Budget 2015 News Alert Building our future, strengthening social security At a glance Helping businesses cope with rising costs Supporting the internationalisation of businesses Supporting enterprise growth Strengthening the competitiveness of the financial sector Strengthening the competitiveness of the maritime sector Rationalising the corporate tax system Personal income tax Encouraging philanthropy Rationalising the tax system Goods and Services Tax Singapore s Deputy Prime Minister and Minister for Finance, Mr. Tharman Shanmugaratnam, delivered the Budget 2015 for the financial year 1 April 2015 to 31 March 2016 in Parliament on 23 February 2015. Singapore s economy grew by 2.9% in 2014. The Singapore Ministry of Trade and Industry expects the Singapore economy to grow by 2% to 4% in 2015. This is against an uncertain global economic outlook. As Singapore celebrates its 50th year of independence, this Jubilee Budget" is seen as one that shares the fruits of economic growth with Singaporeans by supporting families with children, middle-income families and providing greater assurance in retirement. Budget 2015 focuses on building Singapore s future in order to reach our next frontier as an economy. This will be achieved by investing in skills development, restructuring our economy through innovation and internationalisation, investing in economic and social infrastructure for the future and strengthening assurance in retirement. To achieve the above objectives and finance the future expenditure needs, it is critical to preserve a fair and sustainable fiscal system. Raising the personal income tax rates of top income earners is one of the ways to strengthen Singapore s future revenues. 1 l Budget 2015 News Alert
A number of tax changes were announced to help businesses cope with rising costs, to support businesses for innovation, internationalisation and mergers and acquisitions, as well as to preserve a fair and sustainable fiscal system. Key tax initiatives Helping businesses cope with rising costs 1. Granting a Corporate Income Tax (CIT) rebate for year of assessment (YA) 2016 and YA 2017: Given that businesses will continue to face cost pressures in this period of restructuring, the 30% CIT rebate will be provided for another two YAs (YA 2016 and YA 2017), with a reduced cap of S$20,000 per company per YA. 2. Allowing the Productivity and Innovation Credit (PIC) Bonus to lapse: Businesses that spent a minimum of S$5,000 in qualifying PIC investments in a YA received a dollar-for-dollar matching cash bonus of up to S$15,000 over YA 2013 to YA 2015. The PIC bonus was intended as a transitional measure and will lapse after YA 2015. Supporting the internationalisation of businesses 3. Extending and enhancing the Mergers & Acquisitions (M&A) scheme: To further support companies, especially SMEs, to grow via strategic acquisitions, the scheme will be extended till 31 March 2020 with the changes below: a) Revised tax benefits under the M&A scheme: i) The M&A allowance rate will be increased from 5% to 25% ii) The cap on the value of qualifying acquisitions for the M&A allowance per YA will be revised from S$100m to S$20m iii) Stamp duty relief on the transfer of unlisted shares will correspondingly be capped at S$20m on the value of qualifying M&A deals, which works out to a cap of S$40,000 of stamp duty per financial year (FY). This is lower than the S$200,000 cap before the change and iv) No change to the tax allowance on transaction costs incurred on qualifying M&A, which will remain at 200% subject to an expenditure cap of S$100,000 per YA and written down in one year. b) Revised shareholding eligibility tiers The acquiring company must acquire ordinary shares in a target company, whether directly or indirectly (i.e., by its acquiring subsidiary that is set up for the purpose of holding shares and does not carry on a trade or business), that results in the acquiring company holding: 2 l Budget 2015 News Alert
i) At least 20% ordinary shareholding in the target company (if the acquiring company s original shareholding in the target company was less than 20%), subject to conditions or ii) More than 50% ordinary shareholding in the target company (if the acquiring company s original shareholding in the target company was 50% or less). The existing 75% shareholding eligibility tier will be removed. Acquisitions of ordinary shares that result in the acquiring company owning at least 75% ordinary shareholding (if the acquiring company s original shareholding was more than 50% but less than 75% at the beginning of the basis period for a YA or FY) will no longer qualify under the M&A scheme. c) 12-month look-back period for step acquisitions that straddle across FYs Currently, acquiring companies can elect for its ordinary share acquisitions in a target company made during a 12-month period to be consolidated to qualify for the M&A tax benefits. The 12-month period must end on the share acquisition date on which the 50% or 75% shareholding threshold is met, or the date of a subsequent acquisition that is conducted within the same basis period. This 12-month look-back period will be removed to simplify the scheme. The above changes will take effect for qualifying acquisitions made from 1 April 2015. 