The Government Budget for fiscal year 2011 was delivered by the Minister for Finance on 18 February and the objectives for the budget this year are to "grow incomes for all Singaporeans" and "to enable Singapore to be first-rate developed society a decade from now". As the Singapore economy registered a strong GDP growth of 14.5% for 2010, the Government announced a series of budget payouts to Singaporeans for sharing the budget surpluses. Amongst all, there will be a one-off payment of "Growth Dividend" to all adult Singaporeans in May 2011. There is also another one-off 20% tax rebate for both corporate and individual taxpayers for the year of assessment 2011. Changes made to foreign workers levy and CPF contribution rates were also announced in the budget speech. Besides, there are other fiscal and tax policy changes introduced to achieve the budget objectives. We summarize below the changes in tax policy announced in the budget:
- Key Features
1.1 No change to Corporate Tax, Individual Tax (for YA 2011) and GST Tax Rates
There will be no changes to the tax rates for corporate tax, individual 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%.
For corporate tax, a 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 2011. Qualifying newly incorporated companies will enjoy an effective tax rate of only 5.67% for the first S$300,000 chargeable income for their first 3 years of assessment after incorporation.
However, individual tax rates will be modified from the YA 2012. We append below the current individual tax rates table and the new tax rates table from the YA 2012:
| Current Tax Rates Table (YA 2007 to 2011) |
|
|
|
Gross Tax Payable
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tax Rates Table with effect from YA 2012 |
|
|
|
Gross Tax Payable
($) |
|
|
|
|
|
|
|
|
|
|
|
|
On the first |
On the next |
On the next |
|
|
|
|
On the first |
On the next |
On the next |
|
|
|
|
On the first |
In excess of |
|
|
|
|
Based on the above tax rate tables, a taxpayer having chargeable income of S$160,000 will be paying income tax of S$15,500 for the YA 2011. For the same amount of chargeable income, the taxpayer will be paying income tax of S$13,950 from the YA 2012, a net tax saving of S$1,550, or a 10% reduction in the amount of tax payable.
1.2 20% Tax Rebate for Individual and Corporate Taxpayers for YA 2011
A one-off 20% tax rebates will be allowed to individual and corporate taxpayers for the YA 2011. The tax rebate for individual will be capped at S$2,000 whereas the tax rebate for corporate taxpayers will be capped at S$10,000. Alternatively, corporate taxpayers may receive a SME cash grant for YA 2011 which is based on 5% of the revenue for the YA 2011, capped at S$5,000, in lieu of the tax rebate. Taxpayers will receive the higher of the tax rebate and SME cash grant upon finalization of the tax assessment for YA 2011.
1.3 Modification to the Productivity and Innovation Credit (PIC) Scheme
This tax incentive was introduced in last year budget to encourage business spending to raise productivity. The scheme is modified to increase the tax deduction of up to 400% of the qualifying expenditure, up from the original proposal of 250%. The incentive will be allowed to taxpayers for expenses incurred in six categories of qualifying activities, capped at S$400,000 (up from S$300,000). The new incentive will be effective from the year of assessment 2011 to 2015. The six types of activities are:
(i) R&D expenditure;
(ii) Investment in design;
(iii) Acquisition of Intellectual Property (IP) rights;
(iv) Registration of IP rights;
(v) Investment in automation;
(vi) Training;
Besides, taxpayers are also allowed to combine the total qualifying expenses for 2 years for YA 2011 and 2012 to qualify for total deduction ceiling of S$800,000 and, for 3 years from YA 2013 to 2015 to qualify for the total deduction ceiling of S$1,200,000.
For qualifying R&D expenses, the R&D works can also be carried out outside Singapore.
Businesses can also choose to convert the credit to a non taxable cash grant of up to 30% of the first S$100,000 qualifying expenditure per year of assessment, capped at S$30,000.
1.4 Further Increase to Foreign Workers Levies (FWL)
Further adjustments will be made to FWL effective from January 2012. The levy introduced is in addition to the new levy announced in last year budget. The adjustments will be made progressively up to July 2013. The adjustments are summarized as follows:
Industry |
Current Levy |
Levy from July 2013 |
Manufacturing |
S$170 to S$ 450 |
S$250 to S$550 |
Service Sector |
S$170 to S$450 |
S$300 to S$600 |
Construction |
S$160 to S$470 |
S$300 to S$600 |
Process |
S$160 to S$300 |
S$250 to S$550 |
Marine |
S$170 to S$300 |
S$250 to S$350 |
“S” Pass Holder |
S$110 to S$150 |
S$300 to S$450 |
1.5 Adjustment to CPF Contribution Rates and Ceiling
With effect from September 2011, the employers' CPF contribution will be increased to 16% for employees aged below 50 years. The current contribution rate of 15% will be adjusted to 15.5% from March 2011, before reaching 16% from the month of September 2011. The ceiling for monthly contribution will also be raised to S$5,000 from the current limit of S$4,500 from September 2011. There are no changes to the employees' CPF contribution rate.
