The Minister for Finance delivered the 2010 budget on 22 February and the theme of the budget this year was “Towards an Advanced Economy”. The budget signaled the determination of the Government to raise our productivity. To achieve this objective, several measures were introduced in the budget statement. One of the measures is the new Productivity and Innovation Credit. Other measures include increase in foreign workers levies. As per previous years, the budget also introduced several other changes to tax policy aimed at raising productivity and improving our global competitiveness. We summarize below the changes in tax policy announced in the 2010 budget:
- Key Features
1.1 No change to Corporate Tax, Personal Tax and GST Tax Rates
There will be no changes to the tax rates for corporate tax, personal tax and GST. The corporate tax remains at 17% with partial tax exemption for the first S$300,000 chargeable income. Personal tax rate ranges from 0% for the first S$20,000 chargeable income to the highest rate of 20% when the Chargeable income exceeds S$320,000. GST tax rate maintains at 7%. We append below the corporate tax rates for the past ten years:
Year of Assessment |
Year of Assessment |
2001 |
25.5 |
2002 |
24.5 |
2003 |
22 |
2004 |
22 |
2005 |
20 |
2006 |
20 |
2007 |
20 |
2008 |
18 |
2009 |
18 |
2010 |
17 |
Partial tax exemption is applicable to the first S$300,000 chargeable income. After deducting the partial tax exemption, the effective tax rate for the first S$300,000 chargeable income is only 8.36% for the year of assessment 2010. Qualifying newly incorporated companies will enjoy an effective tax rate of only 5.67% for the first S$300,000 chargeable income for their first 3 years of assessment after incorporation.
1.2 New Productivity and Innovation Credit
This is a new board-based incentive introduced to encourage spending to raise productivity. Under this scheme, tax deduction of up to 250% will be allowed to taxpayers for expenses incurred in six categories of qualifying activities, up to S$300,000. Another 150% deduction will be allowed for the balance of the expenses. The new incentive will be effective from the year of assessment 2011 to 2015 and the six types of activities are:
(i) R&D expenditure. 250% tax deduction will be allowed for the first S$300,000 qualifying expenses and 150% deduction for the balance expenses;
(ii) Investment in design. 250% tax deduction will be allowed for the first S$300,000 qualifying expenses and 100% deduction for the balance expenses;
(iii) Acquisition of Intellectual Property (IP) rights, with same deduction as (ii);
(iv) Registration of IP rights, with same deduction as (ii);
(v) Investment in automation, with same deduction as (ii);
(vi) Training, with same deduction as (ii).
Businesses with at least 3 local employees can also choose to convert the credit to a non taxable cash grant of up to S$21,000 per year of assessment.
With this new incentive, the R&D tax allowance and R&D incentive for start-up enterprises introduced in budget 2008 will be phased out by the year of assessment 2011.
1.3 Phase out of Industrial Building Allowance (IBA)
The IBA was introduced in 1940s and served its purposes in the past. However, it was not effective and irrelevant for a modern day tax regime. As such, the government decided phasing out the IBA laws with immediate effect. From budget day, capital expenditure incurred on industrial building or structure will not be granted with IBA. Instead, a new tax incentive, the Land Intensification Allowance will be introduced to replace the IBA.
1.4 New Land Intensification Allowance (LIA)
Effective from 1 July 2010, the LIA will be available to businesses for construction costs incurred for qualifying building or structure. Under this incentive, businesses will be granted an initial allowance of 25% of the qualifying costs incurred and another 5% as annual allowance. This incentive will be available for 5 years and subject to meeting the requirements for land zoning and the Gross Plot Ratio (GPR). The qualifying industry sectors include:
(i) Pharmaceuticals;
(ii) Petrochemicals;
(iii) Petroleum;
(iv) Specialties;
(v) Other chemicals:
(vi) Semiconductor-Wafer fabrication;
(vii) Aerospace;
(viii) Marine and Offshore engineering; and
(ix) Solar Cell manufacturing.
1.5 Increase in Foreign Workers Levies (FWL)
FWL for work permits and “S” passes will be increased from 1 July 2010. Beginning with S$10 and S$30 dollar increase for work permits holders in 2010, the average increase in FWL for work permits for the next three years up to 2012 will be S$100. FWL for “S” passes will be divided into two categories and the new fees will be S$100 and S$120 each by July 2010. The levies for “S” passes will finally be adjusted to S$150 and S$250 by 2012.
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- Tax Incentives for Mergers and Acquisitions
2.1 New Merger & Acquisition (M&A) Allowance
To encourage the use of M&A as a strategy for growth and internationalization, the government introduced this incentive for M&A takes place from 1 April 2010 to 31 March 2015. Businesses incurred costs on qualifying M&A deals will be given a 5% tax allowance, capped at S$5 million per year of assessment. The allowance will be written down against income over a period of 5 years.
