By Eugene Lim, Sam Sim, & James Yeo, Taxise Asia LLC (member of WTS Global), Singapore, Singapore
Singapore’s Budget 2020 was delivered by Deputy Prime Minister and Minister for Finance, Heng Swee Keat, to the Singapore Parliament on 18 February.
Known as the Unity Budget, the proposal focuses on ensuring that Singapore remains business competitive; preserving jobs and helping businesses to mitigate the economic slowdown resulting from the twin effects of COVID-19 and the US-China trade war; and laying the groundwork for future industries and businesses.
To ensure that Singapore continues to have a tax system that encourages businesses to be competitive, Budget 2020 introduces the following measures.
Double tax deduction for internationalisation scheme
Singapore’s Budget 2020 extends the double tax deduction for internationalisation scheme to 31 December 2025. Under the existing scheme, a business can take a 200% deduction on qualifying market expansion and investment development projects, subject to the approval of Enterprise Singapore or the Singapore Tourism Board.
From 1 April onwards, the scope of the incentive scheme will also be expanded to include third-party consulting costs relating to new overseas business development and expenses for overseas business missions.
Mergers and acquisitions scheme
Budget 2020 extends the mergers and acquisitions scheme to 31 December 2025. The scheme is designed to help companies (particularly small and medium enterprises) grow and internationalise through strategic acquisitions. Under the scheme, a qualifying company may take a 200% deduction on costs incurred on qualifying acquisitions (subject to an approximate US$71,500 expenditure cap per year of assessment); enjoy stamp duty relief on the acquisition of ordinary shares (subject to an approximate US$57,500 stamp duty cap per year of assessment); and be granted an allowance (to be written down over five years) based on 25% of the value of a qualifying acquisition (subject to an approximate US$28.5 million value cap).
The scheme will also remain unchanged for acquisitions made on or after 1 April, with the exception that stamp duty relief will lapse for instruments executed on or after 1 April and no waiver will be granted for the condition that the acquiring company must be held by an ultimate holding company that is incorporated in and is a tax resident of Singapore. This will apply to acquisitions made on or after 1 April.
Share disposals
Singapore’s Budget 2020 extends the upfront certainty of exemption of gains derived from ordinary share disposals from taxation. Gains from the disposal of ordinary shares by a company are not taxable where the divesting company is, at minimum, a 20% shareholder in the investee company (i.e. the company whose shares are being disposed of) and has satisfied the 20%-shareholding requirement for a period of at least 24 months prior to the disposal.
Budget 2020 extends this exemption to ordinary share disposals between 1 June 2022 to 31 December 2027. However, to ensure consistency in the tax treatment for property-related businesses, the scheme will not apply to disposals of unlisted shares in an investee company that is in the business of trading, holding or developing real estate in Singapore or abroad.
Land expenditure tax incentive
At the same time, Budget 2020 extends the land intensification allowance scheme to 31 December 2025. This scheme was introduced to encourage the intensification of industrial land by granting an initial allowance of 25% of qualifying capital expenditure incurred on the construction or renovation/extension of an approved building. Once the project is issued with its temporary occupation permit, an annual allowance of 5% of qualifying capital expenditure incurred will then be granted.
Insurance sector tax incentive
Singapore’s Budget 2020 extends existing tax incentive schemes for insurance businesses to 31 December 2025. The insurance business development programme administers several tax incentive schemes targeted at promoting the Singapore insurance industry.
Broadly, an approved insurer enjoys a concessionary tax rate of 10% for a period of 5 to 10 years (as the case may be) for qualifying income derived from the relevant insurance activities, including life, general, captive and marine hull and liability.
Maritime sector tax incentive
Further, Budget 2020 extends existing tax incentive schemes for the maritime sector to 31 December 2026. The maritime sector incentive programme oversees tax incentive schemes for ship operators, maritime lessors, and providers of shipping-related support services.
An approved maritime sector business may enjoy tax exemption or concessionary tax rates for certain qualifying income derived from the relevant maritime activities, stamp duty remission or withholding tax exemption on qualifying payments (as the case may be).
Budget 2020 also expands the scope of tax exemption to include new categories of income, such as certain in-house ship management income and income derived from operating a ship that is provisionally registered with the Singapore Registry of Ships.
Withholding tax exemption for margin account interest
Singapore’s Budget 2020 enhances existing withholding tax exemption for interest on margin deposits. For agreements entered into on or after 19 February, the lists of entities and products that qualify for withholding tax exemption for interest on margin deposits are expanded.
In addition to members of approved exchanges, the list of covered entities now includes members of approved clearing houses, approved exchanges and approved clearing houses. Separately, apart from spot foreign exchange, financial futures and gold futures, the list of covered products is expanded to include all other derivative contracts traded or cleared on approved exchanges and approved clearing houses.