1.6 Tax Deduction of 2.5 Times the Amount of Approved Donation
The tax deduction of 2.5 times the amount of donation made to institutes of public character (approved donation) will be extended for another 5 years from 2011 to 2015.
Back to Top
- Tax Changes for Businesses
2.1 Foreign Tax Credit (FTC) Pooling System
A new FTC pooling system will be introduced from the YA 2012. Under this scheme, FTC is computed on a pool basis. FTC will be allowed based on the lowest pooled foreign income and pooled Singapore tax payable on the foreign income. Individual tracing of the source of foreign income and the corresponding foreign tax paid is no longer required.
2.2 Streamlining of Claim of Double Tax Deduction under Sections 14B and 14K
Currently, application for double tax deduction has to be filed with IE Singapore at least 7 days before the business trip. With the modification, businesses can now submit their applications up to the day of their overseas marketing trip. The changes will take effect from 1 April 2011.
2.3 Claim of Pre-Commencement Expenses
Under current tax treatment, businesses can only claim pre-commencement expenses in the financial year in which the first dollar of trade receipt is earned. With effect from the YA 2012, Businesses can claim pre-commencement expenses incurred in the financial year prior to the financial year in which the first dollar of trading receipt is earned.
2.4 Tax Deduction for Cost incurred by Special Purpose Vehicle (SPV)
Under the employee equity-based remuneration scheme (EEBR), a company may need to setup a SPV to acquire the shares of the parent company to meet the obligation under the EEBR. To encourage the use of EEBR, A new tax incentive is introduced from the YA 2012 to allow the SPV to claim tax deduction on costs incurred in acquiring the shares to meet the obligation.
2.5 Tax Exemption for Income derived from Structured Products
Currently, income derived by non-resident individuals and non individuals from structure products from a financial institution in Singapore is tax exempt. The tax incentive for non individuals will be expiring on 31 Dec 2011. The said scheme will be extended to 31 March 2017.
2.6 Tax Deduction for Voluntary CPF Contribution for Self-Employed
Effective from 1 Jan 2011, contribution to CPF Medisave Account by the eligible companies for self-employed persons will be allowed tax deduction. The self-employed person will not be taxable on the contribution. This is a common practice for taxi companies to contribute to the CPF Medisave Account of the taxi drivers. Under the new law, the taxi companies will be granted tax deduction for such contribution.
2.7 Liberalization of Withholding Tax Exemption for Banks
Under current practice, withholding tax exemption is granted to payment made to banks in Singapore, including local banks and branches of foreign banks. With effect from 1 April 2011, the exemption scheme will be extended to include payment made to finance companies, investment banks and other financial institutions licensed under the Securities and Futures Act.
2.8 Extension of Tax Incentive for Project Finance
The existing tax incentive for project finance will expire on 31 Dec 2011. All financial sector incentives, except FSI – PF will be extended to 31 March 2017. Financial institutions can enjoy similar tax benefits of FRI – PF under the FSI – Credit Facilities Syndication and FSI – Bond Market tax incentive schemes.
2.9 Enhancement to Tax Incentive Scheme for Trustee Company
The existing tax incentive for approved trustees will be modified to include a sunset provision for the scheme to expire on 31 March 2016. The new recipient of the incentive from 1 April 2011 will be offered an incentive period of 10 years. All existing approved trustees will also be awarded an extended period of 10 years up to 31 March 2021.
2.10 Enhancement of the Global Traders Program (GTP)
A sunset clause will be introduced for the incentive to expire on 31 March 2021. The existing qualifying derivative instruments will be extended to include all derivative instruments.
2.11 Enhancement of the Finance and Treasury Centre Incentive
A sunset clause will be introduced for the incentive to expire on 31 March 2016. The revenue ratio used to determine the inclusion of Local Network Company (LNC) will exclude related party transactions.
Back to Top
-
Tax Changes for Insurance Companies
3.1 Extension of Captive Insurance Tax Incentive Scheme
This incentive grants tax exemption to qualifying offshore insurance business income for a period of 10 years. The incentive is expiring on 16 Feb 2011 and it will be extended to 31 March 2018.
