The finance Minister Mr. Heng Swee Keat unveiled his maiden budget on March 24, 2016. Budget 2016 has launched Singapore on its next lap of economic growth and development by integrating elements that are meant to tackle short-term challenges while steering it towards its long-term goals. It is deemed to be the blueprint to gear up the country for its successful progress to SG100 through a streamlined economic transformation. Here we have enlisted the top fifteen points for businesses to take note from Budget 2016.
1. Enhanced Corporate Tax Rebate
The Corporate Income Tax (CIT) rebate has been enhanced to 50% for the YA 2016 and YA 2017. The cap of S$20,000 remains unchanged for each YA.
This will benefit tax paying small companies. Smaller companies do not stand to benefit from the tax rebate. Earlier in the ‘Budget 2016 Wish List’ that we published in February we had wished for an enhanced rebate as a fire fighting measure to mitigate the short-term cash woes of the small companies.
2. Special Employment Credit Extended
Under the scheme employers who employ workers aged above 50 years earning up to S$4,000 a month, receive up to 8.5% of the employee’s monthly wage from the government. The wage offset rate for 2016 was 8% and the scheme was due to expire on 31 December 2016.
The scheme has now been extended for another 3 years until 2019. From 1 January 2017 to 31 December 2019. The SEC will be made available for workers aged 55 and above and the offset amount will be tiered according to the age of the workers as below
|Age of Worker||2017-2019|
|55-59||Up to 3 %|
|60 to 64||Up to 5%|
|65||Up to 8 % + (Additional 3% until the reemployment age is raised)|
The extension of the scheme renders some relief to SMEs struggling with rising cost and tight labour market. The scheme also improves the employability of workers in the higher age band who will find it difficult to find job in the emerging economic conditions. This is essential for the ageing nation and also given the tight labour market situation it will be an incentive for employers to hire the older and experienced workers.
3. Working Capital Loan For SME
The new scheme, targeted at cash strapped small SMEs, will be available for three years starting from 2016. Under the scheme, the government will co-share 50% of the default risk of these loans with participating financial institutions. Loans of up to S$300,000 can be obtained and the funds must be used for daily operations or for upgrading and automation of equipment and factory.
The SMEs will increasingly face cash flow troubles, amidst the tightening credit situation. The government’s co-sharing of risk will improve their access to financing. In the ‘Budget 2016 Wish List’ we had pointed out the need for more SME targeted financing schemes backed by government risk sharing initiatives. We are glad to note that this scheme is in congruence with our wish.
4. Changes to Foreign Worker Levy Hike
The levy increase for the Work Permit holders in the Marine and Process sectors, which was supposed to take effect this year, will be deferred for one year. The levy for the Manufacturing sector will remain unchanged. The levy hikes announced in 2015 for the Services and Construction sector will come into effect as planned in 1 July 2016.
The minimum experience requirement for Man-Year Entitlement (MYE)-waiver for the construction sector workers will be raised from two to three years from 1 July 2017.
The sluggish global economy has caused seismic shock to the enterprises in the marine and process sectors, whose profits are deeply dented. The deferral of levy hike will offer a welcome respite to the operators in these sectors. Services and Construction sector operators may feel let down.
5. Changes to PIC Scheme
The cash payout option has been scaled down to 40% per YA for qualifying expenditures incurred after 1 August 2016. The qualifying expenditure is capped at S$100,000. Accordingly, companies can claim cash payout of up to S$40,000 per YA. The scheme will expire in 2018. The 400% tax deduction on qualifying expenditure remains unchanged.
This will impact some small companies that have invested or in the midst of rolling out on productivity measures. However they may find some rescue from the newly unveiled targeted schemes under the Industry Transformation Programme.
6. Automation Support Package
The new programme by SPRING will support efforts of companies to automate, enhance productivity and scale up their business. The package will be available for the next three years and S$400 million has been allocated for this. It comprises of four components:
- Grant of up to 50% on qualifying costs for rolling out or scaling up automation projects. The grant is capped at S$1 million.