2.2 Stamp Duty Remission for Qualifying M&A Deals
Together with the new M&A Allowance, the government also announced stamp duty remission for all qualifying M&A deals executed from 1 April 2010 to 31 March 2015. The remission is capped at S$200,000 per year.
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Tax Changes for Specialized Industries
3.1 Extension of Development and Expansion Incentive (DEI) to Legal Services
As part of the government’s effort in encouraging globalization of business, law firms in Singapore will be eligible for the DEI for provision of international legal services. If approved, the law firms will be granted with 10% concessionary tax on incremental income earned from international legal services. The incentive will be available for a period of 5 years from 1 April 2010 to 31 March 2015.
3.2 Extension of Maritime Finance Incentive (MFI)
Currently, the MFI accords tax exemption or concessionary tax at 5% or 10% for qualifying leasing income and approved manager of the MFI. The incentive will be expired on 28 February 2011. This incentive will be extended for another 5 years up to 31 March 2016.
3.3 New Incentive for Ship Brokers and Forward Freight Agreement (FFA) Traders
To further promote Singapore as an International Maritime Centre (IMC), the government introduced this new incentive to grant concessionary tax at 10% to qualifying ship brokers and FFA traders. The incentive will be administered by the Maritime and Port Authority of Singapore and will be available for a 5 year period from 1 April 2010 to 31 March 2015.
3.4 Inclusion of Ship Management Fee for S13A and AIS
Currently, qualifying freight incomes for shipping companies are exempt from tax under Section 13A of the Income Tax Act (ITA) or under the Approved International Shipping (AIS) company scheme (Section 13F of the ITA). Ship management fees from services rendered to special purpose vehicle are taxed at normal rate. To help promote Singapore as an IMC, the ship management fees earned from the budget day for services rendered to special purpose vehicle will also qualify for tax exemption under Sections 13A and 13F.
3.5 Renewal and Enhancement of Investment Allowance (IA) for Aircraft Rotables
The existing incentive expired on 9 Sep 2009 which imposed condition of “non swapping” for approval of IA for 50% of the costs incurred for aircraft rotables. To promote the aircraft maintenance and repair industry, the incentive will be renewed for 5 years from 1 April 2010 to 31 March 2015 and the “non swapping condition” will also be removed.
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- Tax Incentives for Financial Sector
4.1 Enhancement of Financial Sector Incentive (FSI)
The existing Qualifying Base (QB) for calculation of the amount of chargeable income qualifies for concessionary tax rate will be removed, together with the change of the concessionary tax rate to 12% for Standard tier of the FSI, from the current rate of 10%.
4.2 Removal of the Tax Incentives for Futures Members of SGX and Members of SICOM
Currently, futures members of the Singapore Exchange (SGX) and members of the Singapore Commodity Exchange Limited (SICOM) are granted with concessionary tax rate of 10% on qualifying income. This incentive will be terminated by 31 Dec 2010. From 1 Jan 2011, all the futures members of SGX and members of SICOM will be transferred to the Standard tier of FSI, if they meet the conditions required under the Standard tier of FSI.
4.3 Extension and Enhancement of Concessions for listed REIT
The existing income tax, stamp duty and GST concessions for listed Real Estate Investment Trusts (REIT) expired on 17 February 2010 will be renewed for a 5 year period from 18 February 2010 to 31 March 2015. The existing tax exemption treatment for foreign sourced dividends, interest and trust distributions will be expired on 31 March 2015. The current condition for unlisted REIT to be listed within one month so as to qualify for the concessions will be liberalized to six months.
4.4 Removal of Approved Start-up Fund Manager Scheme
Currently, approved start-up fund managers are given 12 months to meet the conditions for the residency of their investors. With the liberalization of the residency conditions in 2007, this scheme will not be renewed after its expiry on 17 February 2010.
4.5 Review of Tax Incentive for Offshore Insurance Business
The existing concession of 10% tax for offshore insurance has no sunset clause provided. From 1 April 2010, the incentive will be modified to include the following changes:
a. The incentive will be subject to a 5 year period up to 31 March 2015;
b. The incentive will be awarded to the approved recipients for a period of 10 years; and
c. New headcount requirement will be added for qualifying recipients.
