualifying company an additional allowance in respect of the fixed capital expenditure incurred on qualifying productive equipment placed with an overseas company for an approved project. For the purpose of the scheme, one of the qualifying requirements is that the qualifying productive equipment has to be used by the overseas company solely to manufacture products for the qualifying company under the approved project. The EDB administers the scheme. The IIA Scheme is scheduled to lapse after 28 February Proposed The IIA Scheme will be extended until 31 December Also, the qualifying productive equipment may be used by the overseas company primarily to manufacture products for the qualifying company under an approved project. Points of view The IIA Scheme was first introduced in The extension of the scheme signifies the government s continued support for local companies to globalise and venture overseas. The liberalisation of the IIA Scheme to extend to qualifying productive equipment used primarily for the approved project is a pro-business move. The proposed enhancement raises the following practical questions: What is the definition of the term primarily? Will the EDB require the taxpayer to identify and track usage of the productive equipment for the approved project over the useful life of the equipment? If the productive equipment is not used solely to manufacture products under an approved project, will this affect the quantum of investment allowance granted by the EDB? The above liberalisation in the qualifying requirement will apply to expenditure incurred on a qualifying productive equipment for a project approved on or after 21 February Singapore Budget 2017 Synopsis 21

24 Business tax Extending the withholding tax exemption on payments made to non-resident non-individuals for structured products offered by financial institutions Current Currently, withholding tax (WHT) exemption is allowed on payments made to non-resident non-individuals for structured products offered by financial institutions for contracts that take effect, are renewed or extended during the qualifying period from 1 January 2007 to 31 March 2017, subject to conditions. Proposed The above WHT exemption is extended by four years instead of the typical five years. It is likely that the expiry date on 31 March 2021 is to coincide with that of the WHT exemption on payments falling under section 12(6) of the ITA made to non-residents by banks, finance companies and certain approved entities. This is in line with the government s intention to simplify and consolidate the WHT exemption regime for financial institutions. To continue promoting Singapore as a financial hub, the qualifying period for the WHT exemption on payments made to non-resident non-individuals for structured products will be extended until 31 March All other conditions of the scheme remain the same. Points of view This extension is in line with the government s continual effort to encourage further growth in the derivatives market and to strengthen Singapore s position as a leading financial centre in Asia. The extension of the WHT exemption will reduce the administrative burden and compliance costs incurred by financial institutions in connection with the Singapore WHT requirements. 22 Singapore Budget 2017 Synopsis

25 Business tax Withdrawing the tax deduction for computer donation scheme Current A 250% tax deduction is granted on donation of computers (including computer software and peripherals) by any company to an Institution of Public Character (IPC), or prescribed educational, research or other institution in Singapore. Proposed As the objective of the scheme has been achieved, the scheme will be withdrawn after 20 February Points of view This concession was introduced in 1989 to allow companies to enjoy a tax deduction for donating computer equipment and peripherals to prescribed educational and research institutions to help upgrade the quality of training in information technology in Singapore. The concession took effect from the YA In 2005, this was extended to include donations made to an IPC. As the population becomes more tech savvy and computer equipment and software are commonly used by IPCs, and educational and research institutions, the objective of the scheme to upgrade the information technology knowledge in Singapore appears to have been met. To keep up with the rapid rate of change in technological advancements, any organisation, including educational and research institution and IPCs, will find that computer equipment becomes obsolete very quickly. In addition, the cost of a computer is generally more affordable and more easily available to educational, research institutions and IPCs. Such institutions will find that donated equipment may not fully serve their purposes and it is essential for them to determine what equipment and software will meet their needs to stay relevant, current and connected. It is therefore timely for the concession to be withdrawn now. Singapore Budget 2017 Synopsis 23

26 Business tax Withdrawing the Accelerated Depreciation Allowance for Energy Efficient Equipment and Technology Scheme Current Capital expenditure incurred for certified energy-efficient and energy-saving equipment may qualify for an accelerated writing down period of one year under section 19A(6) of the ITA. Proposed Over the years, new incentives, such as the Investment Allowance Energy Efficiency Scheme and the Productivity Grant were introduced to promote energy efficiency. To streamline incentives that promote energy efficiency, the Accelerated Depreciation Allowance for Energy Efficient Equipment and Technology (ADA-EEET) Scheme introduced in 1996 will be withdrawn after 31 December No ADA-EEET will be granted for equipment installed on or after 1 January To-date, an array of programs and incentive schemes aimed to promote and facilitate energy efficiency in Singapore has been introduced in line with the Sustainable Singapore Blueprint. These include cash grants, co-fundings and investment allowances, which offer additional tax savings to qualifying taxpayers. The ADA-EEET, on the other hand, only offers a cash flow advantage for qualifying taxpayers by allowing them to claim accelerated depreciation for approved equipment over one year instead of three years. The proposed withdrawal of the ADA-EEET is therefore not anticipated to have a significant impact on businesses. Points of view Inefficient equipment generally consumes more energy, resulting in higher operating costs being incurred and causing harm to the environment due to emission of pollutants. Administered by the National Environment Agency, the ADA-EEET was one of the first few initiatives introduced by the government to promote energy efficiency by encouraging companies to replace old, energy-consuming equipment with more energy-efficient ones and to invest in energy-saving equipment. 24 Singapore Budget 2017 Synopsis

27 Business tax Allowing the accelerated writing-down allowances for acquisition of intellectual property rights for media and digital entertainment content scheme to lapse Current An approved media and digital entertainment (MDE) company or partnership is allowed to claim writing-down allowances (WDA) over a period of two years for capital expenditure incurred in respect of intellectual property rights (IPR) pertaining to films, television programmes, digital animation or games, or other MDE content acquired for use in its business. The accelerated WDA for the MDE content scheme is scheduled to lapse in respect of IPRs acquired for MDE content after the last day of the basis period for YA Proposed As the scheme is assessed to be no longer relevant and to simplify our tax regime, the accelerated WDA for the MDE content scheme will be allowed to lapse, in respect of IPRs acquired for MDE content after the last day of the basis period for YA MDE companies or partnerships may elect to claim WDA over a writing-down period of 5, 10 or 15 years on the capital expenditure incurred to acquire the qualifying IPRs 1 under section 19B of the ITA. Points of view The accelerated WDA for the MDE content scheme was introduced in Budget 2009 to allow approved MDE companies to accelerate the writing-down period for MDE content. The withdrawal of the accelerated WDA for the MDE content scheme may have an impact on the cash tax payable for MDE companies as WDA for their IPRs will now be claimed over a longer period of time (5, 10 or 15 years) instead of over a period of two years. In view of the above, MDE companies intending to acquire IPRs should plan to make the acquisition for MDE content on or before the last day of the basis period for YA 2018 to qualify for the above accelerated two-year claim period before the scheme lapses. On the other hand, a longer writing-down period for IPR may allow MDE companies with foreign tax credit to maximise the benefit of the foreign tax credit claim, which could otherwise be limited if a shorter writing-down period results in little or no Singapore tax payable. The option of a longer writing-down period will also minimise the risk of forfeiture of unabsorbed WDA if there is a substantial change in the shareholders of the company. Since PIC could not be claimed on IPRs of approved MDEs, which is claimed over two years, MDEs may already have opted for WDA over the 5, 10 or 15 years instead of the accelerated two-year claim period. 1 The qualifying IPRs under section 19B of the ITA are patents, trademarks, registered designs, copyrights, geographical indications, lay-out designs of integrated circuits, trade secret or information that has commercial value, and plant varieties, but exclude IPRs specified under section 19B(11A) of the ITA. Singapore Budget 2017 Synopsis 25