- Investment allowance of up to 100% for automation equipment for qualifying projects.
- Government will increase its risk sharing with participating financial institutions from 50% to 70% for qualifying automation projects
- IE Singapore in collaboration with SPRING will help firms to internationalize.
With PIC being phased out, we anticipate that this strongly targeted package will evolve and comprehensively coordinate and promote the automation efforts of companies. Previously no grants were available for scale up of automation projects, the scheme fills the void now. The increased risk sharing will improve the access of smaller companies to loans.
7. Non-Taxation of Gains on Disposal of Equity Investments Extended
The tax exemption on gains made on disposal of equity shares was previously scheduled to expire on 31 May 2017. Now it has been extended for a period of another five years until 31 May 2022.
While we wished for the exemption to be made permanent in our ‘Budget 2016 Wish List’, the certainty of exemption for another five years is indeed a great breather for companies in the prevailing economic scenario. The medium size companies can rely on foreign enterprise equity investors to support their expansion plans. The large companies can resort to restructuring their businesses without worrying about tax implications.
8. SME Mezzanine Growth Fund (MGF) Increased
The SME Mezzanine Growth Fund will be expanded from $100 million to $150 million. The government will provide additional S$25 million to match new private sector investment on 1:1 basis. MGF, a co-investment programme was originally launched in 2014. This enhanced funding will be dedicated to smaller companies whose annual income does not exceed S$50 million.
The dedicated fund will be helpful for smaller companies whose expansion is challenged by tightening credit market.
9. Enhanced M&A Allowance
A qualifying Singapore company can claim a deduction of 25% per YA on the qualifying M&A deals, for up to S$20 million of the transaction value. Budget 2016 has increased the cap on acquisition value to S$40 million, thus doubling the maximum amount claimable to S$10 million.
For qualifying M&A deals, a Stamp Duty Relief, on transfer of unlisted shares, is available on up to S$40 million of the acquisition value (revised up from S$20 million). A maximum relief of S$80,000 is available per financial year. The enhanced scheme will be available for qualifying M&A deals made from 1 April 2016 to 31 March 2020.
This will ease the growth and expansion plans of local SMEs through strategic local and overseas acquisitions. However such large deals are a rarity among local SMEs.
10. Double Tax Deduction for Internationalisation Scheme
Under the scheme business are allowed 200% tax deduction on qualifying expenses, in prescribed activities undertaken for their market expansion and investment development purposes. Automatic DTD, that allows deductions without the need of approval from IE Singapore or Singapore Tourism Board (STB) is available for businesses on qualifying expenses not exceeding S$100,000, incurred in four specified activities, Any claims in excess of S$100,000 require the IE and STB approval. The scheme is scheduled to lapse on 31 March 2016.
The scheme, including the automatic DTD, will be extended for another four years and will be available until 31 March 2020.
The extension of the scheme demonstrates the government’s commitment to drive the internationalisation and market expansion efforts of local companies.
11. Land Intensification Allowance Scheme (LIA)
The scheme’s objective is to promote industrial land productivity and is available for a business that undertakes specified trade/business activities. Approved capital expenditure for construction/renovation of buildings/structures on industrial or port/airport land.
An initial allowance of 25% of qualifying capital expenses and annual allowance of 5% of qualifying capital expense is available. In order to qualify, (a) the building/structure’s Gross Plot Ratio (GPR) must meet or exceed the prescribed GPR benchmark, (b) if it meets or exceeds the GPR, then the new GPR must be at least 10% more than the previous GPR after renovation/construction, (c) when the construction/renovation is completed, at least 80% of the floor area must be used by single user carrying out a qualifying trade or business.
