Corporate Tax Cut Approved In Singapore

by Mary Swire, Tax-News.com, Hong Kong

14 November 2007

Lawmakers in Singapore have approved legislation giving effect to the tax reforms announced in the budget earlier this year, including the 2% cut in corporate income tax and further improvements to the fund regime.

The amended Income Tax Bill was passed by parliament on Monday. The legislation will reduce the corporate tax rate to 18%, and bring about other tax measures to improve the competitiveness of Singapore as a business hub, including a significant increase in the partial tax exemption threshold from S$100,000 to S$300,000 from 2008, which will mean that almost 80% of SMEs will pay tax at effective rates of less than 10%, making Singapore one of the most competitive locations for small business internationally.

Other notable measures in the Income Tax Bill are designed to boost Singapore still further as a regional funds centre. These include: the elimination of the 80:20 rule that currently requires charities to spend at least 80% of their annual receipts in Singapore within two years to qualify for income tax exemption; and improvements to the tax treatment of real estate investment trusts (REITs).

Singapore's ongoing improvements to its funds regime appear to be bearing fruit, with more than 100 hedge funds now based in the city-state, managing assets of US$16.5 billion, according to London-based HedgeFund Intelligence, which has pronounced Singapore as the most competitive location for hedge funds in Asia. Hedge fund assets managed in Singapore more than doubled in the first half of 2007, when twenty new hedge funds set up shop. Five of Singapore's funds now have more than US$1bn in assets, says the firm.

The tax cuts will, however, be balanced against a number of revenue raising provisions, and Second Minister for Finance, Tharman Shanmugaratnam, announced in the Budget speech in February that there would be a 1.5% increase in employer contributions to the Central Provident Fund (CPF), to 14.5%, and an increase in the GST rate from 5% to 7%, both from 1 July 2007, to provide "critical additional revenues". A S$4 billion GST Offset Package to help Singaporeans adjust to the GST increase was also announced.

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