2015 Budget Seminar. Florence Loh Partner, Corporate Tax

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1 Budget Seminar Solving tomorrow s problems today Florence Loh Partner, Corporate Tax

2 Agenda 1. Extended help on rising business costs Transition Support Package 2. Innovation and internationalisation Mergers & Acquisitions International Growth Scheme Double Tax Deduction for Internationalisation 3. Rationalisation and review 2

3 Extended help on rising business costs 3

4 Transition Support Package (i) Wage Credit Scheme (WCS) Budget 2013 Budget % 20% Co-funding of qualifying wage

5 Transition Support Package (i) Wage Credit Scheme (WCS) Budget 2013 Budget % 20% 33% 17% Co-funding of qualifying wage

6 Transition Support Package (i) Wage Credit Scheme (WCS) Illustration Gross Monthly $200 Wage Increase $500 $500 $200 $200 $ Govt co-funds 40% per month $ Govt co-funds 20% per month - $100 $100 $140 (20% of [$500+$200]) $180 (20% of [$500+$200+$200]) 6

7 Transition Support Package (ii) Corporate income tax rebate Maximum rebate of 30% tax payable or: $ YA $30k per YA YA $20k per YA The reduced cap will ensure that more support is focused on SMEs. - Tharman Shanmugaratnam 7

8 Transition Support Package (iii) Productivity and innovation credit (PIC) bonus PIC Bonus Dollar-for-dollar matching cash bonus for YAs 2013 to 2015 Overall combined cap of $15,000 for 3 YAs 8

9 Transition Support Package (iii) Productivity and innovation credit (PIC) bonus Dollar-for-dollar matching cash bonus for YAs 2013 to 2015 Overall combined cap of $15,000 for 3 YAs 9

10 Transition Support Package (iii) Productivity and innovation credit (PIC) bonus Dollar-for-dollar matching cash bonus for YAs 2013 to 2015 Overall combined cap of $15,000 for 3 YAs PIC scheme 400% up to $400k PIC+ scheme (SMEs) 400% up to $600k PIC cash payout 60% up to $100k of expenditure 10

11 Transition Support Package (iii) Productivity and innovation credit (PIC) bonus 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Active companies benefiting from PIC 46% 33% YA 2011 YA 2014 Press release by the Ministry of Finance issued on 12 February 2015, 11

12 Innovation & Internationalisation 12

13 Innovation and Internationalisation (i) Mergers & acquisitions Singapore M&A deals see 35% increase in value hitting US$50.7bn. Channel NewsAsia 11 Dec

14 Innovation and Internationalisation (i) Mergers & acquisitions 1. M&A allowance cap 2. Stamp duty relief 3. Shareholding requirement 4. Look-back Changes effective from 1 April 2015 to 31 March

15 Innovation and Internationalisation (i) Mergers & acquisitions 1. M&A allowance cap Current Rules SG Co Acquirer New Rules SG Co Acquirer Target Co Max value $100m Target Co Max value $20m Max M&A allowance per YA 5% of $100m = $5m Max M&A allowance per YA 25% of $20m = $5m No change in overall allowance cap ($5m) Higher M&A allowance rate and lower shareholding thresholds will benefit smaller sized deals. 15

16 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap 2. Stamp duty relief Shareholding requirement Current Rules Look-back New Rules Relief cap $200,000 (acquisition value capped at $100m) Relief cap $40,000 (acquisition value capped at $20m) Lower relief will impact local acquisitions 16

17 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap Stamp duty relief 3. Shareholding requirement Look-back Current Rules New Rules Acquisition that results in ownership of: Acquisition that results in ownership of: More than 50% [Previous ownership 50% or less] At least 20% [Previous ownership less than 20%] At least 75% [Previous ownership more than 50% but less than 75%] More than 50% [Previous ownership 50% or less] 17

18 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap Current Rules Acquisition that results in ownership of: More than 50% [Previous ownership 50% or less] At least 75% [Previous ownership more than 50% but less than 75%] Stamp duty relief New Rules Acquisition that results in ownership of: At least 20% [Previous ownership less than 20%] More than 50% [Previous ownership 50% or less] 3. Shareholding requirement Look-back IRAS additional conditions: The acquiring company must have: (i) (ii) At least 1 director represented on the Board of Directors of the target company; and Acquired a shareholding of at least 20% in the target company and that company is considered an associate of the acquiring company under Singapore FRS rules. 18

19 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap Stamp duty relief 3. Shareholding requirement Look-back Current Rules New Rules Acquisition that results in ownership of: Acquisition that results in ownership of: More than 50% [Previous ownership 50% or less] At least 20% [Previous ownership less than 20%] At least 75% [Previous ownership more than 50% but less than 75%] More than 50% [Previous ownership 50% or less] Intro 20% - Encourage strategic stakes (with influence) as an alternative to consolidation (control). 19