The scheme has been enhanced as follows
- Extended to a single user carrying out multiple qualifying trade/business activities (or)
- Multiple users, who are related, carrying out one or multiple qualifying trade/ business activities
- The GPR is the highest of all the prescribed GPR for the qualifying business/trade activities conducted in the building/structure
It is available for expenses incurred from 25 March 2016.
This scheme’s aim is to promote cohesive clusters that result in efficient supply chain by driving co-location. While the third party warehouse and logistic provider have a natural incentive to intensify land use, it is important to integrate trades/businesses to scale up the land productivity. The requirement of the users to be ‘related’ is the significant differentiator to incentivise clustering of activities that will result in higher productivity of land use.
12. Option to elect write-down period for IPR WDA
Qualifying businesses can claim the Write Down Allowance (WDA) for the acquisition cost of qualifying IPR over a write-down period of 5 years from the YA relating to the basis period when such expense was incurred.
Now businesses will be allowed an option to elect a write-down period of 5, 10, or 15 years. The election must be made when submitting the tax return for the YA relating to the basis period when the expense was incurred. Once elected, the write-down period cannot be changed.
The revision recognises the varying nature and useful life of the IPRs and renders a lot of flexibility to the businesses that may have felt constrained by the short write-down period.
13. Anti Avoidance Mechanism for IPR transfer
Under this newly introduced mechanism under section 19B of the ITA, the comptroller is empowered to make adjustments to transaction price of the IPR to ensure that it is reflective of the Open Market Value (OMV). This is to prevent the abuse of WDA.
- If acquisition price is higher than OMV then the comptroller may substitute it with the OMV and limit WDA allowance to the OMV of the IPR.
- If the disposal price of the IPR is lower than the OMV of the IP then comptroller may substitute it with the OMV of the IPR to compute the balancing charges.
This mechanism will improve the transparency and support Singapore’s ambition to evolve into a leading innovation and knowledge hub. This will also prompt parties transacting to adhere to OMV of the IPR.
14. Business and IPC Partnership Scheme (BIPS)
The scheme is intended to incentivise employee volunteerism. Subject to agreement from the receiving IPC, a business sending its employees to render services or to volunteer with Institution of Public Character (IPC) are allowed a 250% tax deduction on such employees’ wages and other qualifying incidental expenses incurred. This applies to secondment as well but excludes donations made in kind and wages of owners. Subject to conditions, any unutilised deductions can be carried forward indefinitely. The deduction has a yearly cap of $250,000 per business and $50,000 per IPC.
The scheme is reflective of the government’s vision to build the resilience of the society through compassion and inclusive approach to growth by giving back to the society. The government is encouraging companies to fortify the CSR activities and drive up the spirit of volunteerism.
15. Treatment of Pre-commencement Expenses
The year a business earns its first dollar is regarded as business commencement year according to the section 14U of ITA. Tax deduction is available for expenses incurred in the year of commencement as well as for expenses incurred up to 12 months preceding the first day of the year of business commencement (collectively 14U Expenses). If the business is awarded an incentive in the year of business commencement, there is no specific requirement to allocate 14U expenses or the pre-commencement expenses (granted exemption under Part V of the ITA) to pre-incentive or post incentive income. There was a lack of direction when it came to tax computation. Now an allocation method has been proposed in order to provide clarity and certainty.
Accordingly from 25 March 2016:
- The direct expenses, both 14U expenses and pre-commencement expenses, incurred to earn the pre-incentive and incentive incomes have to be identified and set-off against respective
- Any remaining indirect 14U expenses and pre-commencement expenses have to be apportioned between pre-incentive and incentive income based on income proportion.
Although the objective is to prevent ambiguity and promote fairness the task of expense allocation based on income proportion will be a perplexing exercise unless IRAS provides more definitive rules of treating the different expenses.
1. Finance and Treasury Centre (FTC) Scheme Extended and Enhanced
The scheme launched in 1990 was instrumental in establishing Singapore’s status as a regional treasury centre, by promoting corporate treasury operations in Singapore.
