SINGAPORE. Budget 2009 TAX

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1 SINGAPORE Budget 2009 TAX

2 tax planning and advice can give businesses a significant competitive advantage.

3 Contents Workforce Resilience 01 Jobs Credit 02 Skills Programme for Upgrading and Resilience For Workers And Professionals 03 Workfare Income Supplement Special Payment Corporate Tax 04 Reduction In Corporate Tax Rate 05 Enhancement Of Loss Carry-Back Relief Scheme 07 Expansion Of Scope Of Foreign-Sourced Income Exemption 09 Enhancement Of Start-Up Exemption Scheme 10 Enhancement Of Existing Capital Allowances Regime 11 Accelerated Writing Down Allowances For Acquisition Of Intellectual Property Rights For Media And Digital Entertainment Content 12 Enhancement To Tax Incentive For Renovation And Refurbishment Expenses 13 Enhancement Of Tax Deduction On Donations 14 Extension And Enhancement Of Withholding Tax Exemption For Maritime Industry 15 Tax Framework For Facilitating Corporate Amalgamations 16 Enhancement Of Fund Management Incentives 18 Enhancement Of Financial Sector Incentive Headquarters Services Scheme 20 Extension of Deductibility Of Provisions For Collective Impairment Loan Losses 21 Extension And Enhancement Of Commodity Derivatives Trader Scheme 22 Enhancement Of Specified Income And Designated Investments Lists Personal Tax 24 Personal Income Tax Rebate 24 Instalment Option For Personal Income Tax Payment 25 Removal Of Income Tax On Net Annual Value Goods and Services Tax 26 Recovery of Input GST For Qualifying Funds 27 GST Zero-Rating For The Aerospace Industry 29 GST And Duty Suspension On Goods Temporarily Removed From Zero-GST Or Licensed Warehouses For Auctions And Exhibitions 30 Duty And GST Exemption On Wine For Approved Wine Exhibitions And Conference Events

4 Property Tax 31 Rebate For Commercial And Industrial Properties 32 Property Tax Deferral For Land Approved For Development 34 Deferment Of Increase In Assessment Rate For Hotel Rooms 35 Property Tax Rebate For Owner-Occupied Residential Properties Others 36 Additional GST Credits And Senior Citizens Bonus 37 Service And Conservancy Charges Rebates 37 Rental Rebates 38 Increase In Additional CPF Housing Grant 39 Road Tax Rebate 39 Special (Diesel) Tax Waiver For Un-hired Taxis 40 Extension Of Green Vehicle Rebate Scheme 41 Compressed Natural Gas (CNG) Tax Exemption And CNG Unit Duty Appendices I. Singapore GDP Growth Rate II. Collection Of Income Tax, Goods & Services Tax, Stamp Duty, Property Tax And Estate Duty III. Comparison Of Corporate Tax Rates Of Selected Countries In Asia Pacific IV. Comparison Of Personal Tax Rates Of Selected Countries In Asia Pacific V. Survey Of Indirect Taxes Levied In Selected Countries In Asia Pacific VI. Global Corporate Tax Rates VII. Incentives For Companies Going Overseas Under The Economic Expansion Incentives (Relief From Income Tax) Act VIII. Incentives For Companies Going Overseas Under The Singapore Income Tax Act IX. Tax Incentives For Intellectual Property X. Tax Incentives For Research & Development XI. Financial Sector Incentive Scheme XII. Glossary

5 Budget 2009 Work Resilience 1 Jobs Credit To encourage employers to preserve jobs and ultimately help Singaporeans stay employed, the Government would introduce Jobs Credit in the form of a cash grant. Details of this temporary measure are as follows: Employers would receive cash grants up to 12% on the first $2,500 of the monthly wages of each employee on CPF payroll. The Jobs Credit is for one year and employers would receive payments on a quarterly basis March, June, September and December The Jobs Credit would be paid to employers at the end of each quarter in respect of their employees that are on CPF payrolls at the start of that quarter and the qualifying wages would be based on the wages paid to these employees in the preceding quarter. Example: Company A has three employees on CPF payroll at the beginning of the quarter ending March Employee Monthly Wage Qualifying Wage for October 08 to December 08 Jobs Credit 1 $1,000 $3,000 $360 2 $2,500 $7,500 $900 3 $5,000 $7,500 $900 Total Jobs Credit to Company A (March 2009 payment) $2,160 The Jobs Credit would help both employers and employees in terms of cash-flow and job sustainability. Being broad-based in approach, it would benefit companies such as the SMEs that may not enjoy any benefits from the tax related measures. This, in turn, would help preserve the jobs of Singaporeans, many of whom (about 60%) are employed by the SMEs.

6 2 Budget 2009 Work Resilience Skills Programme for Upgrading and Resilience For Workers And Professionals SPUR is an enhanced financial support scheme developed by the Singapore Workforce Development Agency to help Singaporeans upgrade their skills so that they can stay relevant in their jobs or seek re-employment. Under SPUR, the Government provides financial support of up to 80% of the course fees for PMETlevel courses for companies and individuals and absentee payrolls for companies that send their employees for training. The Government would enhance SPUR to help PMET re-train by: increasing the course fee subsidies for PMET-level courses that are eligible for SPUR from 80% to 90%, the same subsidy level as rank-and-file level courses. This includes all Specialist and Advanced Diplomas offered by the polytechnics. allowing selected tertiary courses at University of Singapore Institute of Management and the three publicly funded universities to be included under SPUR. SPUR is a timely investment in human capital as it would encourage PMET to upgrade their skills so as to improve their competitiveness and be ready for the economic recovery.

