Partnering for the future

Budget 2016 News Alert Partnering for the future At a glance Addressing near-term concerns Transforming enterprises Transforming through innovation Shift from broad-based support Strengthening Singapore s competitiveness as a hub Strengthening the competitiveness of the financial and trading sector Strengthening the competitiveness of the maritime sector Singapore s Minister for Finance, Mr. Heng Swee Keat, delivered the 2016 Budget for the financial year 1 April 2016 to 31 March 2017 in Parliament on 24 March 2016. Singapore s economy grew by 2% in 2015. The Ministry of Trade and Industry expects the Singapore economy to grow at 1% to 3% for the year 2016. Singapore celebrated its 50th year of independence in 2015. The 2016 Budget focuses on transforming the economy through enterprise and innovation, and building a caring and resilient society with a strong spirit of partnership. While tackling the immediate cyclical downturn, 2016 Budget aims to steer Singapore towards economic transformation to ensure its continued relevance amidst the rapidly changing global economic and competitive landscape, catalysed by technological disruptions. These objectives will be achieved by supporting enterprises and industries to transform, and driving transformation through innovation with targeted measures, investing in skills development, and enhancing and investing in social infrastructure and care measures. A number of tax changes were announced to help businesses address their near-term concerns arising from the cyclical slowdown and to support businesses and industries in transformation and innovation so as to be wellplaced to compete in the changing global economic environment when broader global recovery happens. Nurturing a caring and Key resilient tax initiatives society Other changes Personal income tax Business Grants Portal National Trade Platform 1 l Budget 2016 News Alert

Addressing near-term concerns 1. Enhancing the Corporate Income Tax (CIT) rebate for year of assessment (YA) 2016 and YA 2017: The CIT rebate will be raised from 30% to 50% for YA 2016 and YA 2017, subject to a cap of S$20,000 rebate per YA. Transforming enterprises 2. Automation Support Package: SPRING will implement an Automation Support Package comprising four components to support firms to automate, drive productivity and scale up: a) Capability Development Grant: The Capability Development Grant will be expanded to support the rollout or scaling up of automation projects at up to 50% of the qualifying cost. The grant is capped at S$1m. b) Investment Allowance (IA): Qualifying projects may be eligible for an IA of 100% on the amount of approved capital expenditure, net of grants. This IA is in addition to the existing capital allowance for plant and machinery. The approved capital expenditure is capped at S$10m per project. c) Enhanced financing support: The government will increase the risk-share with participating financial institutions under SPRING s Local Enterprise Finance Scheme equipment loan, from 50% to 70% for qualifying projects undertaken by Small and Medium Enterprises (SMEs). The Local Enterprise Finance Scheme will also be expanded to cover equipment loan for non-smes at 50% risk-share with participating financial institutions. d) IE Singapore and SPRING will work together where relevant to help businesses to access overseas markets. 3. Enhancing the Mergers and Acquisitions (M&A) scheme: To support more M&As, the existing cap for qualifying M&A deals will be doubled from S$20m to S$40m such that: a) Tax allowance of 25% will be granted for up to S$40m of consideration paid for qualifying M&A deals per YA; and b) Stamp duty relief will be granted for up to S$40m of consideration paid for qualifying M&A deals per financial year. This change will take effect for qualifying M&A deals made from 1 April 2016 to 31 March 2020. IRAS will release further details by June 2016. 4. Extending the upfront certainty of non-taxation of companies gains on disposal of equity investments under section 13Z of the Income Tax Act (ITA): The scheme under section 13Z will be extended until 31 May 2022 (to cover disposal of equity investments from 1 June 2017 to 31 May 2022). All conditions of the scheme remain unchanged. 5. Extending the Double Tax Deduction (DTD) for Internationalisation scheme: The DTD for Internationalisation scheme will be extended for another four years from 1 April 2016 to 31 March 2020. The existing automatic 2 l Budget 2016 News Alert