28 Business tax Allowing the International Arbitration Tax Incentive to lapse Current The International Arbitration Tax Incentive (IArb) was introduced to encourage the provision of international arbitration services and attract overseas law practices to set up international arbitration services in Singapore. The incentive grants approved law practices 50% tax exemption on qualifying incremental income derived from the provision of legal services in connection with international arbitration. Law practice means a Singapore law practice, foreign law practice, Formal Law Alliance or Joint Law Venture. The maximum tax relief period is five years. The IArb is scheduled to lapse after 30 June Proposed Over the past decade, Singapore has grown as an international arbitration hub. As part of the government s regular review of tax incentives, the IArb will be allowed to lapse after 30 June The government will continue to develop and strengthen our arbitration landscape by: Strengthening our legislative framework. Expanding Maxwell Chambers, our integrated dispute resolution complex. Supporting local dispute resolution institutions and top international institutions seeking to base in Singapore or use Singapore as a venue for arbitration activities. Points of view The IArb was introduced to boost international arbitration held in Singapore. Since the IArb was introduced in 2007, Singapore has developed as an international arbitration hub and experienced remarkable growth in the number of international arbitration cases heard in Singapore. In 2015, as noted by the Ministry of Law, Singapore was ranked as the number one seat of International Chamber of Commerce Arbitration in Asia and fourth most preferred seat of arbitration in the world. International law firms have also taken note of these developments and found Singapore an attractive location to build their bases. As the IArb has served its purpose to grow the international arbitration services in Singapore, it is allowed to lapse. There are other measures that can be taken in place to further strengthen Singapore s arbitration landscape. For international law practices that are keen to do more international legal services work from Singapore and to set up offices in Singapore, there is still an applicable tax incentive scheme under the Development and Expansion Incentive (DEI). The DEI for International Legal Services (DEI-Legal) scheme provides for a 10% concessionary tax rate on incremental income derived from the provision of international legal services for five years. International legal services means any qualifying activity comprising legal services that qualify for zero-rating under section 21(3) of the GST Act. This scheme was introduced in 2010 and has been extended until 31 March 2020 in Budget Singapore Budget 2017 Synopsis

29 If we buy abroad but 3D print at home, will there be indirect tax to pay? Find out how EY tax professionals can help buyers, vendors and governments navigate complexity. ey.com/tax #BetterQuestions 2017 EYGM Limited. All Rights Reserved. ED None.

30 Personal income tax Personal income tax 28 Singapore Budget 2017 Synopsis

31 Personal income tax Personal income tax rebate and tax rate Current The income tax rates for Singapore tax resident individuals with effect from YA 2017 range from zero percent for the first S$20,000 of chargeable income to 22% for chargeable income exceeding S$320,000. There was no income tax rebate accorded for YA Proposed The government has announced that a personal income tax rebate of 20% of tax payable, capped at S$500 per taxpayer, will be granted to all tax resident individual taxpayers for YA There are no further changes to the income tax rates. In challenging times, it is reassuring that the government has not made immediate changes to raise income tax and GST. At the same time, the stage is set for impending changes over the next few years, which are required to fund the various initiatives for Singapore s next phase of growth. Points of view The income tax rebate announced in the Budget 2017 will benefit tax resident individual taxpayers who earn an annual income of more than S$42,500. Tax resident individual taxpayers who earn an annual income of at least S$97,760 2 will enjoy the maximum rebate of S$500. Personal income rebates have been given in the past and have ranged from S$1,000 to S$2,000. The last rebate was given in YA 2015, which was 50% of tax payable, capped at S$1,000. The rebate of S$500 is the lowest such rebate given in recent years. The new personal income tax rate structure announced in Budget 2015 will apply with effect from this YA for all tax resident individual taxpayers. As such, there was no expectation of any change to these tax rates. In the past, tax rebates were given as a temporary measure to ease tax burdens rather than changing the tax rate structure. Although a tax rebate is not expected to be given with a new tax rate table, the announcement of a tax rebate is welcomed with the continuing challenges of a slowing economy and job security concerns as this will ease the tax burden of all tax resident individual taxpayers, especially those impacted by the increased tax rates under the new personal income tax rate structure. Despite the introduction of higher tax rates for those earning more than S$160,000 under the new personal income tax rate structure, the Singapore tax regime remains one of the most competitive in the region, with its closest competitor being Hong Kong. Please refer to Chart 1. Currently, an individual earning income between S$119,000 and S$314,000 pays lower tax in Singapore, although very highly paid individuals may now pay significantly more tax in Singapore compared to Hong Kong. 2 Active national service reservist man married to a non-working spouse with two dependent children Singapore Budget 2017 Synopsis 29

32 Personal income tax Chart 1: Comparative analysis (2016/2017 Hong Kong versus Singapore YA 2017 tax rate with tax rebate) Effective tax rate (%) (314, 11.85%) 4 (119, 3.45%) Income level (S$ '000) Singapore Hong Kong Notes: Assumes a Singaporean married man with two children, wife has no income and sole source of income is from his employment. Hong Kong calculations for 2016/2017 increase married allowance from HK$240K to HK$264K. This publication went to press before the Hong Kong Budget on 22 February Singapore calculations for YA 2017 include 20% tax rebate capped at S$500. Exchange rate used : S$1 : HK$ Singapore Budget 2017 Synopsis

33 Personal income tax Personal income tax rates in selected countries in the region Country Australia 45 China 45 Taiwan 45 Japan 45* Korea 38 Thailand 35 Vietnam 35 Philippines 32 India 30 Indonesia 30 Malaysia 28 Myanmar 25 Singapore 22 Hong Kong % Note: The above rates are the top marginal personal income tax rates prevailing as at December 2016 *Excludes local inhabitant tax Singapore Budget 2017 Synopsis 31

