The Minister for Finance delivered the 2008 Budget Speech on 15th February 2008 with the theme of “Creating a Top Quality Economy, Building a Resilient Community”. Besides the changes aimed at strengthening our competitiveness, the Government has also announced the decision of returning S$1.8 billion budget surpluses for 2007 to the people in the form of growth dividends. As per past budgets, changes to tax policy are introduced to achieve social and economic objectives highlighted in the budget. The changes to tax treatments are summarized as follows:
- Key Features
1.1 Tax Rate
There will be no change to tax rate for corporate tax, individual tax and GST. However, there will be a one-off tax rebate of 20% for personal income tax for YA 2008, capped at S$2,000.00.
1.2 Estate Duties
As widely speculated, the Government has announced the abolishment of the estate duties for death occurring on or after 15th February 2008.
1.3 Incentives for R&D activities
One of the main tax changes announced in this budget is the incentive to encourage the undertaking of R&D activities. The incentives are also useful for SME and newly start-up business. The incentives include:
1.3.1
Tax deduction of up to 150% of the amount incurred for R&D activities, provided the R&D is carried out in Singapore by the company itself or by organizations in Singapore. R&D expenses that are not related to the existing business will also qualify for the incentive. The changes take effect from the YA 2009 to 2013.
1.3.2
A new R&D Tax Allowance will be allowed to all companies for up to 50% of the first S$300,000 chargeable income for the YA 2009 to 2013. Allowances granted are to be utilized within the next three YA. Balance of unutilized allowances will be disregarded. To qualify for the allowances, companies are required to incur incremental R&D expenses in excess of the base year amount (YA 2008).
1.3.3
A new R&D Incentive for Start-up Enterprise (RISE) will be available to all new start-up companies for the YA 2009 to 2013. Under this scheme, cash grants of up to S$20,250 will be given by the Government if these companies incurred tax losses and incurred at least S$150,000 for R&D each year for the first three YA.
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- Tax Changes for Business
2.1 Tax Incentive for Fixtures and Fittings
In the past, expenses incurred for renovation generally do not qualify for capital allowances, except for selected items. Recognizing the need for business to incur renovation expenses regularly, the Government has enlarged the scope of qualifying items of renovation. This takes effect for expenses incurred on or after 15th February 2008. The incentive is capped at S$150,000 for every three years and for a period of 5 years.
2.2 Unilateral Tax Credit for Foreign-Sourced Income
The existing laws permit claim of unilateral tax credit for certain foreign-sourced incomes received from non-treaty countries. With effect from the YA 2009, all foreign-sourced incomes received or deemed as received in Singapore will qualify for the tax credit.
2.3 Overseas Talent Recruitment Scheme
This existing incentive will be extended for another 5 years up to September 2013. Under this scheme, double tax deduction will be allowed to companies for qualifying expenses incurred for recruitment of foreign talents.
2.4 Equity Remuneration Incentive Scheme (ERIS)
The existing stock option tax incentives will be re-classified into 3 categories, ERIS (All Corporations), ERIS (SMEs) and ERIS (Start-Ups).
ERIS (All Corporations) is available to all companies which issue stock option to at least 25% of the employees. ERIS (Start-Ups) grants tax exemption to employees of qualifying start-up companies on 75% of their gains derived from stock option, up to S$10 million over a period of 10 years.
The changes to ERIS will take effect from the YA 2009 on stock option or share award granted after 15th February 2008 by qualifying companies.