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- Changes to Personal Income Tax
5.1 New Tax Deduction for Angel Investors
This is a new tax incentive targeting at willing individuals who invests a minimum of S$100,000 in qualifying start-up businesses. The qualifying investor will be allowed a 50% tax deduction on the cost of investment at the end of his second year of holding the investment. The incentive is limited to maximum total investment of S$500,000 per year of assessment and is valid from 1 March 2010 to 31 March 2015.
5.2 Increase in Parent Relief
From the YA 2010, parent relief will be adjusted as follows:
|
Living Together |
Not Living Together |
Normal Relief |
S$7,000 |
S$4,500 |
Handicapped |
S$11,000 |
S$8,000 |
Besides, the income threshold will also be adjusted, please refer to 4.3 below.
5.3 Expansion of Wife Relief to Spouse Relief
The existing wife relief of S$2,000 will be renamed to Spouse relief and female taxpayers are allowed to claim for the new spouse relief from the YA 2010. The income threshold will also be increased to S$4,000, as explained in 4.3 below.
5.4 Increase in Income Threshold for Dependent-related Relief
Currently, the income threshold for claiming dependent-related relief is S$2,000. Effective from the YA 2010, the income threshold will be increased to S$4,000 for dependent-related relief. The income threshold for handicapped dependent-related relief will be waived.
5.5 Increase in Course Fee Relief
The existing course fee relief of S$3,500 will be increased to S$5,500 from the year of assessment 2011.
5.6 Enhancement of Tax Deduction on Donations
The enhanced tax deduction of 250% for donations made to Institutions of Public Character (IPC) introduced in 2009 will be extended for another year from 1 Jan 2010 to 31 Dec 2010.
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- Changes to Property Tax
6.1 Changes to Tax Rate for Owner-Occupied Residential Properties
Currently, owners of owner-occupied residential properties are taxed at a concessionary tax rate of 4% of the annual value of the properties. The tax rate will be modified from January 2011. A progressive tax rate system will be implemented as follows:
Annual Value |
Tax Rate |
First S$6,000 |
0% |
Next S$59,000 |
4% |
Excess of S$65,000 |
6% |
The property tax rates for rented properties, non owner-occupied and commercial properties remain at 10% of the annual value.
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- Changes to Goods and Services Tax (GST)
7.1 Expansion of GST Zero-rating for Marine Industry
The existing zero-rating treatment will be expanded to include:
a. Sale or leasing of pleasure and recreational ships that are wholly used for international travel;
b. Supply of goods for use on board a qualifying ship;
c. Transport of goods or passengers on international water; and
d. Stores supplied to and merchandises for sale on board a qualifying ship.
7.2 Extension of Qualifying Listed Registered Business Trusts (RBT) Concession Currently, GST remission is granted to listed
RBT for claiming of GST input tax on assets acquired though special purpose vehicles. The concession has expired on 17 February 2010 and will be renewed for a 5 year period from 18 Feb 2010 to 31 Mar 2015.
7.3 Deferring of Import GST
A new GST deferring scheme will be introduced from 1 Oct 2010 to enable GST registered traders to defer their GST payment for at least one month, to help ease their cashflow. IRAS will release further details on who will qualify and how to qualify in March 2010.
7.4 Simplification of GST Accounting Rules
The existing rule for time of supply will be simplified to account GST on the earlier of:
a. When a tax invoice is issued; or
b. When payment is received.
The exiting rule on delivery of goods and performance of services will be retained under certain circumstances.
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- Other Changes
8.1 Reduced Withholding Tax Rate for Non-resident Public Entertainers
The existing tax rate of 15% will be reduced to 10% from payments made on budget day to 31 March 2015.
8.2 Changes to Duty-Free Allowance for Purchase of Bottled Liquor
The existing duty-free allowance applies to one litre each of spirit, wine and beer. Effective from 1 April 2010, travelers will be given duty-free allowance for one additional litre of wine or beer in lieu of one litre of spirit.
8.3 Enhanced Transport Technology Innovation Development Scheme (TIDES+)
Under the existing TIDES, vehicles brought in for R&D and test-bedding are granted with waiver of certificate of entitlement, taxes and duties. To further support the industry, green vehicles brought in for test-bedding will be granted with waiver of additional registration fees, certificate of entitlement and custom duties for initial 6 years, up from the current period of 2 years. The quota for vehicles under this scheme will also be increased from the existing 300 to 1,300.
8.4 Extension of Green Vehicle Rebate (GVR) to Imported Used Green Vehicles
Currently, only brand new green vehicles qualify for the GVR. The scheme will be extended from 1 July 2010 to include used green vehicles. This scheme will not apply to CNG vehicles and taxis.
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- Year of Assessment 2010 tax filing due dates
We wish to take this opportunity to remind our clients of the tax filing due dates for the Year of Assessment 2010:
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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