Singapore Budget 2018 Synopsis

Transcription

1 Singapore Budget 2018 Synopsis

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3 At a glance Introduction A budget for the future 3 Business tax Start-up Tax Exemption (SUTE) scheme 7 Partial Tax Exemption (PTE) for companies Corporate income tax rebate 8 Enhance the tax deduction for qualifying expenditure on 10 qualifying R&D projects performed in Singapore Enhance the tax deduction for costs on protecting 12 intellectual property (IP) Enhance the tax deduction for costs on intellectual 13 property (IP) in-licensing Enhancing the Double Tax Deduction 14 for Internationalisation (DTDi) scheme Support for firms to build capabilities and forge partnerships 15 Introducing a review date for the WHT exemption on 18 container lease payments made to non-resident lessors Extend the Investment Allowance (IA) scheme to include 19 qualifying investment in submarine cable systems landing in Singapore Extend the tax transparency treatment for S-REITs 21 to REITs ETFs Personal income tax Personal income tax rate and tax rebate 25 Goods and services tax Impending GST rate increase 27 GST on imported services 30

4 At a glance Financial services Introduce a tax framework for Singapore Variable Capital 33 Companies (S-VACCs) Extend and enhance the Financial Sector Incentive scheme 35 Enhance the Enhanced-Tier Fund scheme under section 36 13X of the ITA Extend the Insurance Business Development 38 Insurance Broking Business scheme and allow the Insurance Business Development Specialised Insurance Broking Business scheme to lapse Extend the tax deduction for banks (including merchant banks) 40 and qualifying finance companies for impairment and loss allowances made in respect of non-credit-impaired financial instruments Extend the tax incentive scheme for Approved Special 41 Purpose Vehicle engaged in asset securitisation transactions Extend the Qualifying Debt Securities incentive scheme and 42 allow the Qualifying Debt Securities Plus incentive scheme to lapse Extend the tax exemption on income derived by primary 43 dealers from trading in Singapore Government Securities Rationalise the withholding tax exemptions for the 44 financial sector Miscellaneous Carbon tax 47 Increase in buyer s stamp duty on the value of residential 49 property in excess of S$1m Extension of the Wage Credit scheme 51 Encouraging a spirit of giving 52 Deferring foreign worker levy changes 53 Tax services in Singapore 56 Singapore Tax Partners, Executive Directors 58 and Directors Glossary of terms 60

5 1Introduction A Budget for the future The future belongs to those who prepare for it today. - Malcolm X Budget 2018 has carefully laid out the plans to prepare Singapore for the next decade. This multi-faceted Budget addresses the long-term challenges of the country and lays the foundation for a sustainable future for Singapore. Whilst there were lots of pre-budget hype on raising tax revenues, the upward tax adjustments such as GST rate increase and reduction of partial tax exemption are slated for 2020 onwards. Ample advanced notice has been given to businesses and individuals to plan their finances, sending a clear signal that the Budget is forward-looking rather than reactive. The delivery of the budget speech was striking. The Minister made commendable efforts to explain the what, how and why. What are the challenges faced by our country? How do we respond? Why do we need to increase our taxes? Preparing for the next decade Technology, globalisation and demographic shifts are the primary forces driving this current wave of disruption. They are fundamentally changing the way the world operates at an unprecedented speed. Singapore's businesses, individuals and the government are not spared and cannot sidestep this march of disruption. It is however important to recognise that disruption brings not only challenges but also opportunities. Uschi Schreiber, EY's Global Vice Chair for Markets said, The era of being afraid to make mistakes and take risks is over. Over the next five to ten years, those who are bold and able to embrace disruption and transform the way we all operate will be the winners. The next waves of technology revolution the Internet of Things, virtual reality, artificial intelligence, robotics have and will continue to disrupt traditional industries and displace existing jobs. Various non-tax initiatives such as Open Innovation Platform, Aviation Transformation Programme (ATP) and Maritime Transformation Programme (MTP) will help support companies Singapore Budget 2018 Synopsis 3

6 Budget 2018 has carefully laid out the plans to prepare Singapore for the next decade. innovation and transformation. Whilst not all jobs will be affected and not all affected jobs will be eliminated, Singaporeans need to invest in continuous learning and deepen their skillsets to stay relevant. The Tech Skills Accelerator (TeSA) and Capability Transfer Programme serve these objectives. Globalisation fuelled by technology advancement will disrupt existing businesses by creating new competitors, remodelling supply chains and lowering price points. The higher cost of doing business in Singapore is not to the advantage of Singapore businesses. Singapore businesses have to increase productivity, create added value in their product and service offerings, and collaborate by entering into partnerships to compete effectively. The ASEAN Leadership Programme, Enterprise Development Grant and double tax deduction for internationalisation (DTDi) aim to support companies in enhancing their capabilities for internationalisation. At the same time, to foster pervasive innovation, the enhanced tax deductions announced for in-licensing, registration and research and development activities for intellectual properties (IP) will incentivise enterprises to buy and use new solutions as well as build their own or cocreate solutions. legal ownership) of an IP. It will indeed be a boost to further promote innovative activity if this legal ownership condition is removed. Like other developed economies, Singapore is facing an aging population. By 2030, 28% of its population will be above 65 years old, according to the United Nations 2017 World Population Aging report. This Budget addresses this challenge by enhancing the ElderShield insurance scheme, expanding the community network support, integrating health and social support, and strengthening the role and capabilities of social service offices. The government s sharpened focus on companies investing in more efficient and smart solutions, including the funding support under the Productivity Solutions Grant, will also serve to improve productivity when human resources become more constrained with Singapore s aging population. The extension of the 250% tax deduction scheme for donations made on or before 31 December 2021 to qualifying charities will continue to help build a giving society. It will be even more welcomed if this scheme becomes a permanent feature of our tax legislation. An unfulfilled tax wish is the ability to automatically claim writing down allowances for costs incurred in acquiring the economic ownership (and not 4 Singapore Budget 2018 Synopsis

7 Photo credit: Singapore Tourism Board Fiscal prudence Singapore has been adopting a prudent fiscal policy by managing government expenditure growth carefully and getting good value for spending. For FY2017, Singapore expects an overall Budget surplus of S$9.6b or 2.1% of GDP, as announced during Budget Over the next decade, it is expected that recurring government expenditure will continue to increase, especially in the areas of social development (i.e., education and healthcare) and security. The government plans to strengthen its operating revenue in the immediate term by increasing the top marginal buyer s stamp duty rate from 3% to 4% on the value of residential property in excess of S$1m. In the near term from 2020 onwards, adjustments will be made to the Startup Tax Exemption (SUTE) scheme and Partial Tax Exemption (PTE) scheme, GST rate will increase from 7% to 9% and carbon taxes will be adjusted from S$5 per tonne to S$10-15 per tonne of carbon emission. GST will also be extended to cover imported services such as consultancy, marketing, digital apps and music purchased from overseas suppliers, with effect from 1 January This is consistent with recommendations provided by the Organisation of Economic Co-operation and Development and aims to level the playing field for local suppliers. Conclusion Budget 2018 is built on the themes laid out in past Budgets - Building our future, Strengthening social security (2015), Partnering for our future (2016), Moving forward together (2017) and now Together, A Better Future (2018). Singapore Budgets are truly special because of their long-term vision and the explanation of that vision and purpose. This Budget reminded Singapore businesses and individuals that disruption will bring challenges and also new opportunities; but Singapore is ready to embrace these challenges and seize these opportunities. Let us the people, businesses, trade associations and chambers and government come together, work together and make our aspirations a reality. As the Chinese saying goes: 有志者事竟成 *. Chung-Sim Siew Moon Partner and Head of Tax 20 February 2018 *Where there is a will, there is a way. Singapore Budget 2018 Synopsis 5

8 2Business tax 6 Singapore Budget 2018 Synopsis

9 Business tax Start-up tax exemption (SUTE) scheme Partial tax exemption (PTE) for companies Current Under the SUTE scheme, a new company can, subject to conditions, qualify for, in each of the first three YAs: 1 00% exemption on the first S$100,000 of normal chargeable income 50% exemption on the next S$200,000 of normal chargeable income Under the PTE scheme, all companies (excluding those that qualify for the SUTE) and bodies of persons, can qualify for, in each YA: 75% tax exemption on the first S$10,000 of normal chargeable income 50% tax exemption on the next S$290,000 of normal chargeable income Proposed The tax exemption under the SUTE scheme will be adjusted to: 75% exemption on the first S$100,000 of normal chargeable income 50% exemption on the next S$100,000 of normal chargeable income This change will take effect on or after YA 2020 for all qualifying companies under the scheme. For example, if a qualifying company s first YA is YA 2019, the current SUTE parameters will apply in YA 2019 while the new parameters will apply in YAs 2020 and The tax exemption under the PTE scheme will be adjusted to: 75% exemption on the first S$10,000 of normal chargeable income 50% exemption on the next S$190,000 of normal chargeable income This change will take effect on or after YA 2020 for all companies (excluding those that qualify for the SUTE scheme) and bodies of persons. All other conditions of the SUTE and PTE schemes remain unchanged. Points of view The proposed changes to the PTE and SUTE schemes will result in additional taxes payable of up to S$8,500 and S$12,750 respectively. The impact is lower for companies earning less than S$300,000. The corporate income tax rate has remained at 17% since YA At 17%, Singapore s headline corporate income tax rate is one of the lowest in the world. Hong Kong has a prevailing corporate income tax rate of 16.5%. On 29 December 2017, the Hong Kong government proposed to implement a two-tier profits tax rates regime, subject to conditions. Under the proposal, the tax rates for the first HK$2m of profits of corporations will be reduced by 50% (i.e., from 16.5% to 8.25%) and the remainder of the profits will continue to be taxed at 16.5%. Based on current exchange rate, a company with taxable profits of approximately HK$800,000 is likely to pay the same amount of tax under the proposed Hong Kong two-tier profits tax rates regime and under the Singaporeproposed PTE scheme. With the proposed changes to the PTE scheme, and assuming our Singapore corporate income tax rate remains at 17%, an initial reaction is that the Singapore effective tax rate will be higher than Hong Kong for taxable profits above the HK$800,000 breakeven point. However, this comparison is not complete as Hong Kong only allows one entity among connected entities to be eligible for the proposed regime. This is unlike Singapore s PTE scheme, which is available for all companies. Singapore Budget 2018 Synopsis 7