We append below the comparison of the 3 schemes:
| |
Qualifying criteria |
Tax benefits |
| ERIS (All corporations), previously known as CEEBR |
All companies offer stock option to more than 25% of their employees |
Tax exemption on the first S$2,000 gains from stock option or share award, and 25% on the balance of gains up to S$1 m over 10 years |
| ERIS (SMEs), previously known as EEEBR |
Applicable to companies with gross asset value of S$100 m or less |
Tax exemption on 50% of gains up to S$10 m over a period of 10 years |
| ERIS (Start-Ups) |
Applicable to start-up companies during its first 3 years of incorporation |
Tax exemption on 75% of gains up to S$10 m over a period of 10 years |
2.6 Tax Exemption for Start-Up Companies
One of the existing qualifying conditions is that all shareholders must be individuals. The condition has been modified from the YA 2009 to allow start-up companies with at least 1 individual shareholder who holds a minimum of 10% shares to qualify for the scheme. Under this scheme, full tax exemption will be allowed to the qualifying company for the first S$100,000 chargeable income for the first three YA.
2.6 Tax Deduction for Portable Medical Expenses
Tax deduction for medical expenses will be increased from 1% of total wage costs to 2% if the employers comply with one of the three options. The employers either pay the insurance premiums for portable medical plans directly to the insurance company or reimburses the premium into employees’ Medisave accounts; or contributes to the Medisave account of the employees, subject to a cap at S$1,500 per employee per year. The changes will be effective from the YA 2008.
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Tax Incentives for Financial Sector
3.1 Financial Sector Incentive (FSI)
3.1.1
The FSI will be renewed for a period of 5 years from 1 January 2009 to 31 December 2013
3.1.1
5% concessionary tax will be granted to income derived from specific Shariah compliant activities for a period of 5 years from 1 April 2008 to 31 March 2013. The FSI will also include trading of qualifying debt securities and qualifying project debt securities under the FSI-Bond Market enhanced-tier award from 16th February 2008. The incentive also includes trading of exchange-traded financial derivatives as qualifying activities under the enhanced-tier award from 16th February 2008.
3.1.1
5% tax rate will also be granted to insurers for incomes derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business. The incentive period will run from 1 April 2008 to 31 March 2013.
3.2 Debt Market
The Qualifying Debt Securities (QDS) scheme will be renewed for a 5 years period from 1 January 2009 to 31 December 2013. Income derived by investors from QDS with tenure of at least 10 years will be tax exempt. This incentive takes effect from 16 February 2008 to 31 December 2013. Tax exemption will also be granted for incomes derived from qualifying sukuks (Islamic bonds).
3.3 Tax Exemption for trading in Government Securities
The tax exemption period for income derived by primary dealers from trading in Singapore Government Securities will be extended to 31 December 2013.
3.4 Approved Special Purpose Vehicle (ASPV)
The ASPV scheme will be renewed for a 5 years period from 1 January 2009 to 31 December 2013. The existing condition for all securities to be QDS to qualify for the scheme will be lifted from 16 February 2008.
3.5 Project Finance Industry
The existing incentive will be extended from 1 January 2009 to 31 December 2011. A new tax incentive will be introduced from 1 April 2008 to 31 December 2011 with 10% tax for income derived by approved company from managing business trust or fund that owns offshore infrastructure assets and listed in Singapore. ]
3.6 Insurance and Reinsurance Broking Activities
This new tax incentive will grant 10% concession tax to insurance and reinsurance broker for incomes derived from broking and advisory service rendered to non Singapore-based clients for a period of up to 10 years.
3.7 Wealth Management Activities
This new tax incentive will be available to qualifying family-owned investment holding companies for income derived from locally sourced investment income. The incentive will run from 1 April 2008 to 31 March 2013.
3.8 Capital Market Incentive
This incentive allows listed REITs and registered business trusts in infrastructure business, ship and aircraft leasing to claim GST input tax without owning the underlying assets.
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Tax Incentive for the Marine Industry
4.1 Maritime Finance Incentive (MFI) Scheme
The existing incentive will be extended to include container leasing. A qualifying container investment company will enjoy concessionary tax at 5% or 10% on its qualifying income from onshore and offshore container leasing. An approved container investment manager will also enjoy 10% concessionary tax on its management fee income.