4. Enhancing the Double Tax Deduction (DTD) for Internationalisation scheme: Businesses may claim a 200% tax deduction on qualifying expenditure incurred on qualifying market expansion and investment development activities, subject to conditions. The scope of qualifying expenditure will be enhanced to include qualifying manpower expenses incurred from 1 July 2015 to 31 March 2020 for Singaporeans posted to new overseas entities, capped at S$1m per approved entity per year, subject to conditions. Businesses will have to apply to International Enterprise (IE) Singapore to enjoy the DTD. 5. Introducing the International Growth Scheme (IGS): Under the IGS, to support high potential companies in their growth overseas, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities. The incremental income refers to income in excess of the company s average of the last three years income from the relevant qualifying activities such as headquarters functions and specific business lines. This new scheme will be administered by IE Singapore. The approval window for the new scheme will be from 1 April 2015 to 31 March 2020. Supporting enterprise growth 6. Extending and enhancing the Angel Investors Tax Deduction (AITD) scheme: Under the scheme, to enjoy a tax deduction of 50% of the cost of the qualifying investment, an approved angel investor needs to, amongst other conditions, invest a minimum of S$100,000 into a start-up company within a year, and hold the 3 l Budget 2015 News Alert
qualifying investment for a continuous period of two years. There is a cap on the amount of expenditure incurred on investments that qualify for the deduction at S$500,000 per YA. The scheme will be extended till 31 March 2020. In addition, new qualifying investments made from 24 February 2015 to 31 March 2020 that are co-funded by the Government under the SPRING Start-up Enterprise Development Scheme (SEEDS) or the Business Angel Scheme (BAS) will also be allowed to qualify for the AITD. 7. Refining the tax incentives for venture capital funds and venture capital fund management companies: A 5% concessionary tax rate will be accorded to approved venture capital fund management companies managing funds under section 13H of the Income Tax Act (ITA) on their specified income. The approval window will be from 1 April 2015 to 31 March 2020. With this new incentive, the Pioneer Service incentive for venture capital fund management companies will be withdrawn from 1 April 2015. This change will not affect pioneer certificates already issued. A review date of 31 March 2020 will be legislated for section 13H of the ITA to ensure that the relevance of the scheme is periodically reviewed. 8. Extending the Investment Allowance Energy Efficiency (IA-EE) schemes: The two schemes (IA-EE scheme and IA-EE for Green Data Centres scheme) will be combined into one scheme known as the Investment Allowance Energy Efficiency scheme from 1 March 2015 and the scheme will be extended till 31 March 2021. This scheme will be administered by the Economic Development Board. 9. Extending the Development and Expansion Incentive for International Legal Services (DEI-Legal) scheme: The DEI-Legal scheme will be extended till 31 March 2020. 10.Introducing a review date for the Approved Foreign Loan (AFL): A review date of 31 December 2023 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed. In addition, the minimum loan quantum under the AFL incentive will be increased from S$200,000 to S$20m from 24 February 2015. The Minister for Trade and Industry may approve an AFL application on a foreign loan lower than the legislated minimum loan quantum of S$20m. 11.Introducing a review date for the Approved Royalties Incentive (ARI): A review date of 31 December 2023 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed. 12. Introducing a review date for the Writing Down Allowance (WDA) scheme on capital expenditure incurred on the acquisition of an indefeasible right to use (IRU) of any international telecommunications submarine cable system under section 19D of the ITA: A review date of 31 December 2020 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed. Strengthening the competitiveness of the financial sector 13.Extending the tax deductions for collective impairment provisions made under the Monetary Authority of Singapore (MAS) Notices: The tax concessions will be extended till YA 2019 or YA 2020, 4 l Budget 2015 News Alert
