Singapore Budget Enhances Company And Wealth Management Incentives

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

18 February 2008

Singapore's Minister for Finance, Tharman Shanmugaratnam, on Friday announced a number of new tax initiatives to improve the city-state's business and wealth management regimes in his Budget Statement for 2008, but left the main rates of income on hold for another year.

"With our 18% Corporate Tax rate and the enhancements we have made to our Partial Tax Exemption scheme last year, our corporate tax regime is competitive," Tharman told Parliament, going on to announce improved tax breaks for research and development, start-up companies and SMEs, and the investment sector including Islamic finance.

The main tax proposals affecting companies included:

• An increased tax deduction for expenditure incurred on research and development (R&D) done in Singapore from 100% to 150%;
• A new incentive to grant companies R&D Tax Allowance for 2009 to 2013, amounting to 50% of the first SGD300,000 of chargeable income for each year;
• An initiative to allow start-ups that have yet to make taxable profits within their first three years to convert up to SGD225,000 of the company’s losses (arising from tax deductions for R&D which the company does in Singapore) into cash grants of up to SGD20,250 from the Government;
• An allowance to all companies for expenditure incurred on fixtures, fittings and installations, except those relating to structure or expansion of building space, up to a maximum expenditure of SGD150,000 every three years;
• An extended unilateral tax credit claim for foreign income taxes incurred on all types of foreign-sourced income earned in countries with which Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA); and
• A double tax deduction for recruitment and relocation costs of hiring top global talent, for another five years.

Tharman also announced that the Financial Sector Incentive (FSI) scheme will be extended for a period of five years from 1 January 2009 to 31 December 2013, in order to promote the city as a financial centre, particularly in the area of Islamic finance.

The enhanced FSI scheme will:

• Give a 5% concessionary tax rate on income derived from performing specific Shariah compliant activities;
• Include trading of Qualifying Debt Securities and Qualifying Project Debt Securities as a qualifying activity under the FSI-Bond Market enhanced-tier award with effect from 16 February 2008; and
• Include trading of exchange-traded financial derivatives as a qualifying activity under the FSI-Derivatives Market enhanced-tier award with effect from 16 February 2008; and
• Enhance the offshore insurance business incentive scheme to give a 5% concessionary tax rate to an insurer (other than a captive insurer, a marine and hull liability insurer or an insurer underwriting specialised insurance risks) on income derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business for a five year period from 1 April 2008.

To promote the city as a centre for wealth management, Tharman announced the introduction of a new tax incentive that grants tax exemption on locally-sourced investment income and foreign-sourced income received by qualifying family-owned investment holding companies, to the extent that such tax exemption mirrors the tax exemption on qualifying locally-sourced investment and foreign-sourced income exemptions granted to individuals. The incentive is valid from 1 April 2008 to 31 March 2013.

Tharman also announced the removal of Estate Duty from Singapore’s tax regime, a move that he argued would enhance Singapore’s attractiveness as a place for wealth to be invested and built up. This measure is effective as of 15 February 2008. He urged individuals who had accumulated wealth to contribute to society, and take advantage of the enhanced philanthropy incentives introduced last year.

“If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth. It is not a zero sum game," he observed.

In the area of individual income taxes, Tharman announced that a personal income tax rebate of 20%, up to a cap of SGD2,000, would be given to all resident taxpayers for the Year of Assessment 2008.

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