10 Business tax Corporate income tax rebate Current Companies enjoy a 20% corporate income tax rebate, capped at S$10,000 for YA Proposed The Minister did not propose any change to the corporate income tax rate of 17%. To ease business costs and support restructuring by companies, the corporate income tax rebate will be enhanced and extended as follows: Corporate income tax rebate will be enhanced to 40% of tax payable and the cap is raised from S$10,000 to S$15,000 for YA Corporate income tax rebate will be extended for another year to YA 2019, but at a reduced rate of 20% of tax payable and capped at S$10,000. Points of view 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 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. For companies that have already received their notices of assessment for YA 2018 and YA 2019 reflecting the lower or nil corporate income tax rebate respectively, they are still required to make payment of the tax payable stated in the notices of assessment by the due date. The IRAS will issue revised notices of assessment to affected companies by May 2018 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 notice of assessment and instalment plan will be issued by the IRAS to the company by May Singapore Budget 2018 Synopsis

11 Business tax The proposed enhancement to and extension of the corporate income tax rebate are part of the continued measures to support businesses, in particular SMEs as they cope with rising business costs. The proposed increase in the rebate rate for YA 2018 will benefit tax-paying SMEs most as the amount of corporate income tax rebate they will receive may be two times of the rebate applicable before the enhancement. For example, an SME with a tax payable of S$37,500 will receive the full corporate income tax rebate of S$15,000, compared with S$7,500 before the enhancement. The enhancement thus provides SMEs with more immediate cash flow relief. At the same time, the increase in the cap to S$15,000 means that larger tax-paying companies are not left out they will also get an additional rebate of up to S$5,000. According to statistics provided by the IRAS on its website, for YA 2016, approximately 77% of tax-paying companies had a chargeable income of S$200,000 and below. The proposed enhancement to the corporate income tax rebate for YA 2018 will bring down the effective tax rate of such companies to lower than 5%. However, the proposed increase and extension will only benefit tax-paying companies. 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 2019 and with the phasing out of the PIC Scheme after YA 2018, companies, especially SMEs, may need to continue to look towards other avenues such as grants to ease their cash flow pressures going forward. Singapore Budget 2018 Synopsis 9

12 Business tax Enhance the tax deduction for qualifying expenditure on qualifying R&D projects performed in Singapore Current Businesses that have incurred qualifying expenditure on qualifying R&D projects performed in Singapore can claim the following: 150% tax deduction for staff costs and consumables incurred 100% tax deduction for other qualifying expenditure Proposed To support businesses to build their own innovations, the government will increase the tax deduction for staff costs and consumables incurred on qualifying R&D projects performed in Singapore from 150% to 250%. All other conditions of the scheme remain unchanged. This change will take effect from YA 2019 to YA Singapore Budget 2018 Synopsis

13 Business tax Points of view With the expiry of the 400% tax deduction on qualifying R&D staff costs and consumables expenditure under the PIC post YA 2018, the proposal to increase the total tax deduction for qualifying local R&D expenditure from 150% to 250% will be a welcome relief for businesses as they seek to build their own innovations and enhance their competitive advantage through R&D. Unlike the PIC, which capped the 400% R&D tax deduction to the first S$400,000 of qualifying R&D expenditure per YA (thereafter 150% for local R&D expenditure), the proposed 250% R&D tax deduction does not impose a cap on qualifying expenditure. As such, businesses incurring significant R&D expenditure on qualifying R&D projects performed in Singapore will be able to correspondingly enjoy greater benefits. Based on the current 17% headline corporate tax rate, a 250% R&D tax deduction will equate to an after tax benefit of 42.5% (i.e., 42.5 cents for every qualifying dollar of R&D expenditure). This rate is comparable to other jurisdictions with attractive R&D tax incentives such as Australia (43.5% for SMEs and 38.5% for large companies), Ireland (37.5%), and the UK (43.7% for SMEs and 8.91% for large companies), and Hong Kong s recently introduced 200%/300% R&D deduction (49.5% on first HK$2m per year and 33% thereafter). Another key difference in comparison to other jurisdictions is the current stringent eligibility criteria and practical burdensome process involved in claiming R&D tax deductions in Singapore, which has created fairly significant uncertainty for businesses in terms of their ability to benefit from the enhanced R&D tax deductions. This issue may detract from the desired outcome of an increase in local R&D activities. As the current total R&D tax deduction for local qualifying expenditure under sections 14D/DA(1) of the ITA is 150%, the discretionary 200% R&D tax deduction under section 14E of the ITA has been an attractive alternative for taxpayers. The proposed increase of the section 14D/DA(1) tax deduction to 250% will reduce the attractiveness of the section 14E tax deduction and brings into question the continued relevance of the said incentive scheme. In addition, section 14E currently limits the total amount of tax deduction allowed under sections 14, 14D, 14DA and 14E to 200% in respect of each approved project. For section 14E to continue to be a meaningful alternative incentive for R&D, refinements may be required to remove the limitation to the 200% tax deduction. However, the proposed 250% R&D tax deduction provides no option for businesses in a tax loss position to cash out their R&D tax deductions, unlike many other jurisdictions such as Australia, Ireland or the UK. As such, the 250% R&D tax deduction may be limited in its effectiveness for SMEs and start-ups who may not be in a tax paying position and are relying heavily on cash to finance ongoing R&D efforts. Singapore Budget 2018 Synopsis 11

14 Business tax Enhance the tax deduction for costs on protecting intellectual property (IP) Current Businesses that have incurred qualifying IP registration costs can claim 100% tax deduction under section 14A(1) of the ITA on such costs. The scheme is scheduled to lapse after YA Proposed To encourage businesses, in particular smaller ones, to register and protect their IPs, the government will: Extend the scheme till YA 2025 Enhance the tax deduction to 200% for the first S$100,000 of qualifying IP registration costs incurred for each YA This change will take effect from YA 2019 to YA Points of view The current PIC scheme, which will lapse after YA 2018, provides enhanced deduction or cash conversion benefit (subject to certain caps) on qualifying IP registration costs. The proposed enhanced deduction, which is scheduled to take effect from YA 2019, will be welcomed by businesses. The proposed enhanced deduction has a lower qualifying expenditure cap, as compared to the PIC scheme. This appears to be in line with the government s objective of encouraging smaller businesses to register and protect their IPs. Having said that, it is noted that the cash conversion option under the PIC scheme, which is commonly elected by small enterprises, is not available under the proposed scheme. The current legislation requires the claimant to be the legal and economic owner of the IP upon registration. This raises the question of whether the legal and economic ownership condition can still be fulfilled if the claimant is not successful in its application for IP registration. In the context of PIC, the IRAS had provided clarifications that PIC benefits are granted regardless of the outcome of the application as long as the business has incurred the qualifying registration cost. A similar clarification by the IRAS on the proposed enhanced deduction will help to eliminate the uncertainty. Based on the existing section 14A(1) of the ITA, the 100% tax deduction is available to a person carrying on a trade or business. Partnership is not included in the definition of person under the ITA. A separate provision under section 14A specifically allows partnerships to claim PIC enhanced deductions. It is hoped that the proposed enhanced deduction will be made available to all businesses including partnerships. The current legislation imposes a claw back requirement for the 100% tax deduction if the claimant sells, transfers or assigns all or any part of the qualifying IP that is subject to claim. The enhanced deductions under PIC are clawed back only if the claimant sells, transfers or assigns all or any part of the qualifying IP or the application for the registration or grant of the qualifying IP for which such costs were incurred, within one year from the date of filing the application. We await further details on whether and how claw back of the proposed enhanced deduction will apply. 12 Singapore Budget 2018 Synopsis

15 Business tax Enhance the tax deduction for costs on intellectual property (IP) in-licensing Current Businesses that have incurred qualifying IP inlicensing costs can claim 100% tax deduction under sections 14 or 14D of the ITA on such costs. Proposed To support businesses to buy and use new solutions, the government will enhance the tax deduction from 100% to 200% for the first S$100,000 of qualifying IP in-licensing costs incurred for each YA. Qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded research performers or other businesses, but exclude related party licensing payments, or payments for IP where any allowance was previously made to that person. This change will take effect from YA 2019 to YA Points of view The proposed enhanced tax deduction from YA 2019 is welcomed, in view of the expiry of the PIC scheme in YA Under the PIC scheme, all businesses are allowed to claim PIC benefits on qualifying IP in-licensing costs incurred for use in their trade or business, subject to other PIC conditions. The proposed enhanced tax deduction is applicable to qualifying IP in-licensing costs made by a qualifying person. To facilitate the adoption of technology and innovation by all firms, it is hoped that the definition of qualifying persons be flexible enough to cover all types of businesses or business forms. Under the current ITA definition, persons do not include partnerships. The IRAS has clarified that qualifying IP inlicensing covers patents, copyrights, registered designs, geographical indications, lay-out designs of integrated circuit, trade secrets or information that has commercial value, and plant varieties. Trademarks and any rights to the use of software are excluded. The IRAS has also clarified that qualifying IP licensing costs will exclude any part of the costs which is subsidised by grants or subsidies from the government or a statutory board, cost on transfer of ownership of the rights as well as legal fees and other costs related to the licensing of each right. From an implementation perspective, it will be helpful if interested persons may approach a designated government body for a published list of qualifying publicly funded research performers and/or the IP that may be available for in-licensing. Apart from qualifying IP in-licensing payments made to publicly funded research performers, the proposed enhanced tax deduction also extends to qualifying IP in-licensing payments made to other businesses. To encourage the in-licensing of a wider range of IP, other businesses should include overseas IP owners. IP in-licensing payments made to non-singapore tax residents are subjected to Singapore WHT at 10% under the ITA. As the proposed enhanced tax deduction is targeted at smaller companies, which may likely be made to bear the WHT, it will further incentivise such smaller companies to in-license IP if Singapore WHT is exempted on qualifying IP in-licensing payments. Singapore Budget 2018 Synopsis 13