depending on the FY end of the bank or finance company. This extension ties in with the new accounting standard on impairment in Singapore which will be effective for FY beginning on or after 1 January 2018. 14.Extending and refining the tax incentive scheme for insurance businesses: This scheme will be extended till 31 March 2020 as the Insurance Business Development Incentive. In addition, a renewal framework will be introduced with effect from 1 April 2015 to encourage existing recipients of the incentive to continue expanding their operations in Singapore. 15. Improving the Enhanced-Tier Fund tax incentive scheme: To accommodate master-feeder fund structures that hold their investments via Special Purpose Vehicles (SPVs), master and feeder funds and SPVs within a master-feeder fund structure may apply for the scheme and meet the economic conditions on a collective basis, subject to conditions. This change will take effect for applications made from 1 April 2015. 16. Extending the tax concessions for listed real estate investment trusts (REITs): Currently, the following income tax and stamp duty concessions apply to REITs listed on the Singapore Stock Exchange: a) Concessionary income tax rate of 10% for non-tax-resident non-individual investors. b) Tax exemption on qualifying foreign-sourced income (i.e. foreign-sourced dividend income, interest income, trust distributions and branch profits) for listed REITs and wholly-owned Singapore tax resident subsidiary companies of listed REITs, subject to conditions that the overseas property: i) Is acquired by the trustee of the REIT or its wholly-owned Singapore tax resident subsidiary company on or before 31 March 2015 and ii) Continues to be beneficially owned by the trustee of the REIT or its wholly-owned Singapore tax resident subsidiary company after 31 March 2015. c) Stamp duty remission on the transfer of a Singapore immovable property to a REIT and d) Stamp duty remission on the transfer of 100% of the issued share capital of a Singapore-incorporated company that holds immovable properties situated outside Singapore, to the REIT. Other than the stamp duty concessions which will be allowed to lapse after 31 March 2015, the above remaining concessions will be extended till 31 March 2020. 17.Extending and enhancing the Goods and Services tax (GST) remission for listed REITs and listed Registered Business Trusts (RBTs) in the infrastructure business, ship leasing and aircraft leasing sectors: The existing GST remission will be extended till 31 March 2020. In addition, REITs and RBTs qualifying under the current GST remission will be allowed to claim GST on business expenses incurred to 5 l Budget 2015 News Alert
set up and maintain SPVs that are used solely to raise funds for the REITs or RBTs, and which do not hold qualifying assets of the REITs or RBTs, directly or indirectly. Strengthening the competitiveness of the maritime sector 18. Extending and enhancing the Maritime Sector Incentive (MSI): To further develop Singapore as an International Maritime Centre, the MSI will be enhanced as follows: a) The automatic withholding tax exemption regime will now cover finance leases, hire-purchase arrangements, and loans used to finance equity injection into wholly-owned SPVs or intercompany loans to wholly-owned SPVs for the SPVs purchase/construction of vessels, containers and intermodal equipment b) The definition of qualifying ship management activities for the purpose of the MSI-Shipping Enterprise (Singapore Registry of Ships) (MSI-SRS), MSI-Approved International Shipping Enterprise (MSI-AIS) award and MSI-Shipping-related Support Services (MSI-SSS) award will be updated to keep pace with industry changes c) The MSI-SRS and MSI-AIS award will now cover mobilisation fees, demobilisation fees, holding fees, and incidental container rental income that are derived in the course of qualifying shipping operations d) Qualifying profits remitted from approved foreign branches by MSI-AIS entities will now enjoy exemption e) Existing MSI-SSS award recipients can renew their award tenure for another five years, subject to qualifying conditions and higher economic commitments and f) The MSI-Maritime Leasing (MSI-ML) award will now cover income derived from finance leases treated as sale. The enhancements to the MSI will take effect for existing and new award recipients from 24 February 2015. The approval window to award MSI-AIS for qualifying entry players, MSI-ML(Ship), MSI-ML(Container) and MSI- SSS will be extended till 31 May 2021. In addition, the automatic withholding tax exemption regime will be extended to qualifying payments made on qualifying loans taken on or before 31 May 2021. Rationalising the corporate tax system 19.Withdrawing the concessionary tax rate on income derived from offshore leasing of machinery and plant under section 43I of the ITA: Targeted tax incentives are available for leasing of aircraft, aircraft engines, ships and sea containers. To simplify the tax regime, the 10% concessionary tax rate on income 6 l Budget 2015 News Alert