7 Budget 2009 Work Resilience 3 Workfare Income Supplement Special Payment WIS scheme was introduced in the Budget 2007 to encourage workers who, among other conditions, are at least 35 years of age and earn a monthly income of $1,500 or less to stay at work. WIS payments are split between cash and CPF contributions. The Government would give a WIS Special Payment to low-income workers on top of the existing WIS payments. The WIS Special Payment, to be paid fully in cash, provides an additional 50% of the WIS payments that the workers would receive over the course of this year. The work eligibility criteria of the WIS Special Payment would also be relaxed to allow workers with less regular employment to also qualify. The WIS Special Payment would be well received by low-income workers as it would supplement their income and help them cope with the current economic downturn.

8 4 Budget 2009 Corporate Tax Reduction In Corporate Tax Rate The current corporate tax rate is 18%. The Minister for Finance proposed to reduce the corporate tax rate to 17%. YA 2010 The reduction in the corporate tax rate is in line with the Singapore s strategy to promote Singapore s competitiveness as a business and investment hub. In view of the reduction in the corporate tax rate, it is expected that the following would also apply : A reduction in the tax rate for non-resident persons (other than non-resident individuals and Hindu joint families, which remains at 20%); A reduction in the withholding tax rate on certain payments (except for royalties, interest and rent for moveable properties) to non-resident persons other than non-resident individuals/hindu joint families; The tax rate for non-resident individuals/hindu joint families would remain at 20%, to align with the top marginal tax rate for resident individuals/hindu joint families; and A trustee (other than a trustee of an incapacitated person) and an executor would now be taxed at the reduced rate of 17% on the income for the trust and estate respectively.

9 Budget 2009 Corporate Tax 5 Enhancement Of Loss Carry-Back Relief Scheme The existing loss carry-back relief scheme allows a company and any person (such as a sole-proprietor or a partner) who carries on a trade, business, profession or vocation to carry-back its current year unutilised capital allowances and trade losses (hereinafter qualifying deductions ) of up to $100,000 to the immediate preceding YA. The carry-back is subject to meeting the substantial shareholding test (in the case of a company) and the same business test. The existing loss carry-back relief scheme would be temporarily enhanced for the YA 2009 and 2010, as follows: The current year qualifying deductions would be allowed to be carried back for up to three YA immediately preceding the YA in which the current year qualifying deductions arose, based on the following order of set-off: Example: Qualifying Deductions YA 2009 YA 2010 Allowable for carry back and set-off against assessable income in the following order of set-off: YA 2006 YA 2007 YA 2008 YA 2007 YA 2008 YA 2009 Current year (e.g. YA 2009) qualifying deductions would be allowed for setoff against assessable income in the third YA (i.e. YA 2006), followed by the second YA (i.e. YA 2007) and then the YA immediately preceding the YA in which the qualifying deductions arose (i.e. YA 2008). The limit on the aggregate amount of current year qualifying deductions for carry back would be increased from $100,000 to $200,000. To ease the cash flow of businesses, the IRAS would allow provisional claims for tax refunds based on declaration of estimated losses instead of awaiting the finalisation of the chargeable income and tax assessments. The IRAS is expected to provide further administrative details on the above shortly.

10 6 Budget 2009 Corporate Tax For qualifying deductions arising in the YA 2009 and The proposed enhanced loss carry-back relief scheme is a temporary measure introduced by the Government. Businesses which had been taxable in the preceding years but are suffering tax losses for YA 2009 or 2010 would benefit from the tax refund. The move to recognize provisional claims would allow businesses to receive earlier tax refunds in time to ease their cash flow during this economic crisis.

11 Budget 2009 Corporate Tax 7 Expansion Of Scope Of Foreign- Sourced Income Exemption Currently, foreign-sourced dividends, foreign-sourced branch profits and foreignsourced service income received or deemed received into Singapore by Singapore resident non-individuals are exempt from Singapore income tax, subject to the following conditions: a. In the year the income is received in Singapore, the headline tax rate (i.e. the highest corporate tax rate of the foreign jurisdiction not neccessarily the actual rate of tax imposed on the foreign income) of the foreign jurisdiction from which the income is received is at least 15%; b. The specified foreign income must have been subject to tax (i.e. tax must have been paid or is to be paid and does not include deferred tax) in the foreign jurisdiction from which they were received. The IRAS has clarified that foreign-sourced income would be considered to have met the subject to tax in the foreign jurisdiction requirement if the income is exempted from tax in the foreign jurisdiction as a direct consequence of that foreign jurisdiction granting a tax incentive for carrying out substantive business activities in that jurisdiction; and c. The IRAS is satisfied that the tax exemption would be beneficial to the person resident in Singapore. It is proposed that with effect from 22 January 2009, resident non-individuals and resident partners of partnerships in Singapore would be exempted from Singapore tax on their remittance of all foreign-sourced income earned or accrued outside Singapore on or before 21 January 2009, where that income is remitted to Singapore between 22 January 2009 and 21 January 2010 (both dates inclusive). In addition, the conditions that are currently required for the foreign-sourced income exemption as set out in (a) to (c) above would be temporarily lifted during that same period. The IRAS is expected to release further details by April January 2009 to 21 January 2010 (both dates inclusive)