DTD on expenses up to S$100,000 will also be extended to qualifying expenditure incurred during this period (1 April 2016 to 31 March 2020). All other conditions of the scheme remain unchanged. IE Singapore will release further details by June 2016. 6. Enhancing the Land Intensification Allowance (LIA) scheme: The LIA scheme grants an initial allowance of 25% and an annual allowance of 5% on the qualifying capital expenditure incurred for the construction or renovation of a qualifying building or structure. To encourage higher industrial land productivity, the scheme will be extended to buildings used by a user or multiple users, who are related, for one or multiple qualifying trades or businesses, if certain conditions are met. In addition, a new criterion requiring LIA applicants to be related to the qualifying user or users of the building will be introduced. These changes will take effect for LIA applications if: a) The application for LIA is made from 25 March 2016; and b) The application for planning permission or conservation permission for the construction or renovation is made from 25 March 2016. The qualifying capital expenditure for which an allowance may be made excludes any expenditure incurred before 25 March 2016. Transforming through innovation 7. Providing an election for the writing-down period for intellectual property rights (IPRs) under section 19B of the ITA: Under section 19B of the ITA, companies or partnerships can claim writing-down allowance (WDA) on the acquisition cost of qualifying IPRs over a period of five years. To recognise the varying useful lives of IPRs, while maintaining a simple and certain tax regime, companies or partnerships may elect for their section 19B WDA to be claimed over a writing-down period of five, 10 or 15 years. The election must be made at the point of submitting the tax return of the YA relating to the basis period in which the qualifying costs is first incurred. The election, once made, is irrevocable. This change will apply to qualifying IPR acquisitions made within the basis periods for YA 2017 to YA 2020. IRAS will release further details by 30 April 2016. 8. Introducing an anti-avoidance mechanism for IPR transfers under section 19B of the ITA: An anti-avoidance mechanism for IPR transfers will be included under section 19B to empower the Comptroller to make the following adjustments to the transacted price of the IPR, if the IPR is not transacted at open market value (OMV): a) If the acquisition price of the IPR is higher than the OMV of the IPR, the Comptroller may substitute the acquisition price with the OMV of the IPR and restrict the WDA based on the OMV of the IPR; and b) If the disposal price of the IPR is lower than the OMV of the IPR, the Comptroller may substitute the disposal price with the OMV of the IPR for the purpose of computing balancing charge. This change will apply to acquisitions, sales, transfers or assignments of IPRs that are made from 25 March 2016. 3 l Budget 2016 News Alert

Shift from broad-based support 9. Allowing the Productivity and Innovation Credit (PIC) scheme to lapse and lowering the cash payout rate: Under the PIC scheme, businesses can convert qualifying expenditure into a non-taxable cash payout at a cash payout rate of 60% on up to S$100,000 of expenditure across six qualifying activities per YA. The cash payout rate will be lowered from 60% to 40% for qualifying expenditure incurred from 1 August 2016. The PIC scheme was extended in Budget 2014 for three years (YA 2016 to YA 2018). It will expire and will not be available from YA 2019. Strengthening Singapore s competitiveness as a hub 10. Extending and enhancing the Finance and Treasury Centre (FTC) scheme: To enhance activities in the areas of finance and treasury, the FTC scheme will be extended until 31 March 2021 with the following enhancements: a) The concessionary tax rate will be lowered to 8% (from 10%). The substantive requirements to qualify for the scheme will be increased. b) To qualify for the concessionary tax rate, the FTCs will be allowed to obtain funds indirectly from approved offices and associated companies. Safeguards will be put in place to address the roundtripping risks. c) The scope of tax exemption granted under section 13(4) of the ITA will be expanded to cover interest payments on deposits placed with the FTC by its non-resident approved offices and associated companies, provided the funds are used for the conduct of qualifying activities or services. These changes will take effect from 25 March 2016. EDB will release further details by June 2016. Strengthening the competitiveness of the financial and trading sector 11. Extending and refining the Tax Incentive Scheme for trustee companies: Under the scheme, approved trustee companies are granted a concessionary tax rate of 10% on qualifying income derived from the provision of trustee and custodian services, and trust management or administration services. The scheme will be subsumed under the Financial Sector Incentive (FSI) scheme from 1 April 2016. The scope of qualifying activities will be expanded to align with trustee activities covered under the Financial Sector Incentive-Standard Tier (FSI-ST) scheme from 1 April 2016 for new and current incentive recipients. A concessionary tax rate of 12% will apply to new awards from 1 April 2016. The current incentive recipients will continue to enjoy existing benefits until the expiry of their awards and may apply for renewal of their awards under the FSI scheme thereafter. This change will take effect from 1 April 2016. MAS will release further details by June 2016. 4 l Budget 2016 News Alert

