31 March 2016 Global Tax Alert Singapore Budget 2016 a review of business tax proposals EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: www.ey.com/taxalerts Executive summary On 24 March 2016, Singapore released the Budget 2016 (the Budget) for the financial year 1 April 2016 to 31 March 2017. The Budget includes a number of tax changes 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 well-placed to compete in the changing global economic environment when broader global recovery happens. This Alert summarizes key tax initiatives in the Budget. Detailed discussion Automation Support Package SPRING 1 will implement an Automation Support Package that includes but is not limited to: a) Expansion of the Capability Development Grant to support the roll-out or scaling up of automation projects at up to 50% of the qualifying cost. The grant is capped at S$1m (US$730k). b) An Investment Allowance for qualifying projects 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 (US$7.3m) per project.
2 Global Tax Alert Mergers and Acquisitions (M&A) provisions The Budget offers to double the existing cap for qualifying M&A deals from S$20m (US$14.6m) to S$40m (US$29.2m). Accordingly: a) A 25% tax allowance will be granted for up to S$40m of consideration paid for qualifying M&A deals per year of assessment (YA) 2 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 becomes effective for qualifying M&A deals made from 1 April 2016 to 31 March 2020. Certainty of nontaxable gains on equity investment disposal The Budget will extend the nontaxable gain provision associated with disposition of equity investment until 31 May 2022 (to cover disposal of equity investments from 1 June 2017 to 31 May 2022). All conditions of the provision remain unchanged. Different amortization period election for intellectual property rights (IPRs) Under the current law, a five-year amortization period is provided for companies or partnerships on the acquisition cost of qualifying IPRs. Under the Budget proposal, companies or partnerships may elect a 5, 10 or 15 year amortization period. Once made, the election is irrevocable. This change will apply to qualifying IPR acquisitions made within the basis periods for YAs 2017 to 2020. Introduction of an anti-avoidance mechanism for IPR transfers The Budget proposes an anti-avoidance mechanism for IPR transfers and will enable 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 adjust the acquisition price to the OMV of the IPR and restrict the tax amortization amount based on the OMV of the IPR. b) If the disposal price of the IPR is lower than the OMV of the IPR, the Comptroller may increase the disposal price equal to the OMV of the IPR for the purpose of computing any recapture of tax amortization previously claimed. This change will apply to acquisitions, sales, transfers or assignments of IPRs that are made from 25 March 2016. Finance and Treasury Centre (FTC) incentive The FTC provision will be extended until 31 March 2021 with the following changes: a) The concessionary tax rate will be lowered from 10% to 8%. 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 round-tripping risks. c) The scope of tax exemption granted under section 13(4) of the Income Tax Act will be expanded to cover interest payments on deposits placed with the FTC by its nonresident approved offices and associated companies, provided the funds are used for the conduct of qualifying activities or services. These changes will become effective from 25 March 2016. Extending and refining the Tax Incentive for trustee companies Beginning on 1 April 2016, the incentive will be included under the Financial Sector Incentive (FSI). The scope of qualifying activities will be expanded to align with trustee activities covered under the Financial Sector Incentive- Standard Tier from 1 April 2016 for new and current incentive recipients. A concessionary tax rate of 12% (from 10%) will apply to new awards from 1 April 2016. The current incentive recipients will continue to enjoy existing benefits until the expiration of their awards, and may apply for renewal under the FSI incentive thereafter. Tax Incentives for captive insurance companies The tax incentive provisions for captive insurance companies will be included under the Insurance Business Development (IBD) umbrella with the following change: a 10% concessionary tax rate (from 0%) 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 incentive thereafter.
Global Tax Alert 3 Global Trade Programme (Structured Commodity Finance) [GTP (SCF)] The GTP (SCF) provides a concessionary tax rate of 5% or 10% on income from qualifying activities which will now include the following: a) Consolidation, management and distribution of funds for designated investments b) Mergers & Acquisitions advisory services c) Streaming financing This change will become effective from 25 March 2016. Maritime Sector Incentive (MSI) To further develop Singapore as an international maritime center, the Budget provides the following: a) The MSI-Shipping Enterprise (Singapore Registry of Ships) and MSI-Approved International Shipping Enterprise 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. 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 become effective from 25 March 2016. Endnotes 1. SPRING Singapore is a government agency under the Ministry of Trade and Industry responsible for helping Singapore enterprises grow and building trust in Singapore products and services. 2. The term year of assessment (YA) refers to the year in which income tax is assessed on the company. The basis period for a particular YA for a company is the financial year ending in the year preceding that YA.
4 Global Tax Alert For additional information with respect to this Alert, please contact the following: Ernst & Young Solutions LLP, International Tax Services, Singapore Chung-Sim Siew Moon +65 6309 8807 siew-moon.sim@sg.ey.com Chester Wee +65 6309 8230 chester.wee@sg.ey.com Desmond Teo +65 6309 6111 desmond.teo@sg.ey.com Tan Ching Khee +65 6309 8358 ching-khee.tan@sg.ey.com Jerome van Staden +65 6309 6386 jerome-van.staden@sg.ey.com Ernst & Young LLP, Singapore Tax Desk, New York Stella Teo +1 212 773 3647 stella.teo1@ey.com Ernst & Young LLP, Asia Pacific Business Group, New York Chris Finnerty +1 212 773 7479 chris.finnerty@ey.com Kaz Parsch +1 212 773 7201 kazuyo.parsch@ey.com Bee-Khun Yap +1 212 773 1816 bee-khun.yap@ey.com Ernst & Young LLP, Asia Pacific Business Group, Houston Trang Scott +1 713 751 5775 trang.scott@ey.com
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