12 8 Budget 2009 Corporate Tax The proposed change is intended to help Singapore businesses alleviate their cash flow distress by allowing them to mobilize their offshore income from their overseas investments or operations to meet their business financing needs in Singapore without having to worry about Singapore tax consequences. This is a welcomed change to all businesses especially in times like now where credit is scarce and costly. The one-year amnesty would allow Singapore tax resident non-individuals and partners of partnerships to bring all their foreign-sourced income back to Singapore. Foreign-sourced income sitting in offshore accounts due to restrictions on the existing foreign-sourced income exemption (which currently excludes foreign-sourced interest income) would now become available to Singapore businesses to tide them through the anticipated difficult times. The expansion of the scope of foreign-sourced income exemption would have a significant effect on one commonly derived foreign-sourced income foreignsourced interest income which may have accrued offshore over many years.

13 Budget 2009 Corporate Tax 9 Enhancement Of Start-Up Exemption Scheme The start-up exemption scheme allows the following tax exemption to an eligible start-up company, limited by shares, during the first three YA of its incorporation: a. Tax exemption on the first $100,000 of normal chargeable income; and b. Tax exemption on 50% of the next $200,000 of normal chargeable income. An eligible start-up company is one that meets the following conditions: i. It is incorporated in Singapore; ii. It is a tax resident of Singapore; and iii. It has no more than 20 shareholders where: All of the shareholders are individuals beneficially holding the shares in their own names throughout the basis period for that YA; or At least one shareholder is an individual beneficially holding at least 10% of the total issued ordinary shares of the company throughout the basis period for that YA. A company limited by guarantee is currently excluded from this scheme. The start-up exemption scheme would be extended to companies limited by guarantee, subject to the same conditions imposed on companies limited by shares. YA 2010 The inclusion of companies limited by guarantee set up by social entrepreneurs in the start-up exemption scheme is an en route measure to a caring society.

14 10 Budget 2009 Corporate Tax Enhancement Of Existing Capital Allowances Regime Capital expenditure incurred to acquire plant and machinery for the purpose of a trade, profession or business are granted accelerated capital allowances on a straight-line basis over three years with certain types of computerised and automated equipment granted a write-down over one year. Capital expenditure incurred on plant and machinery acquired, for the purpose of a trade, profession or business, in the basis periods for the YA 2010 and 2011 would be granted accelerated capital allowances over two years on the following basis: a. First year : 75% write-down b. Second year : 25% write-down YA 2010 and 2011 The proposed change would provide for more immediate relief to businesses which intend to invest in new plant and machinery during the economic downturn in preparation for the recovery. The beneficiaries would include businesses in a tax paying position as well as businesses that can take advantage of the loss carry-back rules. The proposed change would not affect the current rules on the one-year accelerated allowances granted in respect of certain types of computerised and automated equipment.

15 Budget 2009 Corporate Tax 11 Accelerated Writing Down Allowances For Acquisition Of Intellectual Property Rights For Media And Digital Entertainment Content Currently, expenditure incurred by a trade or business in acquiring intellectual property can be written down over a period of five years. If legal and economic ownership of the intellectual property are acquired, the writing down allowance is given on due claim. Where only the economic ownership is acquired (that is, without legal ownership), an application has to be made to the EDB for the writing down allowance claim to be approved. The writing down period in respect of expenditure incurred by a Media and Digital Entertainment company or partnership to acquire qualifying intellectual property for Media and Digital Entertainment content would be reduced from five years to two years, subject to certain conditions to be announced. Approval would have to be obtained from the EDB for the accelerated writing down allowance. The approval is required in all instances, including where both legal and economic ownership of the intellectual property are acquired. The concession is applicable to qualifying intellectual property acquired during the period 22 January 2009 to 31 October 2013 (both dates inclusive). 22 January 2009 to 31 October 2013 (both dates inclusive) This concession is intended to lend support to Singapore s aspirations to becoming a leading media and intellectual property hub. Singapore s media industry has been growing strongly, and in recent times, leading digital media companies have set up in Singapore. The Media and Digital Entertainment industry includes sectors such as TV broadcast and production, publishing and printing, film, music and digital media. The concession seeks to further improve Singapore s attractiveness to encourage Media and Digital Entertainment businesses to actively exploit their intellectual property rights from Singapore.

16 12 Budget 2009 Corporate Tax Enhancement To Tax Incentive For Renovation And Refurbishment Expenses This incentive was first introduced in the 2008 Budget. It allows renovation costs which do not qualify for revenue deduction or capital allowance claim, to qualify for a three-year write-off. The write-off is capped at $150,000 for every relevant three-year period and applies to expenditure incurred from 16 February 2008 to 15 February To encourage businesses, especially the service sector establishments, to take advantage during this period of downturn and the slowdown in business, to refit their business premises in preparation for the recovery, the incentive has been enhanced by temporarily accelerating the write-down of the renovation and refurbishment expenses fully within one year. The concession applies to expenses incurred in 2009 and 2010 i.e. they would be claimable in the YA 2010 and The cap of $150,000 for every three-year period would remain. For businesses, particularly SMEs, which may suffer losses in 2009 or 2010, the concession would also be of help as unutilised claims may be carried forward for offset against income arising in future YA or carried back for offset against income in the preceding YA. Coupled with the enhancements to the loss carry-back system, namely, the increase in the quantum available and the extended claim period, businesses that had paid taxes in the past three years would be able to benefit from tax refunds.

