Singapore budget 2017 includes new IP regime, other tax changes

by Davide Anghileri

Singapore’s Finance Minister Heng Swee Keat on 20 February presented to parliament his budget proposal for 2017, introducing a new intellectual property (IP) tax regime and many other tax changes, including a cost sharing agreement safe harbour and enhanced tax incentives.

The new IP program, called the IP Development Incentive (IDI), is designed to foster the use of IP arising from taxpayer’s research and development (R&D) activities. The program will be compliant with action 5 of the OECD/G20 base erosion profit shifting project as it will incorporate the modified nexus approach.

The IDI will take effect on 1 July, the minister said, and will be administered by the Singapore Economic Development Board (EDB), which will release further details on the incentive by May 2017.

IP income would be removed from the scope of other Singapore special regimes, like the Pioneer-Services/Headquarters Incentive and the Development and Expansion Incentive-Services/Headquarters regimes. Existing incentive recipients will continue to have such income covered until 30 June 2021, though.

Corporate income tax rebate, cost sharing

The budget also provides that the corporate income tax rebate will be enhanced and extended to 2018.

For the 2017 year of assessment, the corporate income tax rebate cap is raised from SGD 20,000 to SGD 25,000, while the rebate rate remains unchanged at 50% of tax payable. For the year 2018, the rebate will be reduced to the rate of 20% of tax payable with a cap of SGD 10,000.

To ease compliance, the budget introduces a safe harbour rule for payments under cost sharing agreements.

Taxpayers may opt to claim a tax deduction under section 14D of the Income Tax Act (ITA) for 75% of the payments made under a cost sharing agreement incurred for qualifying R&D projects under this new safe harbour rule, instead of subjecting such payments to specific restriction rules which disallow certain categories of expenditure.

The change will apply to cost sharing agreement payments made on or after 21 February. The Inland Revenue Authority of Singapore (IRAS) will release further details by May 2017.

GST on digital supplies

In his budget speech, the Prime Minister said that the government is examining the possibility of introducing GST on digital supplies received from abroad.

“With increasing digital transactions and cross-border trade, some countries have taken steps to adjust their GST system, to ensure a level playing field between their local businesses which are GST-registered, and foreign-based ones which are not. We are studying how we can do likewise,” the Prime Minister said.

Singapore tax incentives

The budget provides also for the enhancement and the simplification of the Global Trader Programme (GTP) to facilitate and encourage more trading activities in Singapore.

A concessionary tax rate will be granted to approved global trading companies (GTCs) on income derived from qualifying transactions with any counterparty; thus, the requirement for qualifying transactions to be carried on with qualifying counterparts will be removed.

The budget allows a new concessionary tax rate to approved GTCs on physical trading income derived from transactions in which the commodity is purchased for the purposes of consumption in Singapore or for the supply of fuel to aircraft or vessels within Singapore.

Moreover, a concessionary tax rate will be granted to approved GTCs on physical trading income attributable to storage in Singapore which adds value to commodities by any physical alteration, addition, or improvement (including refining, blending, processing or bulk-breaking).

These enhancements will apply to qualifying income derived by approved GTCs from qualifying transactions on or after 21 February. For new or renewed incentives approved on or after 21 February, the substantive requirement to qualify for the GTP will be increase. Further details will be released by May 2107 by the International Enterprise of Singapore.

 Aircraft leasing

The budget provides also for the redefinition of the Aircraft Leasing Scheme (ALS), as well as an extension until 31 December 2022.

On the one hand, the scope of qualifying ancillary activities for approved aircraft lessors under section 43Y of the ITA will be extended to cover incidental income derived on or after 21 February from the provision of finance in the acquisition of aircraft or aircraft engines by any lessee.

On the other hand, the concessionary tax rate on income derived from leasing of aircraft or aircraft engines and qualifying ancillary activities will be streamlined from 5% and 10% to a single rate of 8% for new or renewal incentive awards approved on or after 1 April, the budget states.

The EDB will release further details of the change by May 2017.

IIA, FTC schemes

The Integrated Investment Allowance (IIA) scheme will be extended until 31 December 2022 and refined.

In fact, qualifying productive equipment may be used by the overseas company primarily, instead of solely, to manufacture products for the qualifying company under an approved project.

This liberalisation will apply to expenditure incurred on qualifying productive equipment for a project approved on or after 21 February.

The budget provides also a simplification of the Finance and Treasury Centre (FTC) scheme to help ease the compliance burden of approved FTCs, which will enter into force on new or renewal incentive awards approved on or after 21 February. Thus, the qualifying counterparties for certain transactions of approved FTCs will be streamlined. EDB will release further details on this change by May.

Project and infrastructure incentive

The existing package of tax incentive schemes for project and infrastructure finance, with the exception of stamp duty remission, will be extended until 31 December 2022.

The remission of stamp duty payable on the instrument of transfer relating to the transfer of qualifying infrastructure projects/assets to qualifying entities listed, or to be listed, on the Singapore Exchange will be allowed to lapse after 31 March. Further details will be released by the Monetary Authority of Singapore by May.

Another change regards the extension of the withholding tax exemption on payments for international telecommunications submarine cable capacity under an Indefeasible Rights of Use agreement until 31 December 2023, to maintain Singapore a key hub for data flow, in line with the government’s thrust to grow the digital economy, the budget says.

The budget extends the automatic withholding tax exemption regime to qualifying payments made on qualifying loans entered into on or before 31 December 2022 and the withholding tax exemption on payments made to non-resident non-individuals for structured products offered by financial institutions until 31 March 2021.

Moreover, the 250% tax deduction under the Computer Donation Scheme will be withdrawn after 20 February, as the objective of the scheme has been achieved.

Furthermore, the International Arbitration Tax Incentive and the Approved Building Project scheme will be allowed to lapse after 30 Jun and after 31 March, respectively, the budget states.