20 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap Current Rules Stamp duty relief New Rules 3. Shareholding requirement Look-back Acquisition that results in ownership of: More than 50% [Previous ownership 50% or less] Acquisition that results in ownership of: At least 20% [Previous ownership less than 20%] At least 75% [Previous ownership more than 50% but less than 75%] More than 50% [Previous ownership 50% or less] Intro 20% - Encourage strategic stakes (with influence) as an alternative to consolidation (control). Remove 75% Acquirers with original shareholding of more than 50% with plans to increase to at least 75%, to complete by 31 March

21 Innovation and Internationalisation (i) Mergers & acquisitions M&A allowance cap Current Rules Stamp duty relief New Rules Shareholding requirement 4. Look-back 12-month look-back period 12-month look-back period Stepped/ phased acquisitions requiring the 12-month look back period - complete by 31 March 2015 to qualify for M&A allowance. 21

22 Innovation and Internationalisation (ii) Double tax deduction for internationalisation (DTD) Current scheme 200% tax deduction for qualifying expenses for qualifying market expansion & investment development activities. Approval from IE Singapore. Automatic deduction up to $100,000 per YA for certain qualifying activities 22

23 Innovation and Internationalisation (ii) Double tax deduction for internationalisation (DTD) Current scheme 200% tax deduction for qualifying expenses for qualifying market expansion & investment development activities. Approval from IE Singapore. Examples airfare hotel Automatic deduction up to $100,000 per YA for certain qualifying activities meals roadshows Budget 2012 enhancement (i) Overseas trips/ missions for business development investment study trade fairs freight consultants (ii) Local trade fairs approved by IE Singapore or STB 23

24 Innovation and Internationalisation (ii) Double tax deduction for internationalisation (DTD) Enhancement Qualifying manpower expenses (1 July 2015 to 31 March 2020) for Singaporeans posted to new overseas entities Capped at $1 million per approved entity per year Approval from IE Singapore Clarity by May 2015? Overseas entities representative offices, branches, companies, partnerships, joint ventures? Qualifying manpower expenses - where costs are borne by the overseas entities? - where costs are recharged by the overseas entities? - where partial costs are absorbed by Singapore entity? 24

25 Innovation and Internationalisation (iii) International Growth Scheme Key features 10% concessionary tax rate Larger Singapore companies/ high potential companies Incremental income from qualifying activities Not more than 5 years (approval 1 April March 2020) IE Singapore (further details May 2015) Overseas expansion milestones? E.g. New markets penetrated Singaporeans based overseas 25

26 Innovation and Internationalisation (iii) International Growth Scheme Key features 10% concessionary tax rate Larger Singapore companies/ high potential companies Incremental income from qualifying activities Not more than 5 years (approval 1 April March 2020) IE Singapore (further details May 2015) Internationalisation efforts take time too short? 26

27 Rationalisation and Review 27

28 Rationalisation and Review (i) Investment allowance energy efficiency schemes(ia-ee) Current 1. IA-EE Scheme 2. IA-EE for Green Data Centres Scheme Both scheduled to lapse after 31 March 2015 New From 1 March 2015 The two schemes will be combined into one scheme, IA-EE scheme. Extended to 31 March

29 Rationalisation and Review (ii) International telecommunications submarine cable system Current Section 19D Writing down allowances for capital expenditure incurred on the acquisition of an IRU of any international telecommunications submarine cable system New Review date 31 December

30 Rationalisation and Review (iii)approved Foreign Loan (AFL) and Approved Royalties Incentive (ARI) Current ARI tax exemption or concessionary rate Approved royalties, technical assistance fees or contributions to R&D costs made to non-tax residents for providing cutting-edge technology and know-how AFL incentive tax exemption or concessionary rate Interest payments made to non-tax residents for loans to purchase productive equipment. Minimum loan quantum $200,000. New The minimum loan quantum under the AFL incentive will be $20 million from 24 February Other loan quantums may be approved by the Minister for Trade and Industry Review date 31 December

31 Rationalisation and Review (iii) Phasing out Royalties withdrawn from YA 2017 Section 10(16) of the ITA provides a tax concession on royalties and other payments from approved intellectual property or innovation Offshore leasing withdrawn from 1 January % concessionary tax rate on income derived by a leasing company in respect of offshore leasing of machinery and plant Operational headquarters withdrawn from 1 October 2015 Scheme was introduced to encourage companies to use Singapore as a base to conduct headquarter management activities by providing tax exemption or a concessionary tax rate of 10% on income from qualifying HQ services HQ companies may still qualify for DEI, subject to conditions 31

32 Concluding 32

33 What colour is this dress? White & Gold Blue & Black 33

34 What colour is Budget 2015? 34

35 Your Contacts Florence Loh Partner Corporate Tax This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Services LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Services LLP. All rights reserved. In this document, refers to PricewaterhouseCoopers Services LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.