12. Extending and refining the Tax Incentive Scheme for insurance companies: The tax incentive schemes for Marine Hull and Liability Insurance, Specialised Insurance Business and Captive Insurance will be subsumed under the Insurance Business Development (IBD) umbrella scheme with the following changes: a) Marine Hull and Liability Insurance: The Marine Hull and Liability Insurance scheme will be subsumed under the IBD umbrella scheme from 1 April 2016. A concessionary tax rate of 10% will apply to new and renewal awards from 1 April 2016. b) Specialised Insurance Business: The Specialised Insurance Business scheme will be subsumed under the IBD umbrella scheme as an enhanced tier award from 1 September 2016, up until 31 August 2021. A concessionary tax rate of 8% will apply to new awards from 1 September 2019. As a transitional measure, a concessionary tax rate of 5% will apply to new awards from 1 September 2016 to 31 August 2019. A concessionary tax rate of 10% will apply to renewal awards from 1 September 2016. The scope of qualifying activities will be expanded to cover business of underwriting both onshore and offshore specialised risks from 1 September 2016 for new and current approved insurers. c) Captive Insurance: The Captive Insurance scheme will be subsumed under the IBD umbrella scheme from 1 April 2018. A concessionary tax rate of 10% will apply to new and renewal awards from 1 April 2018. The current approved insurers will continue to enjoy benefits under their existing insurance awards until the expiry of their awards, and may apply for renewal under the IBD scheme thereafter. MAS will release further details by June 2016. 13. Enhancing the Global Trade Programme (Structured Commodity Finance) [GTP(SCF)]: To strengthen Singapore s trade finance capabilities and encourage more SCF activities to be done in Singapore, the GTP(SCF) scheme will be enhanced to include the following qualifying activities: a) Consolidation, management and distribution of funds for designated investments; b) Mergers & Acquisitions advisory services; and c) Streaming financing. This change will take effect from 25 March 2016. IE Singapore will release further details by June 2016. Strengthening the competitiveness of the maritime sector 14. Enhancing the Maritime Sector Incentive (MSI): To further develop Singapore as an International Maritime Centre, the MSI will be enhanced as follows: a) The MSI-Shipping Enterprise (Singapore Registry of Ships) (MSI-SRS) and MSI-Approved International Shipping Enterprise (MSI-AIS) award will cover income derived from operation of ships used for exploration or exploitation of offshore energy or offshore minerals, or ancillary activity relating to exploration or exploitation of offshore energy or offshore minerals. 5 l Budget 2016 News Alert

b) The MSI-Maritime Leasing (Ship) [MSI-ML(Ship)] award will cover income derived from leasing of ships used for exploration or exploitation of offshore energy or offshore minerals, or ancillary activity relating to exploration or exploitation of offshore energy or offshore minerals. c) The restriction on the qualifying counterparty s requirement under MSI-ML (Ship) award will be removed. Therefore, tax exemption will be granted on income derived from leasing of ships used for qualifying activities to any counterparties for use outside the port limits of Singapore. The above changes will take effect from 25 March 2016. MPA will release further details of the change in (a) and (b) above by June 2016. Nurturing a caring and resilient society 15. Introducing the Business and IPC Partnership Schemes (BIPS): To incentivise employee volunteerism through businesses, a pilot BIPS will be introduced from 1 July 2016 to 31 December 2018. Under BIPS, businesses will enjoy an additional 150% tax deduction on wages and incidental expenses when they send their employees to volunteer and provide services to Institutions of a Public Character (IPCs), including secondments. This will be subject to the receiving IPCs agreement, with a yearly cap of S$250,000 per business and S$50,000 per IPC on the qualifying costs. MOF and IRAS will release further details by June 2016. Other changes 16. Allocation of expenses under section 14U of the ITA and pre-commencement expenses under Part V of the ITA: To ensure fair allocation of section 14U and pre-commencement expenses to pre-incentive and incentive income derived by businesses enjoying tax incentives, and to provide certainty on the allocation method to be used: a) Section 14U and pre-commencement expenses that are directly incurred to derive the pre-incentive income or incentive income will be specifically identified and set off against the relevant income. b) For all remaining section 14U and pre-commencement expenses, they will be allocated between the preincentive and incentive income based on income proportion (e.g., using turnover, gross profit). This change will take effect for section 14U and pre-commencement expenses that are incurred from 25 March 2016. IRAS will release further details by June 2016. 17. Introducing mandatory electronic-filing (e-filing) for CIT returns (including Estimated Chargeable Income, Form C and Form C-S): Mandatory e-filing of CIT returns will be implemented in stages as follows: YA 2018: Companies with turnover of more than S$10m in YA 2017 YA 2019: Companies with turnover of more than S$1m in YA 2018 YA 2020: All companies 6 l Budget 2016 News Alert