17 Budget 2009 Corporate Tax 13 Enhancement Of Tax Deduction On Donations All donations made to Institutions of a Public Character (IPCs) and other approved beneficiaries (such as approved museums, prescribed educational and research institutions in Singapore) would qualify for double tax deduction, subject to meeting certain rules. Tax deduction on such donations made between 1 January 2009 and 31 December 2009 (both dates inclusive) would be enhanced from the current 200% to 250%. All existing rules applicable to the enhanced tax deduction would remain valid. 1 January 2009 to 31 December 2009 (both dates inclusive) The proposed change is intended to encourage greater charitable giving in Singapore during the economic downturn. The additional 50% tax deduction would certainly give an added incentive to donors and to promote the spirit of philanthropy.

18 14 Budget 2009 Corporate Tax Extension And Enhancement Of Withholding Tax Exemption For Maritime Industry Generally, interest payments to non-resident person would be subject to Singapore withholding tax at a rate of 15% unless exemption or a reduced rate of withholding tax is available under a relevant tax treaty. However under the BTS, withholding tax exemption is granted, subject to conditions prescribed, on interest payments by a shipping enterprise to a non-resident lender to acquire a ship that is registered with the SRS during the period from 1 November 2003 to 31 December 2008 (both dates inclusive). 1. Extension of the withholding tax exemption period under the BTS for another five years to 31 December Instead of owning a ship directly, a shipping enterprise may choose to own the ship through a SPC. The withholding tax exemption under the BTS would be extended to interest payments by a shipping enterprise on a loan taken up with a non-resident lender to acquire 100% of the shares in a SPC that owns 100% of a ship that is a new entrant to the SRS and registered with the SRS during the period from 1 January 2009 to 31 December 2013 (both dates inclusive). 1 January 2009 The withholding tax exemption was part of the BTS introduced to encourage shipping enterprises to transfer the registry of their ships to the SRS, as part of the Maritime Port Authority of Singapore s effort to promote Singapore as a maritime hub. The extension of the withholding tax exemption period for another five years is in line with this continuing effort and would continue to create economic spin-offs for the Singapore economy. In addition, the extension of the withholding tax exemption to include acquisition of shares in a SPC that owns the ship instead of direct acquisition allows shipping enterprises flexibility in structuring their ownership of ships.

19 Budget 2009 Corporate Tax 15 Tax Framework For Facilitating Corporate Amalgamations The existing tax position on corporate amalgamations does not take full consideration of the updated provisions of the Companies Act governing corporate amalgamations. The current tax practice is to treat the amalgamating companies as having ceased business and disposed of their assets and liabilities, and the amalgamated company as having acquired or commenced a new business. This can often lead to additional tax cost for the newly amalgamated company. A new tax framework for qualifying amalgamations would be introduced to alleviate the overall tax impact arising from corporate amalgamations. It is intended that the new framework would apply to qualifying corporate amalgamations where the amalgamated company takes over all the assets and liabilities of the amalgamating companies and the amalgamating companies cease to exist (commonly referred to as an absorption merger). The IRAS is expected to release details of the new tax framework for public consultation in February To be determined It is hoped that the new tax framework would include the following important issues: a. Deductibility of financing costs and other costs relating to an amalgamation. b. The carry forward and carry over of tax losses and unutilised capital allowances. Currently, tax losses and unutilised capital allowances may be forfeited either on cessation or where there is a major change in the shareholding of a loss entity. c. Unutilised provisions (for example, warranty provisions) which can often be disallowed on transfer. d. The extension of the existing stamp duty exemption rules to cover corporate amalgamations. It is also hoped that the new framework would equally address the tax treatment of business transfers under corporate group restructurings where similar uncertainty and tax implications exist. This review of the tax amalgamation rules is overdue, but nevertheless welcome.

20 16 Budget 2009 Corporate Tax Enhancement Of Fund Management Incentives Currently, specified income derived by a qualifying fund in respect of designated investments is exempt from tax in Singapore, if the qualifying fund is managed by any fund manager in Singapore. A qualifying fund can be in the form of companies, trusts or individual accounts. Where a qualifying fund is in the form of a company or trust administered by a non-resident trustee, it must not be 100% beneficially owned or held, directly or indirectly, by investors in Singapore (including investors who are resident individuals, resident non-individuals and permanent establishments in Singapore). Where the fund vehicle is constituted in the form of a limited partnership, the incentive conditions would be applied on the respective partners to ascertain if they qualify for the tax exemption scheme. Under the existing tax exemption scheme for fund management, resident nonindividual investors (alone or with their associates) of a qualifying fund are subject to a 30% investment limit in the fund if the qualifying fund has less than 10 investors and a 50% investment limit if the qualifying fund has 10 or more investors. The resident non-individual investors would have to pay a financial penalty to the Comptroller of Income Tax if there is a breach of the investment limit. The financial penalty is computed based on the prevailing corporate tax rate applied on the percentage of profits of the fund for the financial year corresponding to such an investor s percentage interest in the qualifying fund. It is proposed that a new Enhanced Tier fund management incentive be introduced for funds with a minimum fund size of S$50 million at the point of application. Under the new scheme, the incentive would be enhanced as follows: a. imposing no restriction on the residence status of the fund vehicles and investors; b. extending to fund vehicles in the form of limited partnerships; and c. lifting of the 30% and 50% investment limit imposed on resident nonindividual investors. An application is required to be submitted to the MAS for approval under this scheme.