Under this scheme an approved FTC’s qualifying income derived from qualifying activities are taxed at a concessionary tax rate of 10%. Interest payments made by the FTC towards its borrowings from overseas financial institutions are exempted from withholding tax, provided such funds raised are used for qualifying activities. Tax concessions are conferred for a period of between 5 to 10 years, depending on the level of financial and manpower resources committed by the FTC in Singapore. The scheme was scheduled to lapse on 31 March 2016. The following changes are made to the scheme
- The scheme will be extended till 31 March 2021.
- The concessionary tax rate lowered further to 8%, but the qualifying conditions will be increased.
- Earlier the FTCs were required to obtain funds directly from approved offices and associated companies. They will be allowed to obtain such funds indirectly; measures will be in place to curtail round-tripping.
- Withholding tax will be exempted on 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.
The extension clears the uncertainty that lingered among the FTCs. More importantly it is timed well, when Hong Kong has proposed Corporate Treasury Centre reforms. The concessionary tax rate of 8% is competitive against Hong Kong’s 8.25%. The relaxation regarding the source of fund appears to be liberating, however we have to wait for the safeguard measures to be announced to gauge the impact. The lowered tax rate and other enhancements are vital to build the strength of Singapore as a treasury hub.
2. Tax Incentive Scheme for Trustee Companies Extended and Refined
An approved trustee company may enjoy a 10% concessionary tax rate on income derived from the provision of trustee, custodian, trust management and administration services. The scheme was scheduled to lapse on 31 March 2016.
It has been proposed that the scheme will be subsumed under the Financial Sector Incentive (FSI) scheme and the qualifying activities under the incentive scheme will be expanded to align with the trustee activities prescribed under the FSI-Standard Tier scheme for new and current incentive recipients. The following key changes must be noted
- 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 till the expiry of their awards and may apply for renewal of their awards under the FSI scheme thereafter.
- Changes will take effect from 1 April 2016
The merging of the scheme has streamlined the tax incentives available for financial sector.
3. Tax Incentive Scheme for Insurance Companies Extended and Refined
The companies in the insurance sector enjoy a variety of tax concessions depending on the area of insurance that they operate in. The insurers benefiting from the following schemes must take note of the changes:
Marine Hull and Liability Insurance: Scheduled to lapse on 31 March 2016, the scheme offered tax exemption or 5% tax rate on qualifying expenses.
It has been proposed that from 1 April 2016 the scheme will be subsumed under Insurance Business Development. The new and renewal awardees of the incentive scheme will be taxed at a concessionary rate of 10% on the qualifying income.
Specialised Insurance Business – Scheduled to lapse after 31 August 2016, approved insurers under the scheme are granted tax exemption on qualifying income derived from carrying on offshore-specialised insurance business.
It has been proposed that the scheme will be subsumed under Insurance Business Development Scheme as an enhanced tier award from 1 September 2016 to 31 August 2021. The scope of qualifying activities to include both on shore and offshore specialised risk insurance activities for new and current awardees. The concessionary tax rate will be as below:
New awardees from 1 September 2016 to 31 August 2019 – 5%
New awardees from 1 September 2019 – 8%
Renewal awards from 1 September 2016 – 10%
Captive Insurance – Scheduled to lapse on 31 March 2018, under this scheme approved insurers are granted tax exemption on qualifying income derived from carrying on offshore captive insurance business.
It has been proposed that the scheme will be subsumed under Insurance Business Development from 1 April 2018. A concessionary tax rate of 10% will apply to new and renewal awards from 1 April 2018. Current awardees will continue to enjoy the benefits until 31 March 2018 and will have to apply for renewal thereafter.
Insurance Business Development – Scheduled to lapse on 31 March 2020, under the scheme, approved insurers are granted a concessionary tax rate of 10% on qualifying income derived from carrying on offshore insurance business. The IBD scheme will be expanded to be an umbrella scheme to include Marine Hull and Liability Insurance, Captive Insurance and Specialised Insurance Business.