34 Goods and services tax Goods and services tax 32 Singapore Budget 2017 Synopsis

35 Goods and services tax Imposing GST on the digital economy Current The Minister has mentioned in his Budget speech that with increasing digital transactions and crossborder trade, some countries have taken steps to adjust their GST system, to ensure a level playing field between their local businesses, which are GST-registered, and foreign-based ones, which are not. We are studying how we can do likewise. It is timely to take stock of the GST/VAT 3 developments around the world and consider whether it is time for Singapore to impose GST on the digital economy. On 5 October 2015, the OECD released its final recommendations on the Base Erosion and Profit Shifting (BEPS) Project. Among the actions recommended, Action 1 specifically addresses the tax challenges of the digital economy. It is recognised that the evolution of technology has dramatically increased the ability of private consumers to shop online and the ability of businesses to sell to consumers around the world without the need to be present physically or otherwise in the consumer s country. This has an adverse impact on a country s GST/VAT revenue collection and puts GST-registered resident suppliers at a disadvantage. Recommendations were put forth in the final report for Action 1 to address these GST/VAT challenges. What are the issues in Singapore context? Singapore has generally adopted a pragmatic and pro-business approach in the design of its GST system. This approach helps to reduce the GST compliance costs of taxpayers and are welcomed by taxpayers. However, this approach has also resulted in tax leakages brought forth by the digital economy. More specifically, Singapore currently does not levy GST on the following online transactions: Supplies of services (e.g., downloadable software, e-book, music) by overseas online suppliers to Singapore businesses or consumers. These services are considered as made outside Singapore and do not fall within the scope of the Singapore GST regime. Furthermore, there is no requirement for businesses in Singapore to selfaccount for GST on the acquisition of services from overseas suppliers as the reverse charge mechanism is currently not operative in Singapore. Sales of low value goods (e.g., sale of fashion items through online stores) by overseas suppliers to Singapore consumers where such goods are imported by post or by air into Singapore and the import value falls below the GST import exemption threshold of S$400. In deciding whether or not to impose GST on the digital economy, the government will have to evaluate the amount of tax revenue to be collected, the need to level the playing field between Singapore suppliers and overseas online suppliers and the ease of implementing and administering any new GST rules. 3 GST is known in some countries as VAT Singapore Budget 2017 Synopsis 33

36 Goods and services tax What are the actions taken by other countries? Most developed economies operate a reverse charge mechanism. Reverse charge is a GST collection mechanism whereby domestic businesses (usually applies only to GST registered businesses) step into the shoes of the overseas service providers and account for GST on the supplies of services from the overseas service providers. At the same time, the domestic businesses would be allowed to claim the GST incurred as their input tax credits. If the domestic business is entitled to claim the input tax credit in full, the tax authorities will effectively collect zero GST revenue from the transaction as the self-imposition of the GST would essentially be offset by the same amount of input tax credits. Actions taken by other countries to address the supply of services by overseas online suppliers to local consumers were only implemented in recent years. On 1 July 2011, Norway implemented new rules to tax the digital economy. Under the new rules, overseas suppliers who sell digital goods and services to consumers in Norway are required to register for VAT in Norway and charge VAT on their online sales to Norwegian consumers. The VAT collected is then remitted to the Norwegian authorities through the filing of a simplified VAT return. The VAT registration process for the overseas online suppliers have been simplified to encourage compliance. Similar actions have been taken by the European Union, South Korea, Japan and New Zealand on 1 January 2015, 1 July 2015, 1 October 2015 and 1 October 2016, respectively, which require overseas online suppliers to register for VAT/GST in these countries and remit the VAT/GST collected on their online sales to domestic consumers. To encourage compliance by the overseas online suppliers, simplified compliance rules such as simplified online VAT/GST registration, simplified online VAT/GST returns with no input tax credit and online payment arrangements were introduced. The European Union has gone a step further to implement a Mini One Stop Shop, which allows an online supplier to register for VAT only in one member country and remit the VAT collected from the consumers in all the European Union member countries to the designated member country where the online supplier is VAT-registered. This approach relieves online suppliers from the need to apply for VAT registration and file VAT returns in multiple European Union member countries. Australia has similarly announced plans to require overseas online suppliers or electronic platform operators who supply digital goods and services to its domestic consumers to register for GST with effect from 1 July Recommendation was also made under the OECD BEPS Project Action 1 to reduce or remove the VAT/GST import exemption for low value goods so that consumers will need to pay import GST when they receive goods purchased from overseas online suppliers. Currently, many countries have a low VAT/GST import exemption threshold of less than US$30. Countries such as Australia, New Zealand and Singapore have a relatively high GST import exemption threshold of approximately S$1,080, S$412 and S$400 respectively. Australia intends to introduce new GST rules that require overseas suppliers, electronic platform operators or goods forwarders to register and account for GST on the supply of low value goods to its domestic consumers where the goods are imported into Australia. New Zealand is also studying the option of reducing its GST import relief threshold. Should Singapore follow the footsteps of the other countries? In deciding whether or not to tax the digital economy, we believe the following are some key considerations: The amount of tax revenue to be collected. The ease of implementing and administering the new rules. The need to level the playing field between Singapore suppliers and overseas online suppliers. 34 Singapore Budget 2017 Synopsis

37 Goods and services tax Amount of tax revenue to be collected As most GST-registered businesses in Singapore are able to recover the full amount of GST incurred on their expenses, it is unlikely that the implementation of a reverse charge on online business transactions will yield a significant amount of tax revenue. Whilst the IRAS may consider the implementation of reverse charge on a broader context, it is unlikely to do so solely to tax the digital economy. It was reported that Australia and New Zealand expect to collect an average of approximately AUD$175m and NZ$40m per year respectively from the implementation of new rules to tax digital products and services during the initial years. As the Singapore population is significantly smaller than the population in Australia, it is unlikely that Singapore will be able to collect as much additional GST revenue as Australia if we were to introduce new GST rules to tax the digital economy given our GST revenue base of approximately S$10b a year. The collection of additional tax revenue from the digital economy may not be a compelling reason for introducing new rules to tax the digital economy. Ease of implementation Every change in the GST rules will require efforts from the tax authorities and the business community. Comparing the various options to tax the digital economy, reducing the GST import exemption threshold of S$400 appears to involve the least changes as it does not require the introduction of new GST legislation and the system for collecting import GST is already in place. Whilst the legislative framework for implementing reverse charge is currently in place, the implementation of reverse charge will inevitably require additional compliance efforts on the part of businesses to change their systems and processes to address this new requirement. Lastly, the option of introducing simplified GST registration for overseas suppliers of digital goods and services is likely to be the most difficult measure among the options. This measure will require the introduction of new legislation, changes to the systems and processes of the IRAS and additional compliance efforts on the part of the overseas online suppliers. Leveling the playing field between Singapore suppliers and overseas online suppliers Another motivation for taxing the digital economy is to ensure level playing field between Singapore suppliers and overseas online suppliers. The current GST rules in Singapore are not entirely tax neutral as it gives a price competitive edge to overseas online suppliers vis-a-vis our domestic GST-registered suppliers. For instance, a domestic GST-registered supplier will be required to charge 7% GST on the sale of movie-on-demand services to Singapore consumers. On the other hand, an overseas online service provider is able to provide the same services to Singapore consumers free of Singapore GST as the overseas online service provider is not required to register for GST in Singapore. Based on the Budget speech given by the Minister, it would appear that this is one of the key considerations of the government in its decision to tax the digital economy. Conclusion As more countries take steps to tax the digital economy, it may become inevitable for Singapore to do so. The option of introducing simplified GST registration for overseas suppliers of digital goods and services will require the introduction of new legislation, changes to the processes of the IRAS and compliance efforts on the part of the overseas online suppliers. Consultations with key stakeholders should be made to study the impact and effectiveness of the new measures before these measures are introduced. On the other hand, as there is an existing framework for collecting GST on the importation of goods, reducing or removing the current GST import exemption threshold may be the starting point in moving towards the taxation of the digital economy. Singapore Budget 2017 Synopsis 35