21 Budget 2009 Corporate Tax 17 In order to allow a regular review of the incentive schemes and ensure that the schemes are useful and effective to the fund management industry, a sunset clause would be introduced for the new scheme as well as the existing fund management incentive such that both incentives would expire on 31 March 2014, subject to meeting the prescribed conditions. The MAS is expected to provide further details on the above proposal by April April 2009 to 31 March 2014 With the lifting of the investment limit imposed on the resident non-individual investors under the new scheme, it would allow resident corporates to fully enjoy the benefits from the tax exemption on qualifying income derived by qualifying funds which they have invested in. Such moves are major and significant steps in making Singapore an extremely competitive jurisdiction for fund management activities. However, no details are currently available as to what other conditions would be imposed under this new scheme and whether it would be restrictive for the fund managers and funds in meeting those conditions.

22 18 Budget 2009 Corporate Tax Enhancement Of Financial Sector Incentive Headquarter Services Scheme Currently, the FSI-HQ scheme provides for a concessionary tax rate of 10% on income from the provision of qualifying services to any of its approved office or any approved person outside Singapore. A company would generally not qualify as a FSI-HQ company if (i) it is not licensed or approved by the MAS or is exempted from such licensing or approval under any Act; and (ii) it provides treasury, investment or financial services in Singapore to any of its offices or its associated companies. It is proposed that the FSI-HQ scheme be enhanced in the following manner: a. to include services to an approved office or person in Singapore; b. to extend the scheme to admit a company that:- i. is wholly-owned directly or indirectly by or wholly owns directly or indirectly, a company that is licensed or approved by the MAS or by the MAS-equivalent in the company s home country; and ii. provides treasury, investment or financial services in Singapore to any of its offices or its associated companies. c. to grant withholding tax exemption on interest payable on qualifying loans taken up by a FSI-HQ company during the period from 22 January 2009 to 31 December 2013 to perform qualifying activities; d. to subsume the Qualifying Processing Services Company (QPC) scheme under the FSI-HQ scheme such that income derived by a FSI-HQ company from the provision of prescribed processing services in Singapore to any financial institution or another QPC would enjoy the concessionary tax rate of 10%. Companies which are currently enjoying the concessionary tax rate of 5% under the QPC scheme would continue to do so until the end of their respective awards. The MAS is expected to provide further details on the proposed changes by April January 2009 to 31 December 2013

23 Budget 2009 Corporate Tax 19 The enhancements introduced by the Government are in line with its continuing efforts to promote Singapore as the choice location for headquarter functions of financial institutions. In this time of global economic turmoil, global firms may be re-assessing where such headquarters should be located. As such, the timely introduction of the enhancement to the FSI-HQ scheme by the Government should provide an opportunity for Singapore to further enhance its attractiveness to these global firms to locate or expand their operations in Singapore.

24 20 Budget 2009 Corporate Tax Extension Of Deductibility Of Provisions For Collective Impairment Loan Losses Banks which are unable to provide for collective impairment losses under FRS 39 Financial Instruments: Recognition and Measurement, are required under MAS Notice 612 to continue to provide for collective impairment provisions of not less than 1% of the gross loans and receivables after deducting any individual impairment provisions that have been made. As a concession, the amount of collective impairment losses determined under MAS Notice 612 would be allowed as a tax deduction under Section 14I of the Income Tax Act. This concession is for a period of five years from the first YA that such banks are required to comply with FRS 39 for accounting purposes. This is also applicable to merchant banks and finance companies that are subject to provide for collective impairment provisions under MAS Notices 1005 and 811 respectively. To encourage banks, merchant banks and finance companies to continue to make adequate collective loan impairment losses, tax deductions on the provision determined under MAS Notices 612, 1005 and 811 respectively would be extended for another three years. YA 2011 or 2012 (depending on the financial year end) For banks, merchant banks or finance companies which are able to provide for impairment losses under FRS 39, the entire impairment amount on financial assets held on revenue account would be allowed as a tax deduction under existing tax legislation. In addition, based on the IRAS Circular issued on 30 December 2005, any additional collective impairment amount required under MAS Notices 612, 1005 and 811 on prudence grounds in addition to the amount determined under FRS 39, would also be allowed as a tax deduction. In this regard, the proposed extension of the deduction rule would be an added boost for banks, merchant banks or finance companies which are unable to provide for collective impairment losses under FRS 39.

