This year, the Committee on the Future Economy outlined key strategies for Singapore’s economic roadmap for the coming years. Among the recommendations put forward, it was noted that the country should review its tax system in order to remain broad-based, progressive, pro-growth and competitive. In this light, it is foreseen that the tax incentive regime will continue to be applicable to maintain the thriving business climate in Singapore.
What is a tax incentive?
Being among the countries that offer a low corporate tax, the Lion City also provides a host of tax incentives for businesses across various industries. These tax incentives are granted to companies which anchor significant high value activities, contributing to Singapore’s economic development. They are available for a number of activities, including internationalisation, manufacturing and services, trading, financial services, research and development and intellectual property, as well as maritime, shipping and logistics.
The tax incentives are offered in the form of tax exemptions, tax reductions and tax subsidies.
What are the tax incentives Singapore provides?
In terms of internationalisation, the International Growth Scheme offers 10% of concessionary tax rate on incremental income from qualifying activities for a period of up to five years. This scheme is targeted to companies that are based in Singapore and have overseas expansion.
There is also the Double Tax Deduction (DTD) for Internationalisation Scheme which grants up to 200% tax deduction on qualifying expenditures made on market expansion and investments in development activities. These expenditures include salaries of staff posted overseas.
For companies that have made Singapore their headquarters, the Regional Headquarters Award provides a reduced tax rate of 15% on incremental income based on qualifying headquarter activities. In the case of mergers and acquisitions, the acquiring company is given an allowance of 25% of the qualifying acquisition value, which is capped at S$40 million on a given Year of Assessment, based on the Mergers & Acquisitions Scheme. With this scheme, there is also a stamp duty relief of the ordinary shares transfer, which is capped at the amount of S$80,000.
With regards to manufacturing and services activities, the Pioneer Incentive offers tax exemption on income from qualifying activities for a timeframe of five to 15 years. Moreover, the Development and Expansion Incentive grants from 5 to 15% of reduced tax rate on incremental activities. The incentive is applicable to companies working on new high value-added projects, growing or upgrading their operations, or working on incremental activities following their initial pioneer timeframe. In addition, companies can benefit from the Investment Allowance which provides a tax exemption on profits, based on the percentage of the capital expenditure spent on qualifying projects or activities for a timeframe of up to five years. The capital expenditure on productive equipment can be made out of Singapore.
With regards to trading activities, the Global Trader Programme provides reduced tax rates of 5% or 10% on qualifying transactions made on commodities, futures and derivatives. It is to be highlighted that from February 2017 this programme also includes income from trading activities in Singapore.
In the financial services area, there are two main incentives namely the Financial Sector Incentive and the Finance and Treasury Centre. With the Financial Sector Incentive, qualifying companies can benefit from a reduced tax rate of 5% on eligible Enhanced Tier financial activities, and either 10% or 12% on Standard Tier financial activities. The 12% rate has been raised to 13.5% for new and renewal awards made after June 2017 with the scope of the qualifying income expanded. The timeframe for which the incentives are applicable ranges from five, seven to ten years, subject to conditions.
With the Finance and Treasury Centre, there is a reduced tax rate of 8% on income derived from approved services and activities, including international treasury and fund management activities, corporate finance and advisory services, and economic and investment research. There is also a withholding tax exemption on interest payments on loans from banks and approved network companies.
There are also a number of tax incentives in Singapore which cover the research and development area, as well as intellectual property management. These include the Productivity and Innovation Credit (PIC) and PIC+ Schemes, and the Intellectual Property Development Incentive.
The Productivity and Innovation Credit (PIC) offers an allowance of 400% on up to S$400,000 of qualifying expenditure in six activities, namely the acquisition and leasing of PIC information technology and automation equipment, acquisition of intellectual property (IP), registration of IP rights, staff training, research and development, as well as design. These expenditures should be made between the accounting periods of 2010 and 2017. It is to be noted that companies, which meet eligibility criteria, can choose to convert either 60% or 40% of the qualifying expenditure of up to S$100,000 into cash.
The PIC+ scheme offers an allowance of 400% on up to S$600,000 of qualifying expenditure incurred per year to qualifying SMEs. The SME must not have a turnover of more than S$100 million nor have more than 200 workers. For the 2016 to 2018 Years of Assessment, the combined expenditure cap is maximum S$1.18 million.
With the aim to encourage innovation, the Intellectual Property Development Incentive allows for income from the commercialisation of certain intellectual property to be taxed at a concessionary rate, lower than the usual 17% of income tax rate.
Geared towards companies engaging in maritime, shipping and logistics activities, the Maritime Sector Incentive scheme provides tax exemption on qualifying income from operating Singapore and foreign-flagged ships, and delivery of specified ship management services. There is also tax exemption for income from foreign exchange and risk management activities which are conducted with or secondary to the operations of ships for five to 10 years.
How to apply for tax incentives in Singapore?
Companies, which are keen to benefit from the tax incentives mentioned above, should submit their applications to the relevant administering agency. The successful outcome typically depends on satisfying a number of requirements, including conducting high value activities, committing to business spending and contributing to skilled employment.