Finance and treasury centre incentive
Singapore’s Budget 2020 extends the finance and treasury centre scheme to 31 December 2026. Under the scheme, qualifying income derived by an approved finance and treasury centre from qualifying activities is taxed at a concessionary tax rate of 8%. As a condition, the approved entity must use funds from certain qualifying sources.
From 19 February, the list of qualifying sources of funds is expanded to include funds raised by way of a convertible debt issuance. In addition, the list of qualifying activities is expanded to include investments into private equity or venture capital funds that are not structured as companies.
Global trader programme
The global trader programme is extended to 31 December 2026. Under the programme, income derived by an approved global trading company from qualifying transactions enjoys a concessionary tax rate of 5% or 10%. In addition, an approved global trading company also qualifies for a concessionary tax rate of 5% on income derived from qualifying liquified natural gas transactions.
Separately, under the global trader programme’s structured commodity financing scheme, qualifying income derived by an approved company is taxed at a concessionary rate of 5% or 10%. From 19 February, the qualifying activities of this scheme are subsumed under the global trader programme. Notably, Budget 2020 will allow the 5% concessionary tax rate for qualifying liquified natural gas transactions, and the 5% or 10% concessionary tax rate for qualifying structured commodity financing, to lapse after 31 March 2021.
Venture capital fund incentive
The existing tax incentive scheme for venture capital funds and venture capital fund management companies is enhanced. An approved venture capital fund enjoys tax exemption on income derived from certain prescribed types of income. An approved venture capital fund management company qualifies for a concessionary tax rate of 5% on income derived from managing an approved venture capital fund.
From 1 April, the list of qualifying investments and income will be expanded. In addition to Singapore companies and partnerships, the incentive will also be applicable to venture capital funds constituted as foreign-incorporated companies or Singapore variable capital companies (a new legal vehicle designed for funds).
The statutory limits imposed on the tenure of venture capital funds and venture capital fund management companies will be extended.
Moving forward, a venture capital fund may enjoy tax exemption for up to a tenure of 15 years, while a venture capital fund management company may qualify for a concessionary rate for up to a tenure of 5 years (which can be renewed subject to conditions).
Support for deep-tech start-ups
Singapore’s Budget 2020 rolls out support for deep-tech start-ups. Deep-tech start-ups refer to businesses operating in emerging technology areas, including pharm/bio and medical technology, advanced manufacturing, and agri-food technology. Budget 2020 sets aside an approximate US$215 million under a startup equity scheme to support deep-tech start-ups in growing and realising their intellectual property and market potential.
Stabilisation and support for affected businesses
Several measures are introduced to help support businesses affected by the COVID-19 outbreak and the slowdown resulting from the US-China trade war.
Singapore’s Budget 2020 grants a 25% corporate income tax rebate of tax payable for the year of assessment 2020, subject to a maximum of approximately US$10,500 per company.
To help the sectors most affected by the COVID-19 outbreak, Budget 2020 implements the following targeted measures for year of assessment 2020.
For the tourism sector, property tax rebates will be granted for accommodation and function room components of licensed hotels and serviced apartment buildings, as well as for prescribed conferences and exhibitions venues; premises of international cruise and regional ferry terminals; and integrated resort operators, at the respective rates of 30%, 15%, and 10%.
For the aviation sector, a property tax rebate will be granted for the premises of Changi Airport at a rate of 15%. Rebates and credits will also be applied to aircraft landing and parking charges. In addition, rental rebates will be applied for shops and cargo agents at Changi Airport.
For the retail sector, property tax rebate will be granted for qualifying commercial properties at a rate of 15%.
Accelerated writing-down allowance option
Singapore’s Budget 2020 makes available to businesses an accelerated writing-down allowance option. Businesses will have the option to write down the cost of plants and machinery incurred for year of assessment 2021 at a faster rate of 75% of the cost incurred to be written off in year of assessment 2021, and 25% of the cost incurred to be written off in year of assessment 2022.
Businesses will also have the option of an accelerated write-down of the qualifying cost of renovation and refurbishment incurred for year of assessment 2021. Specifically, such expenses may be fully written off in the year of assessment of incurrence – in other words, 100% of the cost incurred may be written off in year of assessment 2021 itself.
Changes to the number of years of working life of plant and machinery for capital allowance claims
Changes have also been introduced to the number of years that plants and machinery may claim an annual capital allowance. This applies to plants and machinery acquired in year of assessment 2022 onwards and cases where such plants or machinery were purchased prior to year of assessment 2020 and no claim for capital allowance has yet been made.