16 Business tax Enhancing the Double Tax Deduction for Internationalisation (DTDi) scheme Current Under the DTDi scheme, businesses are allowed tax deduction of 200% on qualifying market expansion and investment development expenses under sections 14B and 14K of the ITA, subject to approval from IE Singapore or Singapore Tourism Board (STB). No prior approval is needed from IE Singapore or STB for tax deduction on the first S$100,000 of qualifying expenses incurred from 1 April 2012 to 31 March 2020 on the following activities: Overseas business development trips or missions Overseas investment study trips or missions Participation in overseas trade fairs Participation in approved local trade fairs Proposed To further encourage internationalisation, the S$100,000 expenditure cap for claims without prior approval from IE Singapore or STB will be raised to S$150,000 per YA. Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding S$150,000, or on expenses incurred on other qualifying activities. Points of view The enhancement of the DTDi scheme expenditure cap is to further support businesses to internationalise. This will be welcomed by businesses especially SMEs, which have been increasingly looking towards internationalisation as a growth strategy as they continue to face rising costs and manpower pressures in Singapore. It is noted that the proposed enhancement will take effect before the qualifying expenditure period lapses from 1 April In the absence of any announcement of the extension of the qualifying period, it appears that the proposed enhancement is only available for a short period from YA 2019 to 31 March The scheme is currently not available to companies that are already enjoying other forms of tax incentives or concessions (such as Finance & Treasury Centre Incentive, Global Trader Programme and Investment Allowance). This restriction remains unless specific approval is granted. All other conditions of the scheme remain the same. This change will apply to qualifying expenses incurred on or after YA IE Singapore and STB will release further details of the change by April Singapore Budget 2018 Synopsis

17 Business tax Support for firms to build capabilities and forge partnerships Prior to the Budget 2018 announcement, there are significant complexities and overlaps in objectives, support mechanisms and qualifying costs or activities between the different grant schemes as shown in the following: Current Type of grant Objective Support level Qualifying cost categories/support Capability Development Grant (CDG) Support SMEs to scale up business capabilities, ensure business sustainability and support future efforts in areas of partnerships, product diversification and internationalisation. Cash grants defray up to 70% of qualifying costs Manpower, consultancy, training, certification and equipment costs Focus areas include: Branding and marketing Product development Enhancing business processes for productivity Intellectual property Business model transformation Global Company Partnership (GCP) Support companies in internationalisation efforts Focus areas include: Market access Manpower development Overseas market promotion Capability building Cash grants defray up to 50% or 70% of qualifying costs Manpower, overseas office rental and consultancy services Proposed CDG and GCP grants will be combined into the Enterprise Development Grant (EDG). The EDG will provide funding support for up to 70% of qualifying costs from FY2018 to FY2019. EDG will be administered by Enterprise Singapore (ESG). Singapore Budget 2018 Synopsis 15

18 Business tax Current Even with the conclusion of the PIC Automation scheme effective from YA 2018, there are a number of existing schemes that support the companies adoption of pre-approved digital technologies, consulting and infocomm technology solutions including isprint and SMEs Go Digital Programme (preapproved technology solutions). Some of these schemes may be consolidated into the new Productivity Solutions Grant (PSG). Proposed The existing grant schemes that support pre-scoped, off-the-shelf productivity solutions will be streamlined into one PSG. The PSG will provide funding support for up to 70% of qualifying costs. Current Type of grant Objective Support level Qualifying cost categories/support Partnerships for Capability Transformation (PACT) Programme (SPRING and EDB) To identify and implement collaborative projects between the large organisations (LO) and local SMEs in areas of: Knowledge transfer from an LO to at least one SME Capability upgrading of an LO s new or existing suppliers Development and testbedding of innovative solutions between an LO and at least one SME Up to 70% funding support for qualifying costs Manpower-related costs Professional services Prototyping-related services Technical support services Equipment, materials, consumables and software Intellectual property acquisition Collaborative Industry Projects (CIP) Supports collaborations between enterprises and industry partners, such as Trade Associations and Chambers, to source for suitable solutions to help overcome industry-specific business challenges. Up to 50% or 70% funding support Solutions development and/or adoption costs. Software-and equipment-related project cost Proposed The existing PACT (SPRING and EDB) and the CIP will be combined into the PACT scheme. PACT will provide funding support of up to 70% of qualifying costs, for collaborations between companies in areas including capability upgrading, business development and internationalisation. PACT will be administered by EDB and ESG. 16 Singapore Budget 2018 Synopsis

19 Business tax Points of view In his budget speech, the Finance Minister reiterated the need to take a more clusterbased approach in the next phase of Singapore s Industry Transformation Map (ITM) journey to reap synergies, strengthen linkages across multiple industries, and to explore potential new opportunities. The move to merge SPRING and IE Singapore into ESG will enable a holistic approach towards developing the SMEs and allow a more integrated support for them to internationalise, develop capabilities, and ultimately be more competitive both locally and abroad. Aligned with the cluster-based approach of the ITMs and the creation of ESG, the proposed streamlining of the various incentive schemes into the three key pillar schemes namely the PACT, EDG and PSG, will minimise overlaps and confusion amongst companies, particularly the SMEs, who may not have the resource nor bandwidth to navigate the intricacies of the various schemes. The three key grant support schemes are targeted at supporting companies through the different stages of their growth within the ITM: Industry ecosystem partnership: The PACT scheme is aimed at leveraging large organisations as demand and technology drivers to upgrade the capabilities of other smaller Singapore-based companies. Through this process, the government hopes to enhance collaborations and encourage knowledge or technology transfer. Business excellence: The EDG will help companies to develop or enhance their internal organisational, innovation and international market capabilities. Through this scheme, companies can accelerate their internationalisation efforts and build differentiating competencies that would allow them to win in the global market. Automation or digital capability enhancement: The PSG will help companies that are currently smaller and lack economies of scale to costeffectively implement standard solutions to improve their current process or capabilities through technology adoption. The PSG will likely be targeted at adoption of digital and automation solutions for these companies. The budget of more than S$800m that has been set aside for these schemes demonstrates the growing recognition that all companies, in particular SMEs, play a significant role in achieving success on the ITMs. The streamlining of the various incentive schemes, which will simplify the process and minimise confusion, is a step in the right direction to accelerate the growth of these SMEs. Singapore Budget 2018 Synopsis 17

20 Business tax Introducing a review date for the WHT exemption on container lease payments made to non-resident lessors Current WHT exemption is allowed on lease payments made to non-resident lessors (excluding permanent establishments in Singapore) for the use of qualifying containers for the carriage of goods by sea. Proposed A review date of 31 December 2022 will be introduced to ensure that the relevance of the scheme is periodically reviewed. This means that unless the scheme is extended, such payments accruing to a non-resident lessor under any lease or agreement entered into on or after 1 January 2023 in respect of the use of a qualifying container for the carriage of goods by sea will be subject to WHT. Points of view The WHT exemption was introduced with effect from 19 January 1979 under section 13(4) of the ITA. Given that the WHT exemption has been in place for more than three decades, the review is timely to ensure its relevance and usefulness. However, it is hoped that the WHT exemption will be extended beyond 31 December 2022 to maintain Singapore s competitiveness as a global maritime hub. In many situations, the Singapore lessees are the ones bearing the WHT under the lease agreements. The cost of doing business for the Singapore lessees will increase in the event that the WHT exemption is not extended and the Singapore lessees are required to account for the WHT on a gross-up basis. As part of the review, further enhancements could be considered including: Expanding the scope of the WHT exemption to include the leasing of intermodal equipment and other non-standard containers such as offshore containers. Expanding the scope of the WHT exemption to cover alternative forms of financing such as hire purchases and loans with respect to the purchase of containers. Currently, WHT exemptions on the purchase of containers are only available to entities under the Maritime Sector Incentive Maritime Leasing (Container) scheme. Providing clarifications on WHT exemption with respect to the following types of leases in view of the adoption of FRS 116 leases for companies with annual reporting periods beginning on or after 1 January 2019: Short-term leases or low value leases Right-of-use assets (ROU assets) not treated as sale ROU assets treated as sale Companies looking to renew or enter into new lease agreements with non-resident lessors may wish to conclude the agreement before 1 January Otherwise, for agreements entered into on or after 1 January 2023, there could be additional tax costs in the event that the WHT exemption is not extended. Companies can also mitigate any potential WHT costs by exploring tax exemption under the business profits article or the shipping article of tax treaties between Singapore and the foreign countries where the lessor is tax resident in. However, WHT exemption may not be available if the lessors are tax resident in non-treaty countries. 18 Singapore Budget 2018 Synopsis

21 Business tax Extend the Investment Allowance (IA) scheme to include qualifying investment in submarine cable systems landing in Singapore Current Capital expenditure incurred on submarine cable systems does not qualify for IA. Proposed To strengthen Singapore s position as a leading digital connectivity hub, the government will extend the IA scheme in respect of productive equipment to capital expenditure incurred on newly-constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions. All other conditions of the IA scheme apply, except for the following that will be permitted: The submarine cable systems can be used outside Singapore. The submarine cable systems, on which IA has been granted, can be leased out under the indefeasible rights of use (IRU) arrangements. This change will take effect for capital expenditure incurred between 20 February 2018 and 31 December 2023, inclusive of both dates. Singapore Budget 2018 Synopsis 19

22 Business tax Points of view The proposed extension of the IA scheme to capital expenditure incurred on submarine cable systems landing in Singapore demonstrates the government s commitment to encourage new and strategic infrastructure for digital connectivity to support the emergence and adoption of new technologies. Currently, IA grants an additional allowance based on a specified percentage not exceeding 100% of the capital expenditure incurred on specified items on an approved project. To further incentivise and spur e-commerce and digital activities across the industry, it is hoped that the percentage of IA claim under the proposed extension can be up to 100% of the capital expenditure. The eligibility for the current IA scheme is subject to the following restrictions: The productive equipment needs to be used in Singapore (except where specific approval is given for the equipment to be used outside Singapore, such as capital expenditure incurred for a project for the operation of any space satellite). The productive equipment cannot be sold, leased out or disposed during the IA qualifying period or within two years after the end of the qualifying period. Section 19D of the ITA defines international telecommunications submarine cable system to be an international submarine cable that is laid in the sea and includes its cable landing station and any other equipment ancillary to the submarine cable system. The proposed extension raises the following questions: What is the definition of newly-constructed strategic submarine cable systems landing in Singapore? What is considered strategic? Can equipment ancillary to the submarine cable system be covered under the extension of the IA scheme? Can capital expenditure incurred to upgrade or enhance any existing submarine cable systems landing in Singapore be covered under the extended IA scheme? What other conditions must be met in order to qualify for the extended IA scheme? It is noted that the sunset clause of the proposed IA s coverage on capital expenditure incurred in relation to submarine cable systems is set as the same date for other projects under the IA scheme as provided under the current legislation. Under the proposed extension, the permissions granted for the submarine cable systems to be used outside Singapore and to be leased out under the IRU arrangements will allow the grantors of IRUs who incur the capital expenditure on the submarine cable systems landing in Singapore to benefit from this incentive scheme. However, the current restriction under the IA scheme on the sale, lease or disposal of the productive equipment on which IA is granted should continue to apply. 20 Singapore Budget 2018 Synopsis