38 Goods and services tax Prevailing standard GST/VAT rates in selected countries as at 1 January 2017 Asia-Pacific Country China 17 New Zealand 15 Philippines 12 Australia Indonesia Korea Vietnam Japan 8 Singapore Thailand 7 7 (a) Malaysia 6 Taiwan % Europe Country Denmark Sweden Italy 22 Netherlands 21 UK France Germany 19 Switzerland % Note: (a) Until 30 September 2017, pending an extension of the period by the Thai government 36 Singapore Budget 2017 Synopsis

39 Goods and services tax Withdrawing the GST Tourist Refund Scheme for tourists departing by international cruise Current Under the GST Tourist Refund Scheme (TRS), departing tourists may claim GST refunds on their goods purchased in Singapore from participating retailers, subject to the tourists eligibility and conditions of the GST TRS. Since 21 January 2013, the GST TRS is also available to tourists who are departing from Singapore by international cruise (excluding cruise-to-nowhere, round-trip cruise and regional ferry) from the Marina Bay Cruise Centre Singapore and the International Passenger Terminal at Habourfront Centre (cruise terminals). Points of view The extension of the GST TRS in 2013 (announced in Budget 2012) to tourists departing by international cruise from the cruise terminals was intended to capitalise on the growth of international cruise tourism. Nevertheless, the proposed withdrawal of the GST TRS for tourists departing by international cruise from the cruise terminals should not have a major impact on our international cruise tourism given the low transaction volume at the cruise terminals for GST refunds. Proposed Due to the very low transaction volume at the cruise terminals for tourist refunds, the GST TRS will be withdrawn for tourists who are departing by international cruise from the cruise terminals and whose purchases are made on or after 1 July Tourists who are departing by international cruise from the cruise terminals will have until 31 August 2017 to claim refunds on purchases made before 1 July Thereafter, the e-trs facilities at the cruise terminals will be removed. Singapore Budget 2017 Synopsis 37

40 Miscellaneous Miscellaneous 38 Singapore Budget 2017 Synopsis

41 Miscellaneous Strengthening enterprises capabilities through scaling up globally International Partnership Fund To support Singapore-based firms to scale up and internationalise, the government will set aside up to S$600m for the International Partnership Fund (IPF). The fund will co-invest alongside Singaporebased firms in opportunities for scale-up and internationalisation, with a focus on Asian markets. Such a joint investment will allow Singapore-based firms to partner other promising Asian companies to extend product lines, brands or value chains or gain access to markets, channels and technologies. Qualifying firms should be headquartered in Singapore with annual revenues of no higher than S$800m. The IPF will be managed by Heliconia Capital Management Pte. Ltd. (Heliconia) Points of view This is a welcome announcement and reflects a firm commitment by the government to catalyse the expansion of Singapore-based companies footprint beyond Singapore. The CFE recommended that more smart and patient growth capital is needed for Singapore-based enterprises to scale up. The government-funded IPF provides one important source of such capital and enhances the financing ecosystem. The attractiveness of this scheme is enhanced by the ideas and expertise that would be brought to the table by the professional fund managers at Heliconia, a wholly owned subsidiary of Temasek Holdings. A departure from past schemes, the IPF is flexible in partnering with fairly large Singaporebased firms, not just SMEs, hence casting a wider net to help such firms compete in the global arena. Together with the enhancements to the Internationalisation Finance Scheme, the IPF will further bridge gaps in the financial markets for Singapore-based companies to make strategic quality overseas investments. This announcement is consistent with the report recently released by the Committee on the Future Economy (CFE), which identifies seven strategies to chart Singapore s next phase of growth. The measures to deepen our partnerships internationally and enhance capabilities and international exposure will be widely appreciated. Given the diverse region Singapore is in and the growth opportunities ASEAN presents, fostering a close and deep understanding of the region is imperative. Singapore Budget 2017 Synopsis 39

42 Miscellaneous Digitalisation and innovation To keep Singapore relevant even as the world changes, ideas put forth by the Committee on the Future Economy (CFE) included broad strategies to deepen digital capabilities and build strong capabilities in innovation. Enterprises are at the heart of vibrant economies. For our enterprises to stay competitive and grow, there are capabilities that many firms will need in common being able to use digital technology and embracing innovation. Digitalisation Digital technology has unique potential to transform businesses, large and small, across the economy. The first way to strengthen our enterprises, especially SMEs, is to help them adopt digital solutions. SMEs Go Digital Programme The SMEs Go Digital Programme will be introduced to help SMEs build digital capabilities. The Info-communications Media Development Authority (IMDA) will work with SPRING and other sector lead agencies in this effort. The SMEs Go Digital Programme encompasses three components: In-person help at SME Centres and a new SME Technology Hub to be set up by IMDA: SMEs can approach business advisors at SME Centres for advice on off-the-shelf technology solutions that are pre-approved for funding support or connect with Infocommunications and Technology (ICT) vendors and consultants. The more digitally advanced firms can get specialist advice from the SME Technology Hub. Advice and funding support for SMEs that are ready to pilot emerging ICT solutions: To level up whole sectors, the relevant agency will work with consortiums of large and small firms to help them adopt impactful, interoperable ICT solutions. Capabilities in data and cyber security will also be strengthened. With increased digitalisation, data will become an important asset for firms, and strong cyber security is needed for our networks to function smoothly. The Cyber Security Agency of Singapore will work with professional bodies to train cyber security professionals. Sectoral Industry Digital Plans on technologies to use at each stage of growth: The step-by-step advice will start with sectors where digital technology can significantly improve productivity. The sectors include retail, food services, wholesale trade, logistics, cleaning and security. 40 Singapore Budget 2017 Synopsis