The current insurers and new insurers who were enjoying tax exemption under the captive and specialised insurance will be impacted by the changes, the Marine Hull and Liability insurers, who were enjoying a significantly subsidised rate of 5% will also be affected.
4. Marine Sector Incentive (MSI) Enhancements
The various incentive schemes given to ship operators and lessors were grouped under this scheme in 2011.
- Under the MSI-Singapore Registry of Ships Award (MSI-SRS) qualifying income derived from operating Singapore ships and foreign ships as well as providing specified services is exempted from tax.
- Under the MSI-Approved International Shipping Enterprise Award (MSI-AIS) qualifying income derived from operating foreign ships as well as providing specified services were exempted from tax.
- Under the MSI-Maritime Leasing (Ship) Award (MSI-ML(Ship)) qualifying, tax is exempted on income derived from leasing ships used for qualifying activities to qualifying counterparties for use outside the port limits of Singapore is exempt from tax.
The following changes have been proposed
- The scope of qualifying income for tax exemption under MSI-SRS and MSI-AIS, extended to include income derived from the operation of ships used for exploration or exploitation of offshore energy or minerals, or ancillary activities.
- The scope of qualifying income for tax exemption under MSI_ML(Ship), extended to include income derived from the leasing of ships used for exploration or exploitation of offshore energy or minerals, or ancillary activities.
- The restrictions, under MSI-ML(Ship) on the qualifying counterparties will be removed, for the purpose of qualifying income. Thus qualifying income derived from leasing ships to ‘any counterparties’ used for qualifying activities outside the port limits of Singapore will be exempted from tax.
The extension of scope of qualifying income to include activities in Oil and Gas sector will bring in new players to Singapore, adding to the vibrancy of the sector. The relaxation of restriction on counterparties will reduce the administrative burden on companies in this sector.
5. Global Trader Program (Structured Commodity Finance)
Approved company under the scheme may enjoy concessionary tax rate of 5% or 10% on incomes derived from qualifying activities.
Effective 25 March 2016, the following three new qualifying activities have been added to the list of qualified activities
- Consolidation, management and distribution of funds for designated investments;
- M&A advisory services; and
- Streaming financing.
The commodities trading sector is getting very dynamic amidst the tumultuous market conditions. New financing methods and fund management methods are emerging therefore the enhancement to the list of qualifying activities makes the scheme more relevant to the evolving business environment.
1. Mandatory E filing
Corporate Tax Return
Presently, businesses either file their annual Corporate Tax Returns by paper filing or through IRAS’ e-Services platform. It has been proposed to make e-filing mandatory for all companies by 2020. Mandatory e-filing of Corporate tax returns will be introduced in stages based on turnover as follows:
|2018||Companies with turnover of S$10 million in YA 2017|
|2019||Companies with turnover of S$1 million in YA 2018|
PIC Cash Payout
Businesses either submit their PIC cash payout applications by paper application or through IRAS’ e-Services platform. Effective 1 August 2016, e-filing of PIC cash payout applications will be made mandatory.
2. NPO Tax Incentive Extended
Approve Non Profit Organisations (NPO) are exempted from tax on incomes, the scheme is set to lapse 14 February 2017. It will be extended until 31 March 2022.
3. Approved Investment Company Scheme Withdrawn
In order to promote invest management industry in Singapore, the gains made from disposal of securities by Approved Investment Companies (AIC) were taxed according to a schedule based on the length of time that the securities were held.
As the scheme is assessed to be no longer relevant, the Approved Investment Company scheme will be withdrawn from YA 2018.
4. Tax exemption on income derived by non-residents trading withdrawn
Income of non-residents derived from trading in Singapore through consignees in any of the specified commodities produced outside Singapore is exempted from tax. As the scheme is assessed to be no longer relevant, it will be withdrawn from YA 2018.