25 Budget 2009 Corporate Tax 21 Extension And Enhancement Of Commodity Derivatives Trader Scheme The CDT scheme which expires on 26 February 2009, currently grants a concessionary tax rate of 5% on income derived by an approved standard/enhanced commodity derivatives trading company from: a. Trading in over-the-counter/exchange-traded commodity derivatives or freight derivatives; b. Services as an intermediary in connection with transactions relating to overthe-counter/exchange-traded commodity derivatives or freight derivatives. It is proposed that the CDT scheme be: a. Subsumed under the Financial Sector Incentive-Derivatives Market (FSI-DM) scheme; b. Enhanced with the lifting of counter-party restrictions for trades carried out on exchanges; and c. Extended to include emission derivatives. Further details pertaining to the proposed changes are expected to be released by the MAS by April February 2009 to 31 December 2013 By enhancing the CDT scheme, the Government is capitalising on an incentive scheme which has so far proved to be successful, in its bid to stimulate interest and growth in the derivatives trading market in Singapore. In particular, the lifting of counter-party restrictions would go a long way in the development of exchange-traded market here in Singapore and further strengthen Singapore s position as a leading financial hub in the region.

26 22 Budget 2009 Corporate Tax Enhancements Of Specified Income And Designated Investments Lists The Income Tax Act provides for a list of specified income and a list of designated investments for the following tax incentive schemes: Resident fund exemption scheme, Tax exemption for funds managed by a Singapore fund manager on behalf of foreign investors, Financial Sector Incentive Standard Tier Scheme, Financial Sector Incentive Fund Management Scheme, Approved Trustee Company Scheme, and Foreign Trust Scheme. It is proposed that specified income would be expanded to include the following: a. Income realized (other than through sale) on or after 22 January 2009 from designated investments in other forms (held to maturity, redemption, or where the realization leads to a transfer of both economic and legal ownership). b. Income derived from debt securities under the QDS Scheme specifically: i. Prescribed income directly attributable to QDS issued on or after such date as may be prescribed by regulations; ii. Amount payable on any Islamic debt securities which are QDS issued on or after 22 January The list of designated investments would also be enhanced to cover the following: a. Investments in structured products b. Units in business trusts c. Qualifying Islamic investments involving the Murabaha, Mudaraba, Ijara wa Igtina, Musharaka, Istisna and Salam concepts d. Emissions derivatives e. Stocks and shares of unlisted companies (whether resident or non-resident in Singapore) denominated in any currency f. Adjudicated and non-adjudicated liquidation claims The MAS is expected to provide further details on the above proposal by April 2009.

27 Budget 2009 Corporate Tax January 2009 It is essential to continue reviewing and updating the list of specified income and designated investments so as to maintain the relevance and attractiveness of the existing tax incentive schemes. This should reinforce Singapore s position as a leading Asian financial services hub. In addition, the proposed inclusion of certain Islamic investments in the list of designated investments should further profile Singapore as a favourable platform for investing into more Shariah-compliant financial investments. However, to fully appreciate the impact of the enhancement, further clarification (especially on the extended definition of specified income) is required from the MAS.

28 24 Budget 2009 Personal Tax Personal Income Tax Rebate Resident taxpayers received an income tax rebate of 20%, capped at $2,000 for YA Resident taxpayers would receive an income tax rebate of 20%, capped at $2,000. YA 2009 The Minister for Finance did not propose any reduction to the personal income tax rates. Based on our analysis, a resident taxpayer would derive the maximum benefit of the $2,000 income tax rebate at chargeable income of $120,714. For chargeable income above this amount, the capping of the tax rebate to $2,000 results in a lower effective rate, i.e. less than 20%. The proposed rebate which remains the same as last year falls below the general expectation, in light of the current economic downturn. Instalment Option For Personal Income Tax Payment Currently, personal income tax is payable within one month from the date of the notice of assessment. An individual taxpayer can settle in one lump sum or over a maximum of 12 interest-free monthly instalments, subject to IRAS approval. The 12 monthly instalment cycle starts in May and ends in April of the following year. Tax resident individuals who lost their jobs in 2008 or do so in 2009 could apply to the IRAS for instalment assistance to pay their personal income tax for YA 2009 in monthly instalments of up to 24 months. YA 2009 This option would help taxpayers weather the current economic climate by easing their cash flow.

29 Budget 2009 Personal Tax 25 Removal Of Income Tax On Net Annual Value The annual value of a property is the estimated annual rent that can reasonably be expected from year to year. The NAV is the annual value as shown in the property tax bill less allowable expenses. Currently, the NAV of a dwelling residence (including secondary residences) is taxable if it is used by the owner or on behalf of the owner for residential purposes and not for business purposes. An annual exemption threshold of up to $150,000 is allowed on the NAV of one owner-occupied property. Any excess of NAV above $150,000 is subject to income tax. The income tax on NAV would be removed. YA 2010 This proposed change would not impact most Singaporeans since the NAV of their residential properties are usually below the $150,000 threshold. However, for secondary residences for which owners could not secure tenants during the current adverse economic climate, the carrying cost would be eased as income tax on NAV would not be payable.