Where the current prescribed working life under the Singapore Income Tax Act is 12 years or less, a business may elect to claim capital allowance over 6 or 12 years. Separately, where the current prescribed working life under the Singapore Income Tax Act is 16 years, a business may elect to claim capital allowance over 6, 12, or 16 years.
Enhancement of carry-back relief
Up to approximately US$71,500 of unabsorbed capital allowances and trade losses for year of assessment 2020 may now be carried back to offset against a ‘business’ assessable income for up to 3 immediately preceding years of assessment (i.e. years of assessment 2017 to 2019). Previously, unabsorbed capital allowances and trade losses could only be carried back for one immediate preceding year of assessment.
Defraying staff costs
To help businesses defray some of their staff costs and retain their Singapore employees, Budget 2020 will provide employers with a 8% cash grant on the gross monthly wage of each Singapore citizen / PR employee (up to a monthly cap of an approximate US$2,500 per employee) for the months of October 2019 to December 2019.
The Singapore government will also co-fund 20% and 15% of qualifying wage increases given to Singapore citizen / PR employees earning a gross monthly wage of up to approximately US$3,500 in 2019 and 2020, respectively.
Support for small and medium enterprises financing
Singapore’s Budget 2020 enhances the enterprise financing scheme for small and medium enterprises. The working capital loan programme was introduced to support the daily operational cash flow needs of small and medium enterprises. Budget 2020 raises the maximum loan quantum from an approximate US$215,000 to US$430,000 and increases the Singapore government’s risk-share on such loans from the current 50-70% to 80%.
This measure is expected to ease the working capital needs of small and medium enterprises by making it easier for them to obtain loans to finance their day-to-day operations.
No GST hike in 2021
It has been confirmed that GST will not be increased in 2021 and will remain at 7 percent for the time being. It was previously announced in 2018 that GST will be raised to 9 percent at some time between 2021 and 2025.
Electric vehicle adoption incentive
Singapore’s Budget 2020 introduces the electric vehicle early adopter incentive. The scheme is designed to achieve the goal of phasing out all internal combustion engine vehicles and have all vehicles run on cleaner engines by 2040. From 1 January 2021 to 31 December 2023, owners who register fully electric cars will receive a rebate of 45% off the additional registration fees, capped at an approximate U$14,300.
The vehicular tax structure will be updated. To partly account for the loss in fuel excise duties resulting from the more widespread use of electric vehicles, an electric vehicle lump-sum component will be added to the road tax imposed on electric cars and electric motorcycles. The road tax rates have also been increased for petrol-electric cars, electric light goods vehicles, and electric goods passenger vehicles.
Extension of withholding tax exemption for certain non-residents
Singapore’s Budget 2020 extends the existing withholding tax exemption for non-resident mediators and arbitrators to 31 March 2022. Non-resident mediators and arbitrators are exempt from withholding tax on their income derived from mediation or arbitration work (as the case may be) carried out in Singapore.
Budget 2020 also extends the existing withholding tax exemption for non-resident public entertainers to 31 March 2022.
Non-resident public entertainers are subject to withholding tax at a concessionary rate of 10% (rather than the normal rate of 15%). The scheme will lapse after 31 March 2022.
Lapsing of angel investor tax deduction scheme
The angel investor tax deduction scheme will lapse after 31 March 2022. Presently, an approved angel investor is given a 50% deduction of the cost of qualifying investments.
Reducing employment pass issuance for mid-level skilled workers
Singapore’s Budget 2020 reduces the S-Pass (i.e., the employment pass for mid-level skilled workers) sub-dependency ratio ceiling of the construction, marine shipyard, and process sectors from 20% to 15%. This reduction will be implemented in two phases: on 1 January 2021, from 20% to 18%, and on 1 January 2023, from 18% to 15%.
Lapsing of further deduction for research and development expenditure
Further deduction for expenditure on research and development projects will lapse after 31 March. Businesses are currently allowed to take a further tax deduction (subject to a cap of 200%) for research and development expenditure incurred on approved projects conducted in Singapore. Such approved projects may either be carried out by the business itself or by a separate research and development firm on its behalf.
Analysis
Singapore’s Budget 2020 has a comprehensive suite of measures to address the twin shocks of the US-China trade war and COVID-19 outbreak while keeping an eye to the future.
Businesses would do well to take advantage of the different programmes and schemes made available by Budget 2020 to maintain their competitive edge and stay ahead of the curve.
— Eugene Lim is Co-Founder and Principal, Taxise Asia LLC (member of WTS Global), Singapore, Singapore
— Sam Sim is Co-Founder and Senior of Counsel, Taxise Asia LLC (member of WTS Global), Singapore, Singapore
— James Yeo is Transfer Pricing Manager, Taxise Asia LLC (member of WTS Global), Singapore, Singapore
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