derived by a leasing company in respect of offshore leasing of machinery and plant will be withdrawn from 1 January 2016. 20.Withdrawing the Approved Headquarters incentive under section 43E of the ITA: This incentive will be withdrawn from 1 October 2015. Companies performing qualifying headquarters activities or services in Singapore to network companies may qualify for the Development and Expansion Incentive, subject to meeting of conditions. Personal income tax 21. Enhancing progressivity of the personal income tax rate structure of tax resident individual taxpayers: The changes to the tax rates are made to enhance progressivity of the personal income tax rate regime and strengthen future revenues. The income tax rates for chargeable income above S$160,000 will be increased. The highest income tax rate applicable for chargeable income in excess of S$320,000 will be increased from 20% to 22%. This new personal income tax rate structure will take effect from YA 2017. 22.Personal income tax rebate for tax resident individual taxpayers: A personal income tax rebate of 50%, capped at S$1,000 per taxpayer, will be granted to all tax resident individual taxpayers for YA 2015. 23.Allowing individual taxpayers to claim a specified amount of expenses against his passive rental income derived from residential properties in Singapore: To simplify tax compliance, an individual who derives passive rental income in the basis period for YA 2016 or a subsequent YA from the letting of a residential property in Singapore (referred to as qualifying rental income ) can, in lieu of claiming the actual amount of deductible expenses incurred (excluding interest expenses) against his qualifying rental income, claim a specified amount of expenses as a proxy for the deductible expenses (determined based on 15% of the gross rental income derived from that residential property). The individual can continue to deduct against his qualifying rental income, any deductible interest expense. This tax change does not apply to any rental income derived by an individual through a partnership in Singapore and from a trust property. 24.Tax exemption for non-tax-resident mediators: To promote Singapore s commercial mediation sector, income derived by a non-tax resident mediator for mediation work carried out in Singapore from 1 April 2015 to 31 March 2020 will be exempt from tax. 25. Tax exemption for non-tax resident arbitrators: Non-tax-resident arbitrators are exempted from tax on income derived on or after 3 May 2002 from arbitration work carried out in Singapore. A review date of 31 March 2020 will be legislated for the tax exemption for non-tax resident arbitrators to ensure that the relevance of the scheme is periodically reviewed. Encouraging philanthropy 26.Extending and enhancing the 250% tax deduction for donations: The tax deduction rate for qualifying donations made to Institutions of a Public Character (IPCs) and other qualifying recipients (such as approved 7 l Budget 2015 News Alert
museums, prescribed educational institutions) in 2015 will be increased from the current 250% to 300%. The tax deduction will revert to 250% for qualifying donations made from 1 January 2016 to 31 December 2018 to IPCs and other qualifying recipients. Rationalising the tax system 27.Withdrawing the tax concession on royalties and other payments from approved intellectual property or innovation under section 10(16) of the ITA: As the tax concession is assessed to be no longer relevant, the section 10(16) concession will be withdrawn from YA 2017. Goods and Services Tax (GST) 28.Simplifying pre-registration GST claim rules for GST-registered businesses: To ease compliance, the claiming of pre-registration GST will be simplified to allow a newly GST-registered business to claim preregistration GST in full on the following goods and services that are acquired within six months before the GST registration date of the business: a) Goods held by the business at the point of GST registration and b) Property rental, utilities and services, which are not directly attributable to any supply made by the business before GST registration Businesses no longer have to apportion the pre-registration GST on the above goods and services even if these goods and services have been used to make supplies straddling GST registration or these goods have been partially consumed before GST registration. This is provided the use of these goods and services after GST registration is for the making of taxable supplies and not exempt supplies. This change will take effect for businesses that are GST-registered from 1 July 2015. By: Ivy Ng, Partner, Tax Services and Teh Swee Thiam, Director, Tax Services, Ernst & Young Solutions LLP 8 l Budget 2015 News Alert