23 Business tax Extend the tax transparency treatment for S-REITs to REITs ETFs Current Distributions made by S-REITs to REITs ETFs out of specified income derived by S-REITs are subject to tax at the prevailing corporate tax rate of 17% in the hands of REITs ETFs. All investors of REITs ETFs will not be taxed on the distributions made out of such income from REITs ETFs. Proposed To have parity in tax treatments between investing in individual S-REIT and via REITs ETF with investments in S-REITs, the following tax treatment will be accorded to REITs ETFs: Tax transparency treatment 1 on the distributions received by REITs ETFs from S-REITs, which are made out of the latter s specified income. Tax exemption on such REITs ETFs distributions received by individuals, excluding individuals who derive any distribution: Through a partnership in Singapore From the carrying on of a trade, business or profession 10% concessionary tax rate on such REITs ETFs distributions received by qualifying non-resident non-individuals 2. Subject to conditions, the tax concessions for REITs ETFs will take effect on or after 1 July 2018, with a review date of 31 March 2020, which is the same as that for other tax concessions for S-REITs. Application for the tax transparency treatment can be submitted to the IRAS on or after 1 April The MAS and IRAS will release further details of the change by March Tax transparency treatment means that the trustee of the REITs ETF is not subject to tax on the specified income that is distributed to the unit holders. Instead, such distributions are taxed in the hands of the unit holders depending on their profile. For example: (i) Individuals who derive any distribution through a partnership in Singapore or from the carrying on of a trade, business or profession: tax at the individual s tax rates (ii) Other individuals: exempt from tax (iii) Qualifying non-resident non-individuals: tax at a 10% concessionary tax rate (iv) Companies incorporated and resident in Singapore: tax at the prevailing corporate tax rate 2 This refers to a non-resident non-individual unit holder who: (i) Does not have any permanent establishment in Singapore (ii) Carries on any operation through a permanent establishment in Singapore, where the funds used by that person to acquire the units in that REITs ETF are not obtained from that operation Singapore Budget 2018 Synopsis 21

24 Business tax Points of view The proposed tax change for REITs ETFs is a long awaited tax change, since the listing of the first REITs ETF in Singapore in It will be very welcomed by the markets, fund managers and investors. The types of S-REIT income that qualify for tax transparency treatment under section 43(2A) of the ITA (specified income) are: i) Rental income or income from the management or holding of immovable property but not including gains from the disposal of immovable property. ii) Income that is ancillary to the management or holding of immovable property but not including gains from the disposal of immovable property. iii) Income that is payable out of rental income or income from the management or holding of immovable property in Singapore, but not out of gains from the disposal of such immovable property. iv) Distribution from an approved sub-trust of the S-REIT out of income referred to in paragraphs (i), (ii) and (iii) above. v) Rental support payment that is paid to the trustee on or after 29 December 2016 by: The seller who sold to the trustee the property or any interest in the owner of the property A person who wholly owns (directly or indirectly) the seller Any other person approved by the Comptroller The tax transparency treatment accorded to S-REITs is subject to various conditions. Amongst others, the conditions include: To distribute at least 90% of the S-REIT s specified income to its unit holders in the same year in which the income is derived by the trustee. To comply with the necessary WHT requirements. To ensure that mechanism will be put in place to allow the trustee to ascertain whether or not tax is to be deducted from a distribution (including the content of any prescribed form that has to be completed and submitted by the unit holders, and the retention period of such form). To ensure that there is sufficient information and documentation (besides the declaration forms submitted by the unit holders and nominees) to verify the identity of the unit holders and beneficiaries and be satisfied that they qualify for a waiver of WHT, the final WHT rate of 10% or exemption of tax. To obtain confirmation from the ultimate beneficiaries that they are qualifying unit holders or qualifying non-resident nonindividual unit holders, where the units are held through more than one tier of nominees. The conditions that REITs ETFs will have to meet in order to qualify for tax transparency treatment will be released by March It is expected that REITs ETFs will be required to comply with conditions similar to those applicable to S-REITs for tax transparency treatment. Hence, there will be a compliance cost to be incurred by REITs ETFs. 22 Singapore Budget 2018 Synopsis

25 Business tax Under the tax transparency treatment accorded to S-REITs, the trustee of S-REITs will not be subject to tax on specified income distributed to unit holders. Qualifying unit holders of S-REITs will receive distributions out of specified income without deduction of tax. Such distributions will be taxed in the hands of the unit holders, unless the unit holders or the distributions are specifically exempt from tax. REITs ETFs, being domestic unit trusts, are not qualifying unit holders and hence they currently receive distributions from S-REITs out of specified income after deduction of tax at the prevailing corporate tax rate of 17%. With the proposed change, presumably the definition of qualifying unit holders for S-REITs should be expanded to include REITs ETFs that are accorded the tax transparency treatment so that they can receive gross distributions from S-REITs, i.e., without deduction of tax. Under the current treatment, Singapore corporate investors who finance their investments in REITs ETFs with interest-bearing borrowing are not able to claim tax deduction on the attributable interest expense as the distributions from REITs ETFs are exempt from tax in their hands. With the proposed change, Singapore corporate investors should be able to obtain a tax deduction on such interest expense attributable to the taxable portion of the distributions received from REITs ETFs and thus reducing the effective tax payable on such distributions. The tax concessions for REITs ETFs is subject to a review date of 31 March 2020, which is the same as that for other tax concessions for S-REITs. However, it is noted that for S-REITs, the review date of 31 March 2020, in relation to the proposed change, is only applicable to the 10% concessionary tax rate on distributions made out of specified income to qualifying non-resident non-individuals. It is hoped that the review date of 31 March 2020 will not apply to the tax transparency treatment as this treatment is not subject to the review date of 31 March 2020 in the case of S-REITs. Further, the tax exemption for individuals is not a concession granted specifically to investments in S-REITs. The YA in which a unit holder will be assessed on specified income distributed by an S-REIT follows the YA in which that income is derived by the S-REIT. Given that the S-REITs that REITs ETFs invest in are likely to have a different financial year end, it is hoped that an exception will be made such that unit holders of REITs ETFs who are liable to tax on distributions they receive from REITs ETFs, e.g., Singapore corporate unit holders will be assessed on the distributions in the YA which follows the YA of the REITs ETFs, or perhaps to simplify further, which follows the YA of the unit holders. Singapore Budget 2018 Synopsis 23

26 3Personal income tax 24 Singapore Budget 2018 Synopsis

27 Personal income tax Personal income tax rate and tax rebate 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. A tax rebate of 20% of tax payable, capped at S$500 per taxpayer, was available to all tax resident individual taxpayers for YA With effect from YA 2018, the total amount of personal income tax relief that an individual can claim will be capped at S$80,000 per YA. Proposed There is no change to the personal income tax rates and the personal income tax relief cap. There will not be any tax rebates accorded for YA Instead, the government has declared a one-off SG Bonus of S$100, S$200 and S$300 (depending on income) to be given to all Singaporeans aged 21 and above in Points of view The implementation of higher income tax rates with effect from YA 2017 as well as the personal income tax relief cap with effect from YA 2018 affect mainly the higher income earners. The government is of the view that the current personal income tax regime is sufficiently progressive and equitable. As such, no further change or enhancement is required at the moment. Tax rebates accorded by the government in prior years provided welcomed relief to individuals who pay personal income tax but such a tax rebate will not benefit a non-taxpayer. For example, the tax rebate accorded for YA 2017 benefited only tax resident individual taxpayers who earned an annual income of more than S$42, As such, we see the announcement of the one-off and tiered SG bonus in Budget 2018 as a more equitable approach. 1 Active national service reservist man married to a non-working spouse with two dependent children Singapore Budget 2018 Synopsis 25

28 4Goods and services tax 26 Singapore Budget 2018 Synopsis

29 Goods and services tax Impending GST rate increase Current GST was first implemented in Singapore at a low rate of 3% on 1 April The GST rate was subsequently raised to 4% in 2003, 5% in 2004 and then 7% in 2007, where it has remained since. Proposed To support the recurrent needs from healthcare, security and other social spending, the Minister has announced that the government plans to raise GST by two percentage points, from 7% to 9%, sometime in the period from 2021 to The exact timing of the GST increase will depend on the state of the economy, how much Singapore s expenditures grow and how buoyant are the existing taxes. The Minister also announced that the GST increase will be implemented in a progressive manner and the government will: Continue to absorb GST on publicly-subsidised education and healthcare Enhance the permanent GST Voucher scheme when the GST is increased, so as to provide more help to lower-income households and seniors Points of view It is not certain if the GST increase will be an immediate step-up from the current GST rate or staggered in a two-step approach. Although not primarily a tax on businesses, the GST increase will result in additional irrecoverable GST costs to the following groups of businesses: Businesses which are not registered for GST, as they are not entitled to claim from the government the GST incurred on their purchases. Residential property developers or mixed developers and businesses in the financial services sector, as these businesses are partially exempt and are likely not able to claim the GST incurred on their purchases in full. Charities and non-profit organisations which are engaged mostly in non-business activities, due also to the inability to fully recover the GST incurred on their purchases. Implement an offset package for a period to help Singaporeans, especially the lower-income and middle-income households, adjust to the GST increase Singapore Budget 2018 Synopsis 27

30 Goods and services tax As the GST increase is only expected sometime from 2021 to 2025, businesses will have sufficient time to prepare for the GST increase including addressing their accounting system and procedure changes, transitional issues and communication strategy. New supplies and purchase contracts that will straddle into 2021 and beyond should take into consideration the GST increase. The action plan should also include training the relevant staff within the organisation so that they understand the impact on the business, particularly during the transition period. Besides Utilities-Save and service and conservancy charges rebates, from the past GST increase, we can expect the offset package to include top ups to Post-Secondary Education Accounts, property tax rebate, assistance for low income families with children and assistance for pensioners. Notwithstanding the proposed increase in GST, the Singapore GST rate remains low by comparison with VAT and GST rates elsewhere in the world, as indicated in the tables of comparative rates on the next page. What we said previously Extract from Singapore GST: past, present and future, published in EY s Issue 4, 2015 of You and the Taxman magazine: To keep pace with the ever-changing economy and meet the demands of social spending, the GST system would have to evolve. The question is would this involve changes to the tax rate, the tax rules or the tax base? Extract from Implications of an impending GST hike, published in EY s Issue 4, 2017 of You and the Taxman magazine: As a GST rate hike in the coming years becomes more imminent, businesses will have to start considering the impact of a hike and ensure that they have adequate resources to mitigate the impact. Change is inevitable. To remain relevant, Singapore has to continually reinvent itself in all areas be it taxation or otherwise. As the saying goes 'The future belongs to those who prepare for it today'. 28 Singapore Budget 2018 Synopsis