18. Introducing mandatory electronic-filing (e-filing) for PIC cash payout application: Mandatory e-filing of PIC cash payout applications will be introduced. The mandatory e-filing of PIC cash payout applications will be effective from 1 August 2016. 19. Withdrawing the Approved Investment Company scheme under section 10A of the ITA: As the scheme is assessed to be no longer relevant, the Approved Investment Company scheme will be withdrawn from YA 2018. 20. Extending the Not-for-Profit Organisation (NPO) tax incentive under section 13U of the ITA: To continue promoting Singapore as a hub for NPOs, the NPO tax incentive will be extended until 31 March 2022. 21. Withdrawing the tax exemption on income derived by non-residents trading in Singapore in specified commodities via consignment arrangements: As the scheme is assessed to be no longer relevant, the tax exemption for non-residents trading in Singapore in specified commodities via consignment arrangements will be withdrawn from YA 2018. Personal income tax 22. Introducing a cap of S$80,000 on personal income tax reliefs: The total amount of personal income tax reliefs that an individual can claim will be capped at S$80,000 per YA. This change will take effect from YA 2018. 23. Removing the tax concession on home leave passages for expatriate employees: The tax concession of taxing only 20% of the value of home leave passages for expatriate employees will be removed with effect from YA 2018. Business Grants Portal 24. Business Grants Portal: To improve access to the range of incentive schemes administered by various government agencies, a Business Grants Portal will be launched for grant application. The portal will start with grants from IE Singapore, SPRING, STB and Design Singapore and progressively expand to include grants from other government agencies. National Trade Platform 25. National Trade Platform: To support businesses, particularly in the logistics and trade finance sectors, a National Trade Platform will be developed as the next-generation platform. This platform will serve as a onestop trade information management system to allow electronic data sharing amongst businesses and government agencies and aims to become an open innovation platform to allow service providers to formulate value-added services and apps in areas such as operations, visibility and trade finance. This platform will eventually replace the current TradeNet and TradeXchange systems. By: Chung-Sim Siew Moon, Partner and Head of Tax and Toh Shuhui, Associate Director, Tax Services, Ernst & Young Solutions LLP 7 l Budget 2016 News Alert