4.2 Gains from Disposal of Vessels
Tax certainty on treatment of capital gains from disposal of vessels has been extended for 5 years up to YA 2014. This incentive applies to gains from disposal of Singapore registered ships and ships owned by an Approved International Shipping Enterprise (AIS). This incentive is also applicable in the case of sale and leased back of ships and in the case of gains from disposal of shares in a special purpose company which holds ships.
4.3 Shipping Incentives
Foreign exchange gains and gains from risk management in connection with core shipping activities will qualify as exempt shipping income for incomes exempted under Section 13A of the Income Tax Act (ITA) or under the AIS or the Maritime Finance Incentive schemes. This treatment takes effect from the YA 2009.
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Other tax changes
5.1 Not Ordinarily Resident (NOR) Scheme The above scheme will be modified from the YA 2009 with the following changes:
- The minimum effective tax rate of 10% will be replaced by the new condition that the taxpayer’s Singapore employment income threshold must be at least S$160,000.
- The scope of income apportionment will be expanded to include perquisites and leave pay.
- To qualify for tax exemption on employer’s contributions to non-mandatory overseas pension schemes, the NOR taxpayer must derive a minimum Singapore employment income of S$160,000 and the employer must not claim tax deduction on the contributions.
5.2 CPF Top-UP Scheme
Individuals will be allowed to claim tax relief on CPF top-up capped at S$7,000 of contribution made to his / her CPF account. Another separate relief of up to S$7,000 will also be available for contributions made to his / her spouse, siblings, parents and grand parents. The relief will be allowed regardless of the age of the recipients when the top-ups are made. Separately, employers are also allowed to top-up employees’ CPF accounts and enjoy full tax deduction on the amounts contributed. The contribution is taxable for employees who can then claim relief of up to S$7,000 (including self and employer contributions). These changes will take effect from the YA 2009.
5.3 Voluntary Contribution to Medisave Account
Individuals are now allowed to contribute to medisave account and enjoy tax relief on the contribution up to an amount of S$26,393 (S$4,500 x 17 x 34.5%). These changes will take effect from the YA 2009.
5.4 Course Fee Relief
With effect from the YA 2009, course fee relief will be granted to taxpayers on approved vocational qualifications, regardless of whether the course is relevant to his trade, profession, vocation or employment. In addition, for courses leading to professional qualifications, the relief can be claimed within 2 YA from the YA in which the course is completed.
5.5 Supplementary Retirement Scheme (SRS)
The scheme will be enhanced from the YA 2009 to remove the age limit for contribution and to allow employers to contribute on behalf of their employees. Employers will be allowed tax deduction on the amount of contribution but the employee will be taxed on the same amount. The employee can claim SRS relief up to the applicable contribution limit.
5.6 Liquor Tax
With effect from 15th February 2008, liquor tax will be levied on the basis of the alcoholic content for all liquors.
5.7 Tax for Private Diesel Car
The new tax rate for Euro-IV diesel car will be S$1.25 per cc, subject to a minimum of S$2,000. This takes effect from 1 July 2008.
5.8 Skill Development Levy (SDL)
The levy will be modified from 1 October 2008. Currently, employers are only required to contribute to SDL for employees whose monthly salary are S$2,000 or less and at the rate of 1%. With effect from 1 October 2008, employers are required to contribute to SDL for all employees up to a cap of S$4,500 of their gross monthly remuneration at a reduced rate of 0.25%, subject to a minimum of S$2.
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Year of Assessment 2008 tax filing due dates
We wish to take this opportunity to remind our clients of tax filing due dates for the Year of Assessment 2008:
Personal Tax,
Partnerships,
Clubs,
Associations and
Management Corporations |
Filing due on 15 April 2008 |
| Corporate Tax |
Filing due on 30 November 2008 |
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Mr Chng Chung Hing
Tax Director
Loke Lum Consultants Pte Ltd
Compiled on 18th February 2008