43 Miscellaneous Innovation The second way to strengthen our enterprises is to support firms in their broader efforts to tap on innovation and technology. With our consistent investment in R&D, we have built up excellent research institutes. The government wants to help companies better tap on these resources. To support this, the Agency for Science, Technology and Research (A*STAR) will embark on the following efforts: Operation and Technology Road-mapping Initiative A*STAR will scale up this initiative to help local firms develop strategic technology roadmaps that are aligned to their business goals and strategies. It will build up capacity to support 400 companies over the next four years, by partnering Trade Associations and Chambers such as the Singapore Manufacturing Federation and Singapore Precision Engineering and Technology Association. Headstart Programme Under this programme, SMEs that enter into a Research Collaboration Agreement with A*STAR can enjoy royalty-free and exclusive intellectual property (IP) licenses for 18 months in the first instance. With immediate effect, A*STAR will extend this to 36 months. Tech Access Initiative To support companies in the use of advanced machine tools for prototyping and testing, A*STAR will provide access to its installed base of specialised equipment. The available equipment may range from inspection tools to more advanced equipment such as robotised 3D scanners and high pressure cold sprays for additive manufacturing. Firms will be trained to use the equipment. Further details of the scheme, such as the list of Tech Access equipment, will be made available on A*STAR s website by September Points of View SMEs serve as the building blocks of the Singapore economy based on 2016 statistics from the Department of Statistics (Singapore), SMEs make up 99% of the country s enterprises and contribute nearly half of Singapore s GDP. SMEs employ 70% of Singapore s workforce. These enterprises play a significant role in the development of Singapore s future and create good jobs for Singaporeans. It is therefore imperative that SMEs should not be left behind in the government s overall strategy of making Singapore an innovation driven economy. The intention of IMDA in launching the SMEs Go Digital programme is to ultimately equip SMEs across different sectors with digital capabilities. Coupled with the CFE s recommendation of taking a cluster approach as part of the government s Industry Transformation Programme, the proposed Industry Digital Plan starts with selected sectors across various Industry Transformation Maps. The aim is for SMEs to adopt technology not only for productivity, but to also be equipped in areas of digital technology such as data analytics, data protection and cyber security. The SMEs Go Digital Programme is not entirely new. It builds upon the foundation of IMDA s isprint programme that has already benefited more than 8,000 SMEs. Pre-qualified solutions that have been proven beneficial for SMEs will be tailored and consistently used by the SMEs participating in the SMEs Go Digital Programme. The scaling up of A*STAR s Operation and Technology Road-mapping Initiative will enable 400 companies with specific needs to benefit from the scheme over the next four years. Under the current Operation and Technology Roadmapping Initiative already offered by A*STAR, all Singapore registered businesses with at least 30% of the shares owned by Singapore Citizens or Singapore Permanent Residents are eligible for the scheme at a cost of S$10,000. Singapore Budget 2017 Synopsis 41

44 Miscellaneous Businesses will get assistance from A*STAR in the form of facilitated workshops or modules helping them to scale up capabilities in the area of developing resource allocation plans to meet business and market needs that are aligned to business goals. Innovation and capability vouchers may also be applied by SMEs to partially finance the cost of A*STAR s service. Apart from the eligibility criteria of the 400 companies, it is currently not clear at this juncture whether the scheme will be capped to say, 100 companies per year, or if there are other application conditions such as needs testing or by sectorial splits. Initial indication points to the partnering with Trade associations and Chambers such as the Singapore Manufacturing Federation and Singapore Precision Engineering and Technology Association. A*STAR launched the Headstart Programme in March 2014 to encourage more local SMEs to leverage emerging technologies to gain a competitive market advantage. This programme accords local SMEs an 18-month royalty-free period for the exclusive use of IP licenses in their collaboration with A*STAR. Whilst there are no publicly available statistics to show the take-up rate of this programme since inception, the extension of the programme suggests that it is in-line with the government s strategy. The Headstart Programme is sector-agnostic and open to all local SMEs. A local SME is defined based on SPRING s definition, i.e., a company that must have a minimum of 30% local shareholding, and have an annual sales turnover of not more than S$100m or employment size of not more than 200 workers. This definition is largely in line (but not entirely the same) with the current eligibility criteria of A*STAR s Operation and Technology Road-mapping Initiative, which is available to all promising local companies. It will be interesting to understand the costs involved in gaining access to A*STAR s specialised equipment under the Tech Access Initiative, whether such costs are allowable for enhanced deduction claims under the PIC Scheme or whether innovation and capability vouchers may be used to partially offset the costs of using A*STAR s equipment, such as the case with respect to the Operation and Technology Road-mapping Initiative. Bearing in mind that the PIC Scheme expires in YA 2018 and further details of the Tech Access Initiative Scheme will only be made available in September 2017, companies may wish to assess the pros and cons of each scheme once more details are released. The continued emphasis on the importance of innovation to the long-term growth of our economy will be welcomed by companies, especially with the impending expiry of the PIC. The targeted strategies to provide a stronger push for collaborations with research institutes and provide SMEs with access to IP can be a major boost for companies. The key will lie in strong implementation to identify and match such collaborations. 42 Singapore Budget 2017 Synopsis

45 Miscellaneous Deferring foreign worker levy changes In Budget 2016, in view of challenging business conditions and reduction in the number of Work Permit holders in the Marine and Process sectors, the government deferred foreign worker levy increases in the Marine and Process sectors for Work Permit holders. Due to continued weakness, the levy increases announced earlier in these sectors will be deferred by one more year from 1 July 2017 to 30 June The levy rates for Marine sector Basic tier R1 and R2 workers will remain at S$300 and S$400 respectively. The levy rates for Process sector Basic tier R2 workers will remain at S$450. The levy rates for Process sector Man-Year Entitlement waiver tier R2 workers will remain at S$750. For the Construction sector, the levy rates for Basic tier R2 workers will be raised from the current S$650 to S$700 on 1 July 2017, as first announced during Budget These rates will apply from 1 July 2017 to 30 June There will be no change to Work Permit levies in the Manufacturing and Services Sector for There will also be no change to levy rates for S Pass holders. Allowing property tax exemption for Approved Building Project Scheme to lapse Currently, land under development is granted property tax exemption for a period of three years under the Approved Building Project (ABP) Scheme, subject to conditions. Under the scheme, the government grants ABP status to building projects, which possess the potential to create substantial economic spin-offs and benefits for Singapore. The ABP Scheme is scheduled to expire on 31 March As property tax is a tax on property ownership, it should apply when the land is being developed. Hence, the ABP Scheme will be allowed to lapse after 31 March Singapore Budget 2017 Synopsis 43