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 +65 6309 8807 siew-moon.sim@sg. Singapore Tax Partners, Executive Directors and Directors Business Tax Services Tan Lee Khoon +65 6309 8679 lee-khoon.tan@sg. Lim Gek Khim +65 6309 8452 gek-khim.lim@sg. Angela Tan +65 6309 8804 angela.tan@sg. Global Compliance and Reporting Soh Pui Ming +65 6309 8215 pui.ming.soh@sg. Ang Lea Lea +65 6309 8755 lea-lea.ang@sg. Chai Wai Fook +65 6309 8775 wai-fook.chai@sg. Financial Services Organisation Amy Ang +65 6309 8347 amy.ang@sg. Stephen Bruce +65 6309 8898 stephen.bruce@sg. Desmond Teo +65 6309 6111 desmond.teo@sg. Tracey Kuuskoski +65 6309 6746 tracey.kuuskoski@sg. International Tax Services International Tax Chung-Sim Siew Moon +65 6309 8807 siew-moon.sim@sg. Helen Bok +65 6309 8943 helen.bok@sg. Choo Eng Chuan +65 6309 8212 eng.chuan.choo@sg. Goh Siow Hui +65 6309 8333 siow.hui.goh@sg. Latha Mathew +65 6309 8609 latha.mathew@sg. Lim Joo Hiang +65 6309 8654 joo-hiang.lim@sg. Business Incentives Advisory Tan Bin Eng +65 6309 8738 bin-eng.tan@sg. Tax Performance Advisory Michele Chen +65 6309 8582 michele.chen@sg. Chia Seng Chye +65 6309 8359 seng.chye.chia@sg. Ivy Ng +65 6309 8650 ivy.ng@sg. Teh Swee Thiam +65 6309 8770 swee-thiam.teh@sg. Nadin Soh +65 6309 8630 nadin.soh@sg. Corporate Services David Ong +65 6309 6180 david.ong@sg. Hugh von Bergen +65 6309 8819 hugh.von.bergen@sg. Ben Ellis Mudd +65 6718 1054 bmudd@sg. Louisa Yeo +65 6309 6479 louisa.yeo@sg. Indirect Tax Global Trade Adrian Ball +65 6309 8787 adrian.r.ball@sg. Shubhendu Misra +65 6309 8676 shubhendu.misra@sg. Donald Thomson +65 6309 8636 donald.thomson@sg. GST Services Yeo Kai Eng +65 6309 8208 kai.eng.yeo@sg. Kor Bing Keong +65 6309 8606 bing-keong.kor@sg. Chester Wee +65 6309 8230 chester.wee@sg. Tan Ching Khee +65 6309 8358 ching-khee.tan@sg. Jerome van Staden +65 6309 6386 jerome-van.staden@sg. Aw Hwee Leng +65 6309 8791 hwee-leng.aw@sg. Wong Hsin Yee +65 6309 8138 hsin-yee.wong@sg. Transfer Pricing Luis Coronado +65 6309 8826 luis.coronado@sg. Henry Syrett +65 6309 8157 henry.syrett@sg. Stephen Lam +65 6309 8305 stephen.lam@sg. Jonathan Bélec +65 6309 6175 jonathan.belec@sg. Chew Boon Choo +65 6309 8764 boon-choo.chew@sg. 8 l Budget 2016 News Alert

Asia-Pacific Tax Center Australia Tax Desk David Scott +65 6309 8788 david-edwin.scott@sg. Europe / Netherlands Tax Desk Barbara Voskamp +65 6309 8063 barbara.voskamp@sg. India Tax Desk Gagan Malik +65 6309 8524 gagan.malik@sg. Japan Tax Desk Kenji Ueda +65 6309 6005 kenji.ueda@sg. Korea Tax Desk Cho Hyun-Mi +65 6309 8595 hyun-mi.cho@sg. UK Tax Desk Billy Thorne +65 6718 1132 billy.thorne@sg. US Tax Desk Andy Balik +65 6309 6380 andy.baik@sg. Life Sciences Richard Fonte +65 6309 8105 richard.fonte@sg. Operating Model Effectiveness Nick Muhlemann +65 6309 6709 nick.muhlemann@sg. Paul Griffiths +65 6309 8068 paul.griffiths@sg. Blake Langridge +65 6309 6117 blake.langridge@sg. People Advisory Services Mobility Grahame Wright +65 6309 8701 grahame.k.wright@sg. Wu Soo Mee +65 6309 8917 soo.mee.wu@sg. Kerrie Chang +65 6309 8341 kerrie.chang@sg. Tina Chua +65 6309 8823 tina.chua@sg. Lee Claisse +65 6309 6977 lee.claisse@sg. Pang Ai Lin +65 6309 8694 ai-lin.pang@sg. Grenda Pua +65 6309 8753 grenda.pua@sg. Talent and Reward Samir Bedi +65 6309 6648 samir.bedi@sg. Transaction Tax Russell Aubrey +65 6309 8690 russell.aubrey@sg. Darryl Kinneally +65 6309 6800 darryl.kinneally@sg. Sandie Wun +65 6309 8081 sandie.wun@sg. Panneer Selvam +65 6309 8483 panneer.selvam@sg. 9 l Budget 2016 News Alert

EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit. 2016 Ernst & Young Solutions LLP. All Rights Reserved. APAC No. 12000727 ED None Cover photo courtesy of STB Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A). This document contains general information and should not be construed as legal, tax, accounting or any other professional advice or service. You should consult with a professional advisor familiar with your particular factual situation for advice concerning specific tax or other matters before making any decision. Ernst & Young Solutions LLP disclaims all liability and responsibility to you in respect of the content in this document. www./sg/tax 10 l Budget 2016 News Alert