30 26 Budget 2009 Goods and Services Tax Recovery Of Input GST For Qualifying Funds Generally, funds based in Singapore are unable to register for GST if they only make exempt financial supplies or receive dividend income. Therefore, such funds would incur irrecoverable GST on their expenses, such as fund management fees charged by Singapore fund managers. Even if such funds make some taxable supplies to enable GST registration, they would only be entitled to claim the input GST incurred in their businesses to the extent that the input GST relates to the making of taxable supplies, which would typically be minimal. Therefore, such funds may incur substantial irrecoverable GST on their expenses. Qualifying funds that are managed by a prescribed Singapore fund manager would be allowed to claim a substantial portion of their input GST on prescribed expenses. The MAS is expected to release details of the proposed change by April January 2009 to 31 March 2014 (both dates inclusive) This proposed change would assist in promoting fund management and administration services in Singapore while encouraging more inward investments into Singapore and further enhancing Singapore s position as an international financial centre in Asia Pacific.

31 Budget 2009 Goods and Services Tax 27 GST Zero-Rating For The Aerospace Industry Zero-rating of GST is allowed for sale and lease of qualifying aircraft (defined to mean not used or intended for use for recreational or pleasure). Zero-rating also applies to the sale of aircraft components exported as well as MRO works performed directly on such qualifying aircraft. GST is payable on import of aircraft components or systems unless specific import relief or scheme such as MES has been granted to the importer. The scope of qualifying aircraft would be expanded to include all aircraft wholly used or intended to be wholly used for international transportation of goods and passengers. This includes private aircraft wholly used or intended to be wholly used for travel outside Singapore. Zero-rating is also extended to cover the sale, maintenance or repair services of aircraft components or systems as long as they form part of the qualifying aircraft. A new scheme would be introduced to facilitate the import of aircraft components or systems for qualifying aircraft without GST. The IRAS is expected to release details of the proposed changes by March April 2009 The zero-rating of the sale and lease of aircraft wholly used or intended to be wholly used for travel outside Singapore, despite being used or intended to be used for recreational or pleasure, is in line with the zero-rating of international transportation. This would encourage the sale and lease of private aircraft taking place in Singapore and would provide positive spin-off effects for the local economy, such as MRO and aircraft landing charges. The extension of zero-rating to include sale, maintenance or repair services of aircraft components or systems forming part of qualifying aircraft appears that the mere sale of qualifying aircraft components or systems for storage could be zerorated. In addition, the maintenance or repair of qualifying aircraft components or systems not fitted into the aircraft could be zero-rated. Such extension would alleviate the compliance cost of the MRO businesses as GST would not be chargeable. This in turn would enhance the competitiveness of the MRO industry.

32 28 Budget 2009 Goods and Services Tax The importation of aircraft components or systems of qualifying aircraft without GST would alleviate the cashflow burden of the importer which does not have the MES status as GST would otherwise be paid upfront and claimed back in its periodic GST return as input GST.

33 Budget 2009 Goods and Services Tax 29 GST And Duty Suspension On Goods Temporarily Removed From Zero-GST Or Licensed Warehouses For Auctions And Exhibitions GST and duty are payable when goods are removed from a Zero-GST or Licensed Warehouse. GST and duty would be suspended on goods (including wine) that are temporarily removed from a Zero-GST or Licensed Warehouse for auctions or exhibitions, even if the goods are sold during the auctions or exhibitions, provided the goods are returned to the Warehouse subsequently. Singapore Customs is expected to release details of the proposed change by March April 2009 This proposed change would alleviate the cashflow burden of the importer that does not have the MES status, as GST would otherwise be payable when the goods are removed from the Warehouse and subsequently claimed back in the importer s periodic GST return as input GST. The proposed change is also intended to promote and grow the specialised storage facilities and auctions or exhibitions industries in Singapore.

34 30 Budget 2009 Goods and Services Tax Duty And GST Exemption On Wine For Approved Wine Exhibitions And Conference Events Duty and GST are payable for wine used at wine exhibitions and conference events. Duty would be exempted and GST relief would be granted on up to three bottles of wine per label per day for each exhibitor and the main conference organiser at approved wine exhibitions and conference events. Singapore Customs is expected to release details of the proposed change by March April 2009 This proposed change would promote wine trading activities and assist in developing Singapore s wine industry. This appears to be in line with the Government s push for Singapore to be the meeting, incentive, conference and exhibition (MICE) centre in Asia Pacific.

35 Budget 2009 Property Tax 31 Rebate For Commercial And Industrial Properties The current property tax rate is 10%. Property owners are required to pay property tax based on 10% of the annual value of the properties. Annual value is the estimated annual rent of the property, excluding rents for furniture, fittings and service charge, and is determined by the IRAS based on rents of comparable properties. A property tax rebate of 40% would be given to owners of commercial and industrial properties. An example of the tax savings as a result of the proposed property tax rebate is as follows: Annual value of the property = $100,000 Property tax payable before rebate = $ 10,000 Less: 40% property tax rebate = $ 4,000 Tax payable after rebate = $ 6,000 Tax savings = $ 4,000 Calendar year 2009 As the rebate is meant to help businesses with their cash flow, property owners are encouraged to pass the benefit of the rebate to their tenants. However, as it is not a condition for property owners to pass down the tax savings to their tenants in order to enjoy the rebate, the success of this proposed measure would depend largely on the goodwill of such property owners.