46 Miscellaneous Additional Special Employment Credit The Special Employment Credit (SEC) was first introduced in Budget 2011 to encourage and support employers to voluntarily employ older Singaporeans by providing wage offsets to them. To encourage employers to voluntarily re-employ Singaporeans aged 65 and above, an Additional Special Employment Credit (ASEC) was announced at Budget The ASEC of three percent provides wage offsets to employers hiring older Singaporean workers aged 65 and above earning up to S$4,000 a month. In Budget 2016, the SEC was modified and extended for three years from 1 January 2017 to 31 December The extended SEC is tiered by employee age to provide greater support for employers hiring Singaporean in the older age bands. It provides employers with wage offsets of up to eight percent for hiring Singaporean workers aged 55 and above earning up to S$4,000 a month. Extension of ASEC From 1 July 2017, the re-employment age will be raised from 65 to 67. The new re-employment age of 67 will apply to those who turn 65 on or after 1 July The ASEC will be extended from 1 July 2017 to 31 December 2019 to encourage employers to continue hiring the two groups of employees who are not covered by the new re-employment age: Those aged 65 and above as of 1 July 2017 but below 67 and not covered by the new re-employment age of 67. Those beyond the new re-employment age of 67. Employers who hire eligible workers with monthly wages of up to S$3,000 per month will receive ASEC of three percent of the employee s monthly wage. A lower ASEC is provided for workers who earn between S$3,000 and S$4,000. There is no SEC and ASEC payout for an employee earning a monthly wage of S$4,000 and above. Taken together with the SEC, employers will receive support of up to 11% for the wages of their eligible older workers. To better support the employment of Persons with Disabilities (PWD), employers who hire PWDs will receive double the combined monthly SEC and ASEC. The combined monthly SEC and ASEC will be capped at S$330 per eligible PWD. The extended ASEC will apply to employees on the payroll from 1 July 2017 to 31 December Together with SEC, it will be paid twice a year, in March and September respectively. Eligibility for ASEC is automatically assessed based on regular monthly CPF contributions that employers make for their employees. The Additional Special Employment Credit provides a win-win situation it hopefully translates into continued employment for the older workers as well as helps companies to retain these workers, benefit from their experience and manage their business costs. 44 Singapore Budget 2017 Synopsis

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48 Final thoughts Each of us know that feeling that sinking feeling that something is amiss. That gut-feel of a missing piece as the puzzle approaches completion. That was how we felt as we sat listening till the end as the Finance Minister delivered his Budget Speech on 20 February The clock ticked on. Could it have been the pre-release of the Report of the Committee on the Future Economy (CFE) stealing the thunder from the Budget proposals? Or could our expectations have been raised as a result of the seven strategies so extensively written that the Budget proposals and the relatively scant details in the Annexures paled in comparison? Regardless, the morning-after scan of local media reports showed mostly disappointment or at best, polite accolades of what was said to be a lacklustre announcement. Be still and ponder. Let s dig deep into the underlying context of the Singapore tax system. The Singapore Budget 2017 introduced carbon tax for the first time. The last time a new source of tax revenue was introduced was in 2010, when casino tax was announced. And before that, GST was introduced in On an overall basis, we would say the tax system is broad-based, and continues to be so, as the Finance Minister alluded to being open to introduce new types of taxes. 46 Singapore Budget 2017 Synopsis

49 We also have a progressive system, which has undergone several tweaks over the past few budgets. The increase in the top personal income tax rate to 22% as well as the capped personal income tax relief came with initial murmurings but have been accepted as the price to pay for an inclusive and progressive society. Fairness is relative and it is hard to pin down what is and what is not. However, with more taxes such as GST imposed on consumption, and property tax for ownership of property, we would say it is somewhat fair. It could of course be further improved with certain daily necessities like cooking oil and rice being GST-exempt, particularly as these comprise a large part of the expenditure of lower-wage households. On the other side of the coin would be to impose higher taxes on luxury goods. But, the scale falls to that of having a system that is simple, straight-forward and not complex. And by now, you can see where this argument is going. A broad-based, progressive and fair tax system exists... The Finance Minister had alluded in the budget speech that to move forward together as a nation, Singapore needs to invest in upping the ante on her innovative capacity. The Global Competitiveness Report issued by the World Economic Forum stated that insufficient capacity to innovate was the second most problematic factor in doing business in Singapore after restrictive labour regulations. The CFE summarises this well: Building up the innovative capacity of Singapore is not just about public spending, policies and regulations, but also the culture and mindsets of our people. This will take time to shift, and perseverance to see through. And so, all stakeholders in this nation of ours would have to work at it together it is a concerted effort requiring partnerships, collaborations and alliances with businesses in this regard. Have we been pampered by the government, expecting to be at the receiving end of good news with each budget speech? Or have we been de-sensitised by recent events like Brexit, the US election, political upheavals and the like, to subconsciously expect bold and ground-breaking overhauls of the tax system? To support Singapore s ambitious plans laid out in the CFE, the tax system needs to be one that is expansionary and pro-growth. The call for companies to internationalise and for Singaporeans to build connections and capabilities overseas would require a complementary tax regime to ensure these companies are not worse off. In tax terms, this means to ensure they are not double-taxed. Should our territorial basis of taxation, which had been coupled with the taxation of foreign income received in Singapore (with certain exceptions), be reviewed? We agree that the Singapore tax rates are competitive and remain one of the lowest in the region. However, our neighbouring countries are fast catching up. They are reducing their tax rates and attracting investments with their lower-cost workforce and relaxed labour policies. More can be done to sharpen Singapore s overall tax competitiveness. We trust that this is on the horizon but not now. It is clear that Singapore s resources are dedicated to upskilling the labour force as well as deepening innovative capabilities. So a competitive and pro-growth tax regime still needs to be worked on And there we have it! That sinking feeling that something is amiss exists. But take heart: Rome was not built in a day. Let s move forward together the Singapore way! Chung-Sim Siew Moon Partner and Head of Tax 20 February 2017 Singapore Budget 2017 Synopsis 47