31 Goods and services tax Prevailing standard GST/VAT rates in selected countries Asia-Pacific Country China 17 New Zealand 15 Philippines 12 Indonesia Australia Thailand 7 Malaysia 6 Taiwan 5 Japan 8 # Singapore # Rate to be increased from 7% to 9% between 2021 and Percentage Europe Country Sweden Denmark France 20 Netherlands 21 Germany 19 UK 20 Luxembourg 17 Switzerland Percentage Singapore Budget 2018 Synopsis 29

32 Goods and services tax GST on imported services Current GST is not applicable on imported services provided by an overseas supplier, which does not have an establishment in Singapore. Proposed To ensure that the Singapore tax system remains fair and resilient in a digital economy, the Minister announced that with effect from 1 January 2020, GST on imported services will be implemented. Business-to-Business imported services will be taxed via a reverse charge mechanism. Only businesses that (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply reverse charge. The reverse charge mechanism requires the local business customer to account for GST to the IRAS on the services it imports. The local business customer can in turn claim the GST accounted for as its input tax, subject to the GST input tax recovery rules. Business-to-Consumers (B2C) imported services, on the other hand, will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators, which make significant supplies of digital services to local consumers to register with the IRAS for GST. OVR will apply to overseas suppliers whose annual global turnover exceeds S$1m and whose sale of digital services to consumers in Singapore exceeds S$100,000. Once GST-registered, they will collect GST for the IRAS on their B2C supplies of digital services. The IRAS will release further details by end-february Singapore Budget 2018 Synopsis

33 Goods and services tax Points of view The introduction of GST on imported services is designed to ensure a level playing field between local and overseas suppliers. It is also in-line with increased calls for international co-ordination efforts in aligning GST treatment of cross-border services and intangibles with international practice and other tax administrations. The proposed implementation of the reverse charge mechanism will impact certain groups of businesses, primarily financial institutions, mixed and residential property developers and holding companies. For these impacted businesses, they will need to determine exactly how the reverse charge mechanism will impact their key business processes and implement a strategy to ensure that they are ready to meet the challenges of this new requirement effective 1 January For affected businesses, it is advisable that impact assessments be undertaken addressing both purchases from overseas third party vendors and related parties to establish what the resulting financial impact could be, understand what information is needed and the steps required to meet the future compliance obligations and understand non-it system impacts such as vendor communications, contracting and pricing. From a financial services sector perspective, Singapore is a well-established financial centre and many financial institutions have either their global or regional headquarters located here. The introduction of the reverse charge mechanism will carry with it an extra GST cost, both in terms of increased compliance and an increase in irrecoverable GST incurred. Like many countries, the OVR will most likely be a simplified GST registration where overseas suppliers and electronic marketplace operators, if registered for GST, will charge and account for GST but not be entitled to claim any GST incurred. These overseas suppliers and electronic marketplace operators will most likely file a pay only GST return. Even with the introduction of simplified GST registration for overseas suppliers and electronic marketplace operators, enforcing the GST registration could be a challenge for the IRAS since these overseas suppliers and electronic marketplace operators are all established outside Singapore. The proposed OVR does not affect e-commerce for low value goods. For imports of low-value goods (where the goods are imported by air or post and the value is below S$400), it is still under review by the government. Singapore Budget 2018 Synopsis 31

34 5Financial services 32 Singapore Budget 2018 Synopsis

35 Financial services Introduce a tax framework for Singapore Variable Capital Companies (S-VACCs) Current Funds structured as companies 1, as well as trusts 2 and limited partnerships 3, can qualify for tax exemption under sections 13CA, 13R and 13X of the ITA and these incentivised funds are given GST remission, which allows them to claim GST at a fixed recovery rate. Fund managers approved under the Financial Sector Incentive Fund Management (FSI-FM) scheme can qualify for 10% concessionary tax rate on the income derived from managing an incentivised fund. The MAS is studying the regulatory framework for S-VACCs to further develop and strengthen Singapore s position as a hub for both fund management and fund domiciliation. An S-VACC is a new structure designed for collective investment schemes 4 (CIS), and will accommodate a variety of traditional and alternative asset classes and investment strategies. Proposed A tax framework for S-VACC will be introduced to complement the S-VACC regulatory framework: An S-VACC will be treated as a company and a single entity for tax purposes 5. Tax exemption under sections 13R and 13X of the ITA will be extended to S-VACCs. 10% concessionary tax rate under the FSI-FM scheme will be extended to approved fund managers managing an incentivised S-VACC. The conditions under the existing schemes above remain unchanged. The changes will take effect on or after the effective date of the S-VACC regulatory framework. MAS will release further details of the tax framework for S-VACCs by October Points of view The global asset management industry has experienced high growth in assets under management (AUM) over the past decade. Singapore continues to be a vibrant and leading international fund management centre, with AUM growing by 7% in 2016 to S$2.7t 6. A conducive business environment as well as a robust regulatory and tax framework have played an important role in contributing to Singapore s success. While Singapore has developed into a leading fund management hub, many funds distributed and managed out of Singapore are pooled into fund vehicles, which are domiciled outside Singapore, particularly on account of the legal framework in Singapore. At present, a Singaporedomiciled fund vehicle can be set up as a company, a limited partnership or a unit trust. The current legal requirements and tax rules of each of these vehicles have certain limitations, which have restricted the number of Singaporedomiciled fund vehicles. The existing GST remission for funds will be extended to incentivised S-VACCs. 1 Under sections 13CA, 13R and 13X of the ITA 2 Under sections 13CA and 13X of the ITA 3 Under section 13X of the ITA 4 As defined under section 2(1) of the Securities and Futures Act 5 For compliance ease, only one set of tax return is required to be filed with the IRAS Singapore asset management survey conducted by the MAS Singapore Budget 2018 Synopsis 33

36 Financial services In March 2017, the MAS commenced public consultation on a new corporate structure for investment funds (the S-VACC) with a view to address the existing limitations and offer Singapore-based fund managers more flexibility and efficiency with respect to Singapore fund vehicles. Variable capital corporate form funds have been successfully legislated by several countries. Most notably, Luxembourg, Ireland, the Cayman Islands and the UK each offers a variable capital corporate form fund. In Hong Kong, the Securities and Futures Commission is working towards operationalising a new open-ended fund company (OFC) structure by The S-VACC will be governed by a new S-VACC Act, which will allow an S-VACC to be set up as an open-ended or closed-ended fund and will also allow the creation of sub-funds with segregated assets and liabilities within an S-VACC. The concept of the S-VACC has been received positively by the traditional as well as alternative asset management industry. The announcement that the MAS will release a tax framework to complement the S-VACC regulatory framework and the key features of such a tax framework provide greater clarity and certainty to fund managers who are considering setting up new funds in the form of S-VACCs. In our view, treated as a company, an S-VACC should be able to, inter alia: Demonstrate that it is a tax resident of Singapore and obtain a certificate of residence from the IRAS to access Singapore s tax treaties network. Declare dividends to its shareholders, which are exempt from Singapore tax under Singapore s one-tier corporate tax system. Access the foreign-sourced income exemption and foreign tax credit system that are available to all Singapore tax resident companies so long as the associated conditions are met. For the S-VACC to be viewed as a viable and possibly a more attractive alternative to the existing suite of Singapore and non-singapore fund vehicles commonly set up by Singapore fund managers, an S-VACC should also be eligible for existing tax incentives available to such fund vehicles. Hence, the confirmation on the applicability of the section 13R and section 13X tax incentive schemes as well as the GST remission scheme to an S-VACC is a positive message. In addition, the extension of the FSI-FM scheme to cover an incentivised S-VACC should help promote the attractiveness of the S-VACC to Singapore fund managers. Currently, the tax exemption schemes under sections 13R and 13X of the ITA have a sunset clause of 31 March With the MAS expected to release further details of the tax framework for the S-VACC by October 2018, we believe that the next Budget should seek to extend these incentive schemes. To provide both simplicity and certainty, as well as to adhere to international tax practices, we hope the following items can be addressed in the tax framework for S-VACC to be released by October 2018: Can an existing Singapore company convert to or amalgamate with an S-VACC? If so, can this be achieved in a tax-neutral manner? Where the S-VACC is incentivised under either section 13R or section 13X tax incentive scheme, will the WHT exemption pursuant to section 13(4) of the ITA and the Income Tax (Exemption of Interest and Other Payments For Economic and Technological Development) (No.2) Notification 2012 be available to the S-VACC? Where an S-VACC has sub-funds: Should the relevant conditions under section 13R and 13X of the ITA apply to each sub-fund independently or to the S-VACC as a whole? Will the tax liability of each sub-fund be ring-fenced from the S-VACC and from every other sub-fund? As each sub-fund within an S-VACC is not proposed to be a distinct person, will transactions between two or more subfunds within an S-VACC need to adhere to the arm s length principle and transfer pricing documentation requirements under the ITA? 34 Singapore Budget 2018 Synopsis