Tax leadership If you would like to know more about our services or the issues discussed please contact: Adrian Ball Managing Partner Tax, Asean +65 6309 8787 adrian.r.ball@sg.ey.com Chung-Sim Siew Moon Partner and Head of Tax, Singapore +65 6309 8807 siew-moon.sim@sg.ey.com Singapore Tax Partners and Directors Business Tax Services Tan Lee Khoon +65 6309 8679 lee-khoon.tan@sg.ey.com Lim Gek Khim +65 6309 8452 gek-khim.lim@sg.ey.com Angela Tan +65 6309 8804 angela.tan@sg.ey.com Helen Bok +65 6309 8943 helen.bok@sg.ey.com Choo Eng Chuan +65 6309 8212 eng.chuan.choo@sg.ey.com Goh Siow Hui +65 6309 8333 siow.hui.goh@sg.ey.com Lim Joo Hiang +65 6309 8654 joo-hiang.lim@sg.ey.com Latha Mathew +65 6309 8609 latha.mathew@sg.ey.com Tan Bin Eng +65 6309 8738 bin-eng.tan@sg.ey.com Tan Ching Khee +65 6309 8358 ching-khee.tan@sg.ey.com Tax Performance Advisory Michele Chen +65 6309 8582 michele.chen@sg.ey.com Global Compliance and Reporting Soh Pui Ming +65 6309 8215 pui.ming.soh@sg.ey.com Ang Lea Lea +65 6309 8755 lea-lea.ang@sg.ey.com Chai Wai Fook +65 6309 8775 wai-fook.chai@sg.ey.com Cheong Choy Wai +65 6309 8226 choy.wai.cheong@sg.ey.com Chia Seng Chye +65 6309 8359 seng.chye.chia@sg.ey.com Ivy Ng +65 6309 8650 ivy.ng@sg.ey.com Nadin Soh +65 6309 8630 nadin.soh@sg.ey.com Teh Swee Thiam +65 6309 8770 swee-thiam.teh@sg.ey.com Corporate Services David Ong +65 6309 6180 david.ong@sg.ey.com Corporate Secretarial Support Services Sophia Lim +65 6309 6299 sophia.lim@sg.ey.com Financial Services Organization Amy Ang +65 6309 8347 amy.ang@sg.ey.com Chong Lee Siang +65 6309 8202 lee.siang.chong@sg.ey.com Stephen Bruce +65 6309 8898 stephen.bruce@sg.ey.com Desmond Teo +65 6309 6111 desmond.teo@sg.ey.com Hugh von Bergen +65 6309 8819 hugh.von.bergen@sg.ey.com Ben Ellis Mudd +65 6309 1054 bmudd@sg.ey.com Human Capital Grahame Wright +65 6309 8701 grahame.k.wright@sg.ey.com Wu Soo Mee +65 6309 8917 soo.mee.wu@sg.ey.com Kerrie Chang +65 6309 8341 kerrie.chang@sg.ey.com Tina Chua +65 6309 8823 tina.chua@sg.ey.com Lee Claisse +65 6309 6977 lee.claisse@sg.ey.com Pang Ai Lin +65 6309 8694 ai-lin.pang@sg.ey.com Grenda Pua +65 6309 8753 grenda.pua@sg.ey.com Panneer Selvam +65 6309 8483 panneer.selvam@sg.ey.com Jeffrey Teong +65 6309 8610 jeffrey.teong@sg.ey.com Indirect Tax Global Trade Adrian Ball +65 6309 8787 adrian.r.ball@sg.ey.com Shubhendu Misra +65 6309 8676 shubhendu.misra@sg.ey.com GST Services Yeo Kai Eng +65 6309 8208 kai.eng.yeo@sg.ey.com Kor Bing Keong +65 6309 8606 bing-keong.kor@sg.ey.com Chew Boon Choo +65 6309 8764 boon-choo.chew@sg.ey.com 9 l Budget 2015 News Alert
International Tax Services International Tax Chung-Sim Siew Moon +65 6309 8807 siew-moon.sim@sg.ey.com Chester Wee +65 6309 8230 chester.wee@sg.ey.com Aw Hwee Leng +65 6309 8791 hwee-leng.aw@sg.ey.com Wong Hsin Yee +65 6309 8138 hsin-yee.wong@sg.ey.com Transfer Pricing Luis Coronado +65 6309 8826 luis.coronado@sg.ey.com Henry Syrett +65 6309 8157 henry.syrett@sg.ey.com Life Sciences Richard Fonte +65 6309 8105 richard.fonte@sg.ey.com Operating Model Effectiveness Matthew Andrew +65 6309 8038 matthew.andrew@sg.ey.com Paul Griffiths +65 6309 8068 paul.griffiths@sg.ey.com Transaction Tax Russell Aubrey +65 6309 8690 russell.aubrey@sg.ey.com Darryl Kinneally +65 6309 6800 darryl.kinneally@sg.ey.com Sandie Wun +65 6309 8081 sandie.wun@sg.ey.com Stephen Lam +65 6309 8305 stephen.lam@sg.ey.com Senaka Senanayake +65 6309 8040 senaka-k.senanayake@ sg.ey.com Asia-Pacific Tax Center Australia Tax Desk David Scott +65 6309 8788 david-edwin.scott@sg.ey.com India Tax Desk Gagan Malik +65 6309 8524 gagan.malik@sg.ey.com Korea Tax Desk Cho Hyun-Mi +65 6309 8595 hyun-mi.cho@sg.ey.com UK Tax Desk Daniel Dickinson +65 6309 6373 daniel.dickinson@sg.ey.com 10 l Budget 2015 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 organization, 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 organization, please visit ey.com. 2015 Ernst & Young Solutions LLP. All Rights Reserved. APAC No. 12000393 ED None 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.ey.com/sg/tax 11 l Budget 2015 News Alert