50 Tax services in Singapore Our tax professionals in Singapore provide you with deep technical knowledge, both globally and locally, combined with practical, commercial and industry experience. We draw on our global insights and perspectives to build proactive, truly integrated direct and indirect tax strategies that help you build sustainable growth, in Singapore and wherever else you are in the world. These include: Statutory accounting and reporting Book-keeping and accounting support Corporate secretarial Tax accounting and provisions Tax compliance filing Business Tax Services Tax Policy and Controversy Services EY s global tax policy network has extensive experience helping develop policy initiatives, both as external advisors to governments and companies and as advisors inside government. Our dedicated tax policy professionals and business modelers can help address your specific business environment and improve the chance of a successful outcome. Our global tax controversy network will help you address your global tax controversy, enforcement and disclosure needs. In addition, support for pre-filing controversy management can help you properly and consistently file returns and prepare relevant backup documentation. Our professionals leverage the network s collective knowledge of how tax authorities operate and increasingly work together to help resolve controversy and pre-filing controversy issues. Tax Performance Advisory Services EY s Tax Performance Advisory network focuses on helping your tax function enhance performance. With dedicated resources in major global markets, proven methodologies and in-depth knowledge of tax technologies, we can help you build strong compliance and reporting foundations, effective risk management protocols and a higher-performing tax organisation. We have experience delivering projects to companies of all sizes, across all aspects of the tax life cycle. Our holistic approach allows us to speak the same language as your tax, finance, information technology and business professionals, which is necessary to drive enhanced tax function performance. Quantitative Services EY s Quantitative Services network offers a scalable set of services to assist clients with analysing tax opportunities, typically related to large data sets, systematically and efficiently. This helps clients identify multi-country tax regulations and the benefits that can be attained. Our services can include assistance with: Accounting methods and inventory advising on the application of tax rules and regulations related to income and expense recognition Research incentives identifying tax incentives associated with a company s qualifying research investments Flow through tax planning and advice related to partnerships, joint ventures and other tax flow-through legal entities Capital assets and incentives our technological capabilities help streamline fixed asset analysis and identify tax deductions These approaches can help clients improve cash flow, plan for cash tax and effective tax rates in upcoming years, and create refund opportunities. Our process improvements can help streamline tax compliance. Private Client Services EY s Private Client Services offers taxrelated domestic and cross-border planning and compliance assistance to business-connected individuals and their associated entities. In addition, in today s global environment, cross-border services can help meet the ever-growing needs of internationally positioned clients. Our dedicated resources in major markets around the world serve individual clients needing a wide range of tax services, including tax compliance, tax planning and tax advice relating to their business interests, investments and other financialrelated assets. We have experience working with individuals and companies of all sizes across many aspects of the tax life cycle planning, provision, compliance and controversy. Business Tax Advisory Services Our Business Tax Advisory practice combines technical skills with practical, commercial and industry knowledge to give you advice tailored to your business needs. Our tax professionals bring you their deep understanding of tax issues. We can help you reduce inefficiencies, mitigate risk and make the most of opportunities, building sustainable tax strategies that can help your business succeed. Global Compliance and Reporting Our Global Compliance and Reporting (GCR) practice can help you meet your reporting requirements wherever you do business. GCR comprises the key elements of a company s finance and tax processes used to prepare statutory financial and tax filings in countries around the world. Business Tax Compliance Services Compliance and reporting make huge demands on tax and finance functions today. So how do you reduce risk and inefficiencies and improve value costeffectively? Our market-leading approach combines a standard global compliance process and tools with extensive local compliance and accounting experience, giving you the access, visibility and control you want. In one country or many, you can benefit from an integrated, consistent, flexible quality service with tax compliance, statutory accounts preparation and tax accounting calculation support. This can enhance your compliance function while improving efficiencies across your financial supply chain. Tax Accounting and Risk Advisory Services To help you meet the challenges of today s complex business environment, including demands for more transparency and greater tax department effectiveness, we provide assistance in three key areas: Tax accounting: under IFRS and local GAAP Tax function performance: improving organisational strategy, processes, and data and systems effectiveness Tax risk: identifying, prioritising, monitoring and remediating risk Our talented people, consistent global methodologies and tools, and unwavering commitment to quality service can help you build strong compliance and reporting foundations, sustainable organisational strategies and effective risk management protocols to help your business succeed. Corporate Services Our Corporate Services team supports your business in the following areas: entity formation and company secretarial matters, the preparation of management and statutory financial statements, monthly book-keeping and payroll outsourcing. We work with all stakeholders to help you meet deadlines and comply with statutory requirements. Company secretarial: We help our clients and their officers comply with the Singapore Companies Act requirements principally and other relevant regulations from a company secretarial perspective. In addition to compliance matters, we are often involved in corporate structuring work such as share capital reduction and share buy-back initiatives. 48 Singapore Budget 2017 Synopsis

51 Accounting: From day-to-day to complex transactions, our accounting professionals assist to facilitate that the transactions are recorded accurately, timely and in accordance with applicable accounting standards. We are also familiar with all aspects of the accounting function like management reporting, debtors/ creditors control and XBRL conversion. Payroll: We provide comprehensive and holistic payroll outsourcing services. We assist to facilitate that your employee payrolls are computed in accordance with the Singapore Employment Act and with the Ministry of Manpower regulations. Financial Services Tax Our Financial Services Tax team is dedicated to providing value to our clients in the financial services industry who are facing a constantly evolving tax landscape. Whether you are in Banking and Capital Markets, Asset Management, or the Insurance sector, we will be able to assist you in issues including managing your direct and indirect tax obligations and tax risks, navigating the complex tax rules across jurisdictions, pursuing tax incentives or concessions, dealing with transfer pricing issues, handling tax authority queries, assessing your tax provisions, and analysing your uncertain tax positions. We can also advise you on the tax implications of new financial products or transactions, and assist in applying for Revenue rulings where applicable. We can advise on the structuring of your new businesses and new funds, or on the review of such structures in an internal reorganisation or in the event of mergers or acquisitions, from the tax perspective. Indirect Tax Services Customs and International Trade In today s global economy, moving goods across borders can be complex and costly. More than ever before, effective management of customs and international trade issues is crucial to maintaining a competitive advantage. EY s customs and international trade professionals can help you manage costs and reduce the risk of penalties and significant supply chain disruption. Our core offerings include strategic planning to manage customs and excise duties, trade compliance reviews for imports and exports, internal controls and process improvement, and participation in customs supply chain security programs. We develop proactive, pragmatic and integrated strategies that can help you address the challenges of doing business in today s global environment and help your business succeed. GST Services Our network of dedicated Indirect Tax professionals can advise on the GST treatment of transactions and supplies and help resolve classification or other disputes and issues with the authorities. We provide assistance in identifying risk areas and sustainable planning opportunities for indirect taxes throughout the tax lifecycle, helping you meet your compliance obligations and your business goals around the world. We provide you with effective processes to help improve your day-to-day reporting for indirect tax, reducing attribution errors, reducing costs and ensuring indirect taxes are handled correctly. We can support full or partial GST compliance outsourcing, identify the right partial exemption method and review accounting systems. International Tax Services International Tax Services Executives are constantly looking to align their global tax position with their overall business strategy. We can help you manage your tax responsibilities by leveraging our global network of dedicated international tax professionals working together to help you manage global tax risks, meet cross-border reporting obligations and deal with transfer pricing issues. EY s multidisciplinary teams can help you assess your strategies, assisting with international tax issues, from forward planning through reporting, to maintaining effective relationships with the tax authorities. We can help you build proactive and integrated global tax strategies that address the tax risks of today s businesses and achieve sustainable growth. Global Tax Desk Our market-leading Global Tax Desk network a co-located team of highly experienced professionals from multiple countries is located strategically in major business centers so that our desks can respond to your challenges immediately and cost-effectively, avoiding time zone barriers and the high price of international travel. The desks work as a team tackling the same problem from all sides thoughtfully identifying considerations with your cross-border transaction. We work with you to help you manage global operational changes and transactions, capitalisation and repatriation issues, transfer pricing and your supply chain from forward planning, through reporting, to maintaining effective relationships with tax authorities. Transfer Pricing Our Transfer Pricing professionals help you build, manage, document, review and defend your transfer pricing policies and processes aligning them with your business strategy. Here s how we can help you: Strategy and policy development Governance optimisation and decision making process to help: Reduce impact of year-end adjustments Monitor transfer pricing footprint Coordinate across organisation Global or regional assistance to support transitions to new documentation requirements Controversy risk assessment, remediation or mitigation as a result of documentation requirements Global transfer pricing controversy and risk management Operating Model Effectiveness Our multi-disciplinary Operating Model Effectiveness teams work with you on operating model design, business restructuring, systems implications, transfer pricing, direct and indirect tax, customs, human resources, finance and accounting. We can help you build and develop the structure that makes sense for your business, improve your processes and manage the cost of trade. People Advisory Services As the world continues to be impacted by globalisation, demographics, technology, innovation and regulation, organisations are under pressure to adapt quickly and build agile people cultures that respond to these disruptive forces. EY People Advisory Services believes a better working world is helping our clients harness their people agenda the right people, with the right capabilities, in the right place, for the right cost, doing the right things. We work globally and collaborate to bring you professional teams to address complex issues relating to organisation transformation, end-to-end employee lifecycles, effective talent deployment and mobility, gaining value from evolving and virtual workforces, and the changing role of HR in support of business strategy. Our EY professionals ask better questions and work with clients to create holistic, innovative answers that deliver quality results. Transaction Tax Services Every transaction has tax implications, whether it s an acquisition, disposal, refinancing, restructuring or initial public offering. Understanding these implications can mitigate transaction risk, enhance opportunity and provide crucial negotiation insights. Transaction Tax Services comprises a worldwide network of professional advisors who can help you navigate the tax implications of your transaction. We mobilise wherever needed, assembling a personalised, integrated global team to work with you throughout the transaction life cycle, from initial due diligence through postdeal implementation. And we can suggest structuring alternatives to balance investor sensitivities, promote exit readiness and raise opportunities for improved returns. Singapore Budget 2017 Synopsis 49