37 Financial services Extend and enhance the Financial Sector Incentive scheme Current The Financial Sector Incentive (FSI) scheme accords concessionary tax rates of 5%, 10%, 12% and 13.5% on income from qualifying banking and financial activities, headquarters and corporate services, fund management and investment advisory services. The FSI scheme is scheduled to lapse after 31 December The trading in loans and their related collaterals, excluding immovable property, is a qualifying activity that is accorded a concessionary tax rate of 13.5%. Proposed To further strengthen Singapore s position as a leading financial centre, the FSI scheme will be extended till 31 December The scope of trading in loans and their related collaterals is expanded to include collaterals that are prescribed infrastructure assets or projects. The change will apply to income derived on or after 1 January 2019 in respect of new and renewal awards approved on or after 1 June All other conditions of the scheme remain the same. MAS will release further details of the change by May Points of view As part of the Government s periodic review of tax incentives to ensure that they remain competitive and relevant, the FSI scheme was revised in May 2017 to remove currency restrictions and restrictions on local versus offshore counterparties. At the same time, in order to maintain tax neutrality, the FSI- Standard Tier scheme s concessionary tax rate was increased from 12% to 13.5% for new and renewal awards approved on or after 1 June The proposed extension of the FSI scheme was anticipated by the financial sector industry and its extension until 31 December 2023 will further strengthen financial intermediation and deepen capabilities in key financial services and banking activities in Singapore. In addition to the proposed extension in date, a change in scope of trading in loans and their related collaterals is proposed. Until last year, the incentivised activity of trading in loans and their related collaterals excluded immovable properties in Singapore, and in June 2017, this exclusion was expanded to all immovable properties, in and outside Singapore. The proposed inclusion of collaterals that are prescribed infrastructure assets and projects within the FSI scheme is a step towards aligning Singapore s efforts to keep its capital market relevant to infrastructure development, a key area of focus for the emerging markets within Asia. Based on a report released on 16 October 2017, the Forum on Harmful Tax Practices has assessed that Singapore s tax incentives satisfy the international standards on countering harmful tax practices under the OECD/G20 Base Erosion Profit Shifting project. This is a recognition by the OECD and the international community of Singapore s continued efforts to keep its incentives relevant and sustainable, not only from Singapore s perspective but from the perspective of the global community, and has paved the way for the renewal of the FSI scheme. Singapore Budget 2018 Synopsis 35

38 Financial services Enhance the Enhanced-Tier Fund scheme under section 13X of the ITA Current Tax exemption under the Enhanced-Tier Fund scheme is available for companies, trusts and limited partnerships, subject to qualifying conditions. Proposed To cater for more diverse fund structures, tax exemption under the Enhanced-Tier Fund scheme will be extended to all fund vehicles constituted in all forms. Besides companies, trusts and limited partnerships, all fund vehicles will be able to qualify for the Enhanced-Tier Fund scheme if they meet all qualifying conditions. All other conditions of the scheme remain the same. The change will take effect for new awards approved on or after 20 February The MAS will release further details of the change by May Singapore Budget 2018 Synopsis

39 Financial services Points of view The Enhanced-Tier Fund scheme was introduced by the MAS in 2009 and provides Singaporebased fund managers with greater flexibility as compared to the section 13CA tax incentive scheme and the section 13R tax incentive scheme, for example, in relation to the legal form, location and/or tax residency of the fund vehicle. This has enabled Singapore-based fund managers to secure global mandates where the fund vehicle is often located outside Singapore to cater to investors needs. Over the years, the MAS has proactively refined the Enhanced-Tier Fund scheme in order for it to remain flexible and relevant as global fund structures have continued to evolve. Leading fund jurisdictions such as Luxembourg, Ireland and the UK each offer fund vehicles that have features of a company, trust or a limited partnership, but may not squarely fall within Singapore s legal definition of these vehicles. As the popularity of such fund vehicles amongst investors continues to grow, it is important for Singapore-based fund managers to be able to provide certainty to investors that the fund vehicles will qualify. This enhancement to the Enhanced-Tier Fund scheme is therefore a welcome move and should enhance Singaporebased fund managers ability to attract more mandate from international investors. As we await details from the MAS in May 2018, we hope that the following aspects will be addressed: The proposed enhancement refers to all fund vehicles constituted in all forms. In our view, the definition of a fund vehicle should be consistent with the intent of the Enhanced-Tier Fund scheme to include all vehicles that are solely in the business of making investments. We do not expect additional conditions to be imposed by the MAS in order to qualify as a fund vehicle. The Enhanced-Tier Fund scheme requires the fund vehicle to be managed or advised directly by a Singapore-based fund manager. In practice, even where a fund vehicle is managed by a Singapore-based fund manager, there may not be a direct contractual agreement between the Singapore-based fund manager and the fund vehicle due to legal or commercial reasons. To broaden the scope of the enhancement, the MAS may wish to consider if the requirement of being managed or advised directly should not be restricted by such contractual arrangements. We also encourage the MAS to consider legislating a similar enhancement for the section 13CA tax incentive scheme. The section 13CA tax incentive scheme is currently only applicable to trust funds and non-resident individuals or companies. To further develop Singapore as a leading hub for fund management activities, the MAS should consider enhancing the section 13CA tax incentive scheme to include all fund vehicles constituted in all forms as well, provided all the qualifying conditions are met. Singapore Budget 2018 Synopsis 37

40 Financial services Extend the Insurance Business Development Insurance Broking Business scheme and allow the Insurance Business Development Specialised Insurance Broking Business scheme to lapse Current The Insurance Business Development Insurance Broking Business (IBD-IBB) scheme grants approved insurance and reinsurance brokers a concessionary tax rate of 10% on commission and fee income derived from insurance broking and advisory services. The Insurance Business Development Specialised Insurance Broking Business (IBD-SIBB) scheme grants insurance and reinsurance brokers a concessionary tax rate of 5% on commission and fee income from specialty insurance broking activities. The two schemes are scheduled to lapse after 31 March Proposed To further strengthen Singapore s position as a leading insurance and reinsurance centre, the IBD- IBB scheme will be extended till 31 December All conditions of the IBD-IBB scheme remain the same. To streamline and simplify the insurance tax incentives, the IBD-SIBB scheme will be allowed to lapse after 31 March With the lapsing of the IBD-SIBB scheme, specialty insurance broking and advisory services will be incentivised under the IBD- IBB scheme at a concessionary tax rate of 10%. The MAS will release further details of the change by May Singapore Budget 2018 Synopsis

41 Financial services Points of view The IBD scheme was first announced in Budget 2015 and subsequently refined in Budget 2016 to streamline and simplify the tax incentives for insurance businesses. This included subsuming the following schemes under the IBD umbrella scheme: IBD-Marine Hull and Liability Insurance Business, IBD-Captive Insurance and IBD- Specialised Insurance (IBD-SI) schemes. The tax incentives for insurance brokers were also subsumed under the IBD umbrella scheme and renamed as IBD-IBB and IBD-SIBB with effect from 1 June The consolidation of the various tax incentives for the insurance sector under one scheme provides a comprehensive yet simplified framework for insurance businesses and enables new entrants to easily assimilate into Singapore s developed insurance sector. With the specialty insurance broking and advisory services now being incentivised under the IBD- IBB scheme at a concessionary tax rate of 10%, this appears to be an intended move to place all incentivised insurance brokers on the same level playing field. It is noted that insurers and reinsurers underwriting specialised insurance business, which are approved under the IBD-SI scheme continue to enjoy concessionary tax rates of 5% (for new awards from 1 September 2016 to 31 August 2019), 8% (for new awards from 1 September 2019 to 31 August 2021) or 10% (for renewal awards from 1 September 2016 to 31 August 2021). It appears that the concessionary tax rate applicable to insurers, reinsurers as well as insurance brokers in respect of specialised insurance business may be aligned beyond 31 August We hope that the MAS will consider aligning the sunset date for the various tax incentives under the IBD scheme to a single date to enable businesses to utilise the incentives more effectively. We also urge the MAS to continuously review the IBD scheme to ensure that the scheme remains competitive and relevant to further enhance Singapore s position as an insurance hub in Asia. 1 MAS circular FDD Cir 05/2017 dated 11 May 2017 Singapore Budget 2018 Synopsis 39

42 Financial services Extend the tax deduction for banks (including merchant banks) and qualifying finance companies for impairment and loss allowances made in respect of non-credit-impaired financial instruments Current Under section 14I of the ITA, banks and qualifying finance companies can claim a tax deduction for impairment losses on non-credit-impaired loans and debt securities made under FRS 109, and any additional loss allowances as required under MAS Notices 612, 811 and 1005 (collectively referred to as MAS Notices ), subject to a cap. The tax deduction under section 14I is scheduled to lapse after YA 2019 (for banks and qualifying finance companies with December FYE) or YA 2020 (for banks and qualifying finance companies with non-december FYE). Proposed To promote the overall robustness and stability of the Singapore financial system, the tax deduction under section 14I of the ITA will be extended until YA 2024 (for banks and qualifying finance companies with December FYE) or YA 2025 (for banks and qualifying finance companies with non- December FYE). All other conditions of the scheme remain the same. The MAS will release further details of the change by May Points of view This is the fourth time that the tax deduction under section 14I of the ITA (first introduced in 2005) has been extended. The extension of the tax deduction will allow banks and qualifying finance companies (which are required to comply with the requirements of FRS 109 for the financial year beginning on or after 1 January 2018 and the relevant MAS Notices) to continue to claim tax deduction for non-creditimpaired loans and debt securities, subject to the stipulated caps under section 14I. Taking into consideration the effective date of FRS 109 and in view of the significant changes in the basis of computing impairment under FRS 109 as compared to FRS 39, the extension is timely and relevant for banks and qualifying finance companies. The current definition of securities under section 14I(7) of the ITA includes stocks and shares, but excluding those issued or guaranteed by governments and stocks and shares held by a bank or qualifying finance company and issued by any company in which 5% or more of the total number of its issued shares are beneficially owned, directly or indirectly, by the bank or qualifying finance company at any time during the basis period for the relevant YA. Given that there is no impairment requirement for equity instruments under FRS 109, we expect the definition of securities to be amended to exclude stocks and shares. It remains to be seen what may be covered in the further details of the change to be released by the MAS. 40 Singapore Budget 2018 Synopsis