36 32 Budget 2009 Property Tax Property Tax Deferral For Land Approved For Development Land owners are required to pay annual property tax in advance, in January, for the whole year from January to December. This is regardless of whether the land is let, vacant or under development. Property tax would be deferred for up to two years for land with valid Written Permission or Provisional Permission granted by the Urban Redevelopment Authority, and where the land sites are owned by companies. Only business owners (excluding individuals, clans and associations) would qualify to apply for the deferral. The property tax deferral would take effect from 22 January 2009 (where the Written Permission or Provisional Permission was issued on or before that date), or from the date of the Written Permission or Provisional Permission (where such permission is issued after 22 January 2009), or the date of tax liability of the new owner (where land is transferred after 22 January 2009, and there is a valid Written Permission or Provisional Permission as at the date of the tax liability), whichever is the latest. The deferral would expire on 21 January 2011, or on the date of issue of the first Temporary Occupation Permit or the first Certificate of Statutory Completion, or upon lapsing of the Written Permission or Provisional Permission and the development work is not in progress, or on the date when the owner goes into liquidation, insolvency or bankruptcy, or on the date of transfer of the property, whichever is the earliest. As this is a deferral and not an exemption, land owners who enjoyed the deferral would have to make good the property tax deferred. Upon expiry or revocation of the deferral period before 21 January 2011, land owners would be given one month to pay the tax in full, without demand. For deferrals that terminate on 21 January 2011, land owners would be given till 31 January 2011 to pay the tax in full, without demand. Land owners paying their property tax through GIRO would enjoy up to a maximum of 12 months interest-free instalments. The proposed deferral does not extend to vacant land and property tax would still apply to these properties at the current rate of 10%.

37 Budget 2009 Property Tax 33 Nonetheless, the deferral translates into immediate cash relief for owners of land approved for development in the current economic downturn. As the annual value of land under development is 5% of the freehold market value of the land, the proposed deferral would give rise to a cash-flow relief of 0.5% of the market value of the land per annum.

38 34 Budget 2009 Property Tax Deferment Of Increase In Assessment Rate For Hotel Rooms The property tax assessment rate for hotel rooms was due to increase from 20% to 25% with effect from 1 January The proposed increase in the property tax assessment rate for hotel rooms would be deferred for one year. Therefore, the property tax assessment rate for hotel rooms would remain at the current rate of 20% for Calendar year 2009 The deferment would help provide some relief for hoteliers in view of the uncertain conditions in the Singapore tourism industry. However, given the current outlook for the tourism industry, it remains to be seen if the one-year deferment would be enough for them to ride out the economic downturn.

39 Budget 2009 Property Tax 35 Property Tax Rebate For Owner- Occupied Residential Properties Currently, owners of owner-occupied residential properties enjoy the on-going property tax rebate amount which is based on the Annual Value of the property plus a further property tax rebate of up to $100 for 2008 and 2009 provided with the 2007 GST Offset Package. A one-off 40% property tax rebate would be given for owner-occupied residential properties. Calendar year The property tax rebate would help to ease household expenses in the economic downturn.

40 36 Budget 2009 Others Additional GST Credits And Senior Citizens Bonus The GST Offset Package announced in Budget 2007 helped to cushion the impact of the GST increase then by providing Singapore citizens with payments of GST Credits and Senior Citizens Bonus spread over a four-year period. The Government would double the payments of GST Credits and Senior Citizens Bonus to Singapore citizens in The additional payments would be paid on 1 March 2009 and would be on top of the original amounts that citizens would receive in July 2009 as part of the 2007 GST Offset Package. This measure would help households cope with their cash flow problems arising from unemployment or reduced incomes in the current economic climate. The amount of GST Credits and Senior Citizens Bonus payments in 2009 would, like the previous year, be dependent on the annual value (AV) of the individual s residence in 2008, his assessable income (AI) for YA 2008 and his age in 2009 and is summarized in the table shown below: AI AV < $6,000 $6,001 to $11,000 > $11,000 Up to $24,000 Aged 21-54: $250 x2 Aged 21-54: $200 x2 Aged 21-54: $100 x2 Aged 55-59: $400 x2 Aged 55-59: $300 x2 Aged 55-59: $150 x2 Aged 60 and above: $500 x2 Aged 60 and above: $400 x2 Aged 60 and above: $200 x2 $24,001 - $100,000 More than $100,000 NSFs/NS men $100 * $100 # * If an individual already received a payout in previous years, he would not receive the $100. # NSFs/NSmen would receive the $100 only in the year that they first qualify.

41 Budget 2009 Others 37 Service And Conservancy Charges Rebates S&CC rebates are provided to Singaporeans staying in HDB flats. The amount of rebates would depend on the flat size. The Government would grant an additional month of S&CC rebates to those living in one-room to three-room HDB flats while those living in four-room HDB flats to Executive apartments would receive an additional half-month rebate. The additional S&CC rebates would be paid in April The additional rebates would further help families cope with the current adverse economic climate. Rental Rebates Rental rebates are provided to eligible households in public rental flats. The amount of rebates would depend on the flat size. The Government would provide an additional month of rental rebates to eligible households in public rental flats. The additional rental rebates would be paid in March and December The additional rebates would supplement the rental rebates currently provided to low-income families as part of the 2007 GST Offset Package and would provide further assistance to them under the current adverse economic climate.