52 EY Tax leadership If you would like to know more about our services or the issues discussed, please contact: Chung-Sim Siew Moon Partner and Head of Tax Singapore Tax Partners, Executive Directors and Director Business Tax Services Angela Tan Lim Gek Khim Russell Aubrey Helen Bok Choo Eng Chuan Goh Siow Hui Latha Mathew Lim Joo Hiang Ang Sau Tze Toh Ai Tee Toh Shuhui Business Incentives Advisory Tan Bin Eng Global Compliance and Reporting Soh Pui Ming Chai Wai Fook Chia Seng Chye Ivy Ng Tan Ching Khee Teh Swee Thiam Nadin Soh Grace Ng Chionh Huay Kheng Corporate Services David Ong Financial Services Organisation Amy Ang Stephen Bruce Desmond Teo Reina Lim Louisa Yeo Ben Ellis Mudd Michele Chen Mriganko Mukherjee Tan Peh Huang Indirect Tax Customs and International Trade Adrian Ball GST Services Yeo Kai Eng Kor Bing Keong Chew Boon Choo Tracey Kuuskoski International Tax Services International Tax Chung-Sim Siew Moon Chester Wee Jerome van Staden Aw Hwee Leng Wong Hsin Yee Transfer Pricing Luis Coronado Henry Syrett Stephen Lam Jonathan Bélec Sharon Tan Singapore Budget 2017 Synopsis

53 Asia-Pacific Tax Centre Australia Tax Desk David Scott India Tax Desk Gagan Malik Japan Tax Desk Kenji Ueda UK Tax Desk Billy Thorne Korea Tax Desk Chung Hoon Seok Indirect Tax Customs and International Trade Donald Thomson Life Sciences Richard Fonte Operating Model Effectiveness Nick Muhlemann Paul Griffiths Braedon Clark People Advisory Services Mobility Grahame Wright Wu Soo Mee Kerrie Chang Panneer Selvam Sarah Lane Tina Chua Grenda Pua Pang Ai Lin Talent and Reward Samir Bedi Transaction Tax Darryl Kinneally Sandie Wun Bernard Yu Industry sectors Real Estate Lim Gek Khim Ivy Ng Technology, Media and Telecommunications Chia Seng Chye Resources Angela Tan Consumer Products & Retail Soh Pui Ming Life Sciences Tan Ching Khee Diversified Industrial Products Russell Aubrey Government & Public Sector Tan Bin Eng Hospitality Helen Bok Shipping Goh Siow Hui Emerging & Private Enterprise Chai Wai Fook Insurance Amy Ang Wealth & Asset Management Desmond Teo Banking & Capital Markets Stephen Bruce Singapore Budget 2017 Synopsis 51

54 Glossary of terms The following definitions apply throughout this budget synopsis unless otherwise stated: Comptroller Comptroller of Income Tax EDB Singapore Economic Development Board government Government of Singapore GST Goods and services tax IE Singapore International Enterprise Singapore IRAS Inland Revenue Authority of Singapore ITA Income Tax Act MAS Monetary Authority of Singapore Minister Minister for Finance OECD Organisation for Economic Co-operation and Development PIC - Productivity and Innovation Credit R&D Research and development SME Small-and-medium enterprise SPRING Standards, Productivity and Innovation Board (SPRING Singapore) VAT Value added tax YA Year of Assessment 52 Singapore Budget 2017 Synopsis

55 Tax thought leadership Ernst & Young Solutions LLP s Tax practice aims to give you insights on the tax issues that matter in today s fast-changing business environment. To find out how these tax issues impact your business, read You and the Taxman. You and the Taxman Issue 4, 2016 You and the Taxman Issue 3, 2016 You and the Taxman Issue 2, 2016 You and the Taxman Issue 1, 2016 You and the Taxman Issue 4, 2015 You and the Taxman Issue 3, 2015 You and the Taxman Issue 2, 2015 You and the Taxman Issue 1, 2015 You and the Taxman Issue 4, 2014 Past issues of You and the Taxman can be downloaded from

56 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com Ernst & Young Solutions LLP. All Rights Reserved. APAC no ED None Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A) In line with EY s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. Follow EY #EYBudgetSem2017