43 Financial services Extend the tax incentive scheme for Approved Special Purpose Vehicle engaged in asset securitisation transactions Current The Approved Special Purpose Vehicle (ASPV) scheme grants the following tax concessions to an ASPV engaged in asset securitisation transactions: Tax exemption on income derived by an ASPV from approved asset securitisation transactions GST recovery on its qualifying business expenses at a fixed rate of 76% WHT exemption on payments to qualifying non-residents on over-the-counter financial derivatives in connection with an asset securitisation transaction Remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved asset securitisation transactions The ASPV scheme is scheduled to lapse after 31 December Proposed To continue developing the structured debt market, the ASPV scheme will be extended till 31 December 2023, with the exception of stamp duty remission, which shall be allowed to lapse after 31 December All other conditions of the ASPV scheme remain the same. The MAS will release further details of the extension by May Points of view The extension of the ASPV scheme is welcome and in line with Singapore s initiative to continue to develop its capital market as it is imperative for that development to offer a diverse suite of products including structured debt. The ASPV scheme provides tax certainty and mitigates the tax inefficiencies that an SPV may otherwise face, as a result of mismatches in timing between the receipt of income and the payment of expenses, in an asset securitisation transaction. The refinement of the ASPV scheme in 2008 removed the requirement for all debt securities issued by the ASPV to be Qualifying Debt Securities (QDS). Whilst this enabled non-qds issuer SPVs to apply for the ASPV status, the ASPV will need to withhold tax on interest (and certain related payments) paid to non-residents on any non-qds issued by the ASPV. If a WHT exemption (including on non-qds issuance) is provided to ASPVs as a part of the ASPV scheme, the ASPVs will have more flexibility in terms of issuance of debt securities in tranches and this should enhance Singapore s attractiveness as a hub for asset securitisation. The WHT exemption under the ASPV scheme will reduce the administrative burden of the ASPVs in seeking approval under the ASPV scheme and making the requisite QDS filings separately. However, Singapore corporate investors will continue to be subject to tax at 17% on interest income derived from such non-qds issuance as compared to 10% on interest derived from QDS issuance. With the lapse of remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved asset securitisation transactions, sponsors of ASPVs will have to carefully consider stamp duty as a part of the transaction cost, if applicable. Singapore Budget 2018 Synopsis 41

44 Financial services Extend the Qualifying Debt Securities incentive scheme and allow the Qualifying Debt Securities Plus incentive scheme to lapse Current The Qualifying Debt Securities (QDS) scheme offers the following tax concessions on qualifying income from QDS: 10% concessionary tax rate for qualifying companies and bodies of persons in Singapore Tax exemption for qualifying non-residents and qualifying individuals To qualify as QDS, debt securities must be substantially arranged by financial institutions in Singapore. The Qualifying Debt Securities Plus (QDS+) scheme grants tax exemption for all investors on qualifying income derived from QDS that are: Debt securities (excluding Singapore Government Securities) with an original maturity of at least 10 years Islamic debt securities or sukuk 1 The QDS and QDS+ schemes are scheduled to lapse after 31 December Proposed To continue supporting the development of Singapore s debt market, the QDS scheme will be extended till 31 December As part of the government regular review of tax incentives, the QDS+ scheme will be allowed to lapse after 31 December Debt securities with tenure beyond 10 years and Islamic debt securities that are issued: After 31 December 2018 can enjoy tax concessions under the QDS scheme if the conditions of the QDS scheme are satisfied On or before 31 December 2018 can continue to enjoy the tax concessions under the QDS+ scheme if the conditions of the QDS+ scheme are satisfied The MAS will release further details of the change by May Points of view The QDS scheme is instrumental and continues to add impetus to the development of Singapore s corporate debt market. The extension of the scheme for another five years is indicative of the relevance and effectiveness of the scheme in enhancing and further promoting the development of the debt market. As a part of the government s pragmatic approach of regularly reviewing and testing the relevance of tax incentives, the QDS+ scheme is allowed to lapse after 31 December The QDS+ scheme, which mainly catered to long term debt securities with tenure beyond 10 years and Islamic debt securities, had provided tax exemption to the investors on qualifying income, compared to the concessionary 10% tax rate on qualifying income under the QDS scheme. A similar tax exemption is also available for qualifying income from qualifying project debt securities, which specifically caters to long term infrastructure finance and was extended for the second time in This reflects Singapore s focus on using tax incentives to encourage specific economic activities. 1 Subject to the condition that any amount payable by the issuer to the investors of sukuk is not deductible against any income of the issuer accruing in or derived from Singapore. 42 Singapore Budget 2018 Synopsis

45 Financial services Extend the tax exemption on income derived by primary dealers from trading in Singapore Government Securities Current Tax exemption is granted on income derived by primary dealers from trading in Singapore Government Securities (SGS). The tax exemption is scheduled to lapse after 31 December Proposed To strengthen our primary dealer network and encourage trading in SGS, the tax exemption on income derived by primary dealers from trading in SGS will be extended till 31 December The MAS will release further details of the extension by May Points of view As part of its strategy to develop Singapore as an international debt hub, the MAS first introduced the above exemption in 1999 to enhance the efficiency and liquidity of the SGS market. The market has since grown significantly, making it one of the fastest developing bond markets in Asia. Tax exemption for income derived by a primary dealer from trading in SGS has since been renewed thrice and the proposed fourth extension by another five years is testimony of Singapore s continued efforts to grow the SGS market. Singapore Budget 2018 Synopsis 43

46 Financial services Rationalise the withholding tax exemptions for the financial sector Current Interest payments made by a tax resident or permanent establishment in Singapore to nontax-residents are subject to WHT at a rate of 15% in general. There is a range of WHT exemptions for the financial sector which apply to different financial institutions for payments made under different types of financial transactions. Proposed As part of the government s process to continually review tax concessions to ensure relevance and usefulness, the following changes are made: a) To ensure that the relevance of the tax concessions is periodically reviewed, a review date of 31 December 2022 will be introduced for the WHT exemptions for the following payments: Payments made under cross currency swap transactions by Singapore swap counterparties to issuers of Singapore dollar debt securities Payments made under interest rate or currency swap transactions by financial institutions Payments made under interest rate or currency swap transactions by the MAS Specified payments made under securities lending or repurchase agreements by specified institutions The change in (b) will take effect for payments under agreements entered into on or after 20 February c) The WHT exemptions for the following payments will be withdrawn: Interest from approved Asian Dollar Bonds Payments made under over-the-counter financial derivative transactions by companies with Financial Sector Incentive-Derivatives Market (FSI-DM) awards that were approved on or before 19 May 2007 The change in (c) will take effect for payments under agreements entered into on or after 1 January Unless the WHT exemptions under (a) and (b) are extended, the WHT exemptions will cease to apply to payments that are liable to be made under agreements entered into on or after 1 January WHT exemptions will continue to apply to payments that are liable to be made on or after 1 January 2023 under agreements entered into on or before 31 December All other conditions of the schemes remain the same. More details on the above are expected to be released by May b) The following WHT exemptions will be legislated, along with a review date of 31 December 2022: Interest on margin deposits paid by members of approved exchanges for transactions in futures Interest on margin deposits paid by members of approved exchanges for spot foreign exchange transactions (other than those involving the Singapore dollar) 44 Singapore Budget 2018 Synopsis

47 Financial services Points of view The introduction of the sunset clause for the exemptions under (a), (b) and (c) introduces potential uncertainty for the financial institutions relying on the above exemptions. The financial impact of such a sunset clause should be one of the key considerations for financial institutions as they plan their business. Accordingly, the additional details of the exemptions should be reviewed upon their release in May The scope of the WHT exemption has been broadened to include any members of approved exchanges, which do not qualify as financial institutions as prescribed under section 45I of the ITA and hence had not qualified for the exemption previously. The withdrawal of the exemption from WHT on interest from Asian Dollar Bonds should have minimal impact to financial institutions in view of the declining relevance of the Asian dollar bond market in Singapore. Similarly, as the FSI-DM awards approved on or before 19 May 2007 should have expired by now, the impact to financial institutions from the withdrawal of the WHT exemption on payments made on overthe-counter financial derivative transactions by companies with FSI-DM awards that were approved on or before 19 May 2007 should not be significant. Moreover, most FSI-DM companies are likely financial institutions and would have qualified for the exemption under the administrative concession. Singapore Budget 2018 Synopsis 45

48 6Miscellaneous 46 Singapore Budget 2018 Synopsis

49 Miscellaneous Carbon tax As a signal of Singapore s commitment to reduce greenhouse gas (GHG) emissions, the intention to levy carbon tax with effect from 2019 was expressed in Budget To encourage companies to reduce GHG emissions, the government announced in Budget 2018 that a carbon tax will be applied on facilities that produce 25,000 tonnes or more carbon dioxide-equivalent (tco2e) of emissions in a year. The carbon tax will take the form of a fixed-price credits-based (FPCB) mechanism. Taxable facilities will pay the tax by purchasing and surrendering the number of carbon credits corresponding to their GHG emissions. These credits will be issued by National Environment Agency at the prevailing carbon tax rate. The carbon tax rate will be set at S$5 per tco2e of emissions from 2019 to The first payment of the carbon tax will be in 2020, based on emissions in calendar year The government will review the carbon tax rate by 2023, and intends to increase the rate to between S$10 - S$15 per tco2e of emissions by More details on the carbon tax framework will be announced by the Ministry of the Environment and Water Resources (MEWR) Committee of Supply. The Carbon Pricing Bill (CPB) also will be tabled in parliament in March Singapore Budget 2018 Synopsis 47

50 Miscellaneous Points of view Having a credit-based mechanism provides the flexibility for Singapore and Singapore companies to plug into any future globally accepted emissions trading scheme (ETS) or other national ETS. It is also a signal that Singapore recognises its global responsibility towards emission reduction and is therefore future-ready to support emissions reducing initiatives taken anywhere globally, once mutual recognition of ETS is put in place. Having said this, the MEWR has stated in its recent response to feedback by the public on the draft CPB that the linkage of Singapore s carbon tax system to such ETS is not imminent. To ensure that implementation of the carbon tax is economically efficient, the carbon tax will apply uniformly to all sectors without exemption. Uniformity in the tax rate ensures a fair and transparent carbon pricing and will send a consistent message to businesses across all sectors to build up their efforts to reduce carbon emissions. According to the National Climate Change Secretariat, there are about 41 companies that are responsible for 80 per cent of Singapore's greenhouse gas emissions and will have to pay carbon tax. These companies are mainly in power generation, wafer fabrication, semiconductor, waste management, pharmaceutical, petroleum refining and chemical sectors. A phased approach to implementation of the carbon tax is taken, with an initial carbon tax rate of S$5 per tco2e of emissions from 2019 to 2023 coupled with a review of the carbon tax rate to be undertaken by Having the initial carbon tax rate lower than the range of S$10 to S$20 as announced during Budget 2017 is much welcomed as it will allow taxable facilities more time to adjust and implement energy efficiency projects. A lower rate would also be less disruptive to the market and will not erode the competitiveness of the taxable facilities. Subsequent review of the carbon rate will allow the government to consider international climate change developments, the progress of emission mitigation efforts of the affected companies as well as the impact of the carbon tax on the nation s international economic competitiveness. The introduction of the carbon tax also promises new opportunities for businesses. Businesses that are proactive in reducing carbon emissions will find themselves becoming more competitive as more countries impose tighter limits on their carbon emissions and international agreements take effect. New growth areas such as renewable energy and clean technology can also be explored. The carbon tax revenue to be collected can also be channelled to fund energy efficiency measures and initiatives as well as innovative ventures in such new growth areas. Undoubtedly, there will be an increase in compliance costs for the taxable facilities. The administration of the new tax including reporting requirements is designed to be straightforward, practical, and cost efficient, to minimise the compliance burden on the affected emitters. With this in mind, the carbon tax framework as proposed in the CPB is designed based on international standards to give clear guidance on the monitoring, reporting and verification. Further, where relevant, existing procedures and requirements under the Energy Conservation Act are also built into the CPB so as to minimise additional compliance burden on affected companies. 48 Singapore Budget 2018 Synopsis

51 Miscellaneous Increase in buyer s stamp duty on the value of residential property in excess of S$1m Current Buyer s stamp duty (BSD) is payable on the purchase of immovable properties (residential and non-residential) at rates ranging from 1% to 3% as follows: Purchase price or market value of property Rates First S$180,000 1% Next S$180,000 2% Amount exceeding S$360,000 3% Additional conveyance duties for buyers (ACDB) of up to 18%, comprising the existing BSD at 1% to 3% and the highest rate of additional buyer s stamp duty at 15%, is also applicable on qualifying acquisitions of property-holding entities (PHE), whose primary tangible assets are Singapore residential properties. This ACDB is payable on top of the BSD payable on acquisition of shares. Proposed To improve the progressiveness of the stamp duty regime, the top marginal BSD rate on acquisition of residential properties will be increased from 3% to 4%. The following revised rates will apply to all residential properties acquired on or after 20 February 2018: Purchase price or market value of residential property Rates First S$180,000 1% Next S$180,000 2% Next S$640,000 3% Amount exceeding S$1,000,000 4% New remissions rules are proposed along with the above adjustment to the BSD rate for the acquisition of: Residential properties during the transitional period Residential land for non-residential development With the above increase in BSD rate, the top marginal rate of ACDB is correspondingly adjusted to 19%. The BSD rate for non-residential properties remains the same. Singapore Budget 2018 Synopsis 49

52 Miscellaneous Points of view The BSD rate was last amended more than 20 years ago in 1996 when it was reduced to keep pace with property price increases and to help lower business costs. With the change in social demographics of Singapore over the years, the current change is in line with the government s plan to shift towards a more progressive tax system. As the new top marginal BSD rate of 4% will apply only when the value of the residential property acquired exceeds S$1m, the majority of Housing Development Board flat purchases should not be affected by this change. Coupled with the fact that the revised BSD rate will not apply to nonresidential properties, it is quite clear that this change is designed to increase the tax incidence on the wealthy and improve the progressiveness of our stamp duty regime. It is also interesting to note that this increase comes at a time when there is a spate of collective or en-bloc sales of residential properties in Singapore. For illustration purposes, the BSD payable for a condominium unit worth S$2m will increase from S$54,600 to S$64,600 whilst the BSD payable for a good class bungalow worth S$25m will increase from S$744,600 to S$984,600. A transitional provision is available for cases where an Option to Purchase (OTP) has been granted on or before 19 February For such cases, the buyer may apply to the IRAS for a remission to apply the current BSD rates, instead of the revised BSD rates, if the OTP is exercised within three weeks of the proposed change (i.e., on or before 12 March 2018) or the OTP validity period, whichever is earlier. As the definition of residential property for stamp duty purposes is not only confined to units for residential usage but would also include land zoned as, amongst others, residential, commercial and residential and white, property developers who acquire such residential land for development purposes will also be affected by this BSD increase. It is therefore welcomed that the IRAS has also provided upfront clarification that remission for this increase in BSD (by way of the difference of the BSD rates for residential and non-residential properties) may be available in the case where a buyer acquires (i) residential land that is wholly or partially restricted by the relevant authorities from residential use and development; or (ii) residential land that has no use restriction but the buyer wishes to build a 100% non-residential development on the land. This remission is subject to various conditions. The aforesaid remissions for the increase in BSD do not apply to the increase in ACDB in the case of an indirect acquisition of residential property via a PHE. For example, it may be possible that a prospective buyer is granted an option to purchase the PHE before 20 February 2018 but only exercises it thereafter. While such transactions may not be common, it is hoped that similar remissions for the increase in ACDB for indirect acquisitions of residential property can be considered on a case-by-case basis. 50 Singapore Budget 2018 Synopsis

53 Miscellaneous Extension of the Wage Credit scheme The Wage Credit scheme (WCS) was initially introduced in Budget It was extended for two years (2016 and 2017) in Budget 2015 to give employers more time to restructure and to adjust to rising costs in the tight labour market. The WCS is now extended for another three more years ( ) to support businesses embarking on transformation efforts, and to encourage employers to share productivity gains with their workers. Under the extended WCS, the government will continue to co-fund the following percentages of wage increases of Singaporean employees earning a gross monthly wage of up to S$4,000, subject to a minimum gross monthly wage increase of S$50: 20% of qualifying wage increase in % of qualifying wage increase in % of qualifying wage increase in 2020 Only wage increases given in 2017, 2018 and 2019 and sustained in subsequent years will be supported under the extended WCS. As with the current scheme, employers do not need to apply for the credit. They will receive their annual payouts automatically at the end of March of the subsequent year. Table 1: Illustration of the extended WCS benefits Gross monthly wage increase after 2016 (S$) Amount co-funded by the Government (20%) under existing WCS S$20/month Amount co-funded by the Government under extension of WCS 20% X S$200 = S$40/month 15% X S$300 = S$45/month 10% X S$400 = S$40/month Singapore Budget 2018 Synopsis 51

54 Miscellaneous Encouraging a spirit of giving As part of the government s continuing efforts to promote philanthropy and volunteerism with the aim to build a more caring and cohesive society in Singapore, it is extending the 250% tax deduction for qualifying donations, and the Business and IPC Partnership Scheme (BIPS). Extending the 250% tax deduction for qualifying donations Currently, donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character (IPC) and other qualifying recipients from 1 January 2016 to 31 December To continue to encourage Singaporeans to give back to the community, the 250% tax deduction for qualifying donations will be extended for another three years, for donations made on or before 31 December All other conditions of the scheme remain the same. Extending the BIPS Under BIPS, businesses currently enjoy a 250% tax deduction on qualifying expenditure incurred from 1 July 2016 to 31 December 2018 in respect of: The provision of services by his qualifying employee to an IPC during that period The secondment of his qualifying employee to an IPC during that period The qualifying expenditure is subject to a cap of S$250,000 per business per YA and S$50,000 per IPC per calendar year. To continue supporting employee volunteerism through businesses, BIPS will be extended for another three years to 31 December The MoF and IRAS are currently reviewing the administrative processes for BIPS based on feedback and suggestions received. Details of any change will be announced in the second half of Singapore Budget 2018 Synopsis

55 Miscellaneous Deferring foreign worker levy changes The planned increase in foreign worker levy for the Marine Shipyard and Process sectors will be further deferred for one more year from 1 July 2018 to 30 June 2019 due to continued weakness in these sectors. The levy rates for Marine Shipyard sector for Basic tier R1 (higher-skilled) and R2 (basicskilled) workers will remain at S$300 and S$400 respectively. The levy rates for Process sector Basic tier R2 (basic-skilled) workers will remain at S$450, whilst the Man-Year Entitlement Waiver tier R2 workers will remain at S$750. Foreign worker levy rates for all other sectors and for S pass holders will remain unchanged. Singapore Budget 2018 Synopsis 53

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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 crossborder 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 personalised, highly 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 2018 Synopsis 57

60 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 Directors Business Tax Services Angela Tan Lim Gek Khim Russell Aubrey Helen Bok Choo Eng Chuan Goh Siow Hui Lim Joo Hiang Ang Sau Tze Toh Ai Tee Toh Shuhui Tax Policy and Controversy Chung-Sim Siew Moon Business Incentives Advisory Tan Bin Eng Private Client Services Koh Chin Chin Global Compliance and Reporting Soh Pui Ming Chai Wai Fook Chia Seng Chye Ivy Ng Tan Ching Khee Teh Swee Thiam Nadin Soh Chionh Huay Kheng Grace Ng Corporate Services David Ong Financial Services Organisation Amy Ang Stephen Bruce Desmond Teo Louisa Yeo Mriganko Mukherjee Moong Jee See Helen Tindle Michele Chen Rajesh Bheemanee Indirect Tax Global Trade Adrian Ball GST Services Yeo Kai Eng Chew Boon Choo International Tax Services International Tax Chester Wee Wong Hsin Yee Aw Hwee Leng Transfer Pricing Luis Coronado Stephen Lam Jonathan Bélec Sharon Tan Singapore Budget 2018 Synopsis

61 Asia-Pacific Tax Centre India Tax Desk Gagan Malik UK Tax Desk Billy Thorne Korea Tax Desk Chung Hoon Seok Japan Tax Desk Hiroki Shinozaki US Tax Desk Garrett Davidson Indirect Tax Global Trade Donald Thomson Indirect Tax GST Tracey Kuuskoski Life Sciences Richard Fonte Operating Model Effectiveness Edvard Rinck Nick Muhlemann Paul Griffiths Braedon Clark People Advisory Services Mobility Grahame Wright Kerrie Chang Panneer Selvam Sarah Lane Wu Soo Mee Tina Chua Grenda Pua Pang Ai Lin Talent and Reward Samir Bedi Transaction Tax Darryl Kinneally Sandie Wun 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 China Overseas Investment Network Tan Ching Khee Insurance Amy Ang Wealth & Asset Management Desmond Teo Banking & Capital Markets Stephen Bruce Singapore Budget 2018 Synopsis 59

62 Glossary of terms The following definitions apply throughout this budget synopsis unless otherwise stated: Comptroller Comptroller of Income Tax EDB Singapore Economic Development Board FYE Financial year end 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 REITs ETFs Singapore-listed Real Estate Investment Trusts Exchange-Traded Funds S-REITs Singapore-listed Real Estate Investment Trusts SME Small-and-medium enterprise SPRING Standards, Productivity and Innovation Board (SPRING Singapore) VAT Value added tax YA Year of Assessment 60 Singapore Budget 2018 Synopsis

63 Tax thought leadership Ernst & Young Solutions LLP s Tax sources 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, 2017 You and the Taxman Issue 3, 2017 You and the Taxman Issue 2, 2017 You and the Taxman Issue 1, 2017 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 Past issues of You and the Taxman can be downloaded from