3.2 Extension of Marine Hull and Liability Insurance Tax Incentive Scheme
Qualified insurers under this scheme enjoy tax exemption on income derived from marine hull and liability insurance business for up to 10 years. A sunset clause of up to 31 March 2016 is introduced in this year budget.
3.3 Extension and Enhancement of Specialized Insurance Tax Incentive Scheme
Insurers under this scheme derive income from specialized insurance business for risks against terrorism, political, energy, aviation and aerospace risks. Qualifying insurers are granted tax exemption for a period of 5 years. The current scheme is expiring on 31 August 2011 and it will be extended to 31 August 2016. In addition, Agriculture insurance will be included as a new qualifying business line from 19 Feb 2011.
3.4 Withdrawal of Withholding Tax Exemption Scheme for Financial Guaranty Insurers
Currently, qualifying insurers enjoy withholding tax exemption on claim payments made under insurance policy to non-residents. This scheme will be discontinued from 19 Feb 2011.
Back to Top
- Tax Changes for Shipping Industries
4.1 Maritime Sector Incentive (MSI)
All existing tax incentives for shipping industries will be consolidated under the new Maritime Sector Incentive (MSI) with effect from 1 Jun 2011. The existing schemes include Sections 13A and 13F (Approved International Shipping Enterprise) of the Income Tax Act, Maritime Finance Incentive (MFI), Approved Shipping and Logistics Scheme (ASL) and Ship Broking and Forward Freight Agreement (FFA).
Back to Top
- Changes to Individual Income Tax
5.1 Tax Exemption on Alimony and Maintenance Payments
Under current treatment, alimony and maintenance payment made to ex-spouse is taxable in the hand of the recipient and the payer will be granted with spouse relief if the payment is made under a court order or a deed of separation. From the YA 2012, alimony and maintenance payment received is not taxable for the recipient. This is regardless of whether the payment is made on a voluntary basis or under a court order or under a deed of separation. The payer is not allowed to claim for spouse relief.
5.2 Modification to Supplementary Retirement Scheme (SRS)
Effective from 1 Sep 2011, contribution cap for the SRS will be raised to S$12,750 for Singaporean / Singapore PR and S$29,750 for foreigner.:
Back to Top
- Changes to Stamp Duties
6.1 Stamp Duty Relief for Conversion of Company to LLP
Effective from 19 Feb 2011, stamp duty relief will be granted for transfer of assets for conversion of a company into a Limited Liability Partnership (LLP).
6.2 Extension of Stamp Duty Remission in Excess of S$50 to Aborted Leases
This is an extension of the current scheme for stamp duty remission for aborted sale and purchase agreement. With effect from 19 Feb 2011, stamp duty payable for aborted leases will be limited to S$50.
6.3 Removal of most Fixed and Nominal Stamp Duties
Fixed and nominal stamp duties on prescribed documents and stamp duty payable on declaration of trust will be removed from 19 Feb 2011.
6.4 Extension of Stamp Duty Remission for Project Finance
The current incentive grants stamp duty remission to transfer of qualifying infrastructure projects / assets to qualifying entities listed or to be listed on SGX. This scheme will be extended from 1 Jan 2012 to 31 Mar 2017.
Back to Top
- Changes to Goods and Services Tax (GST)
7.1 GST Changes to Marine Related Supplies
This new tax incentive grants special status to "approved marine customer" to qualifying business which can enjoy GST zero-rating treatment for buying or renting goods for use on commercial ship that is wholly for international travel. The supplier of goods is not required to maintain the requisite documentary proof for zero-rating. This incentive will be effective from 1 Oct 2011.
7.2 GST Changes for the Biomedical Industry Currently, GST remission is granted to listed
With effect from 1 Oct 2011, a new tax incentive will be introduced to grant GST relief upfront for importing of clinical trail materials. The Approved Contract Manufacturer and Trader (ACMT) scheme will also be extended to include qualifying biomedical contract manufacturer. GST relief will also be given to qualifying ACMT for excess production and local purchases
7.3 Zero-rating of Specialized Storage and Other Value-Added Services
This new tax incentive allows zero-rating treatment to overseas persons for usage of specialized warehouse and value-added services for storage of high-value collectible items such as art and antiques. This new incentive will be effective from 1 Oct 2011.
Back to Top
- Other Changes
8.1 Removal of Radio and TV License fees
All TV and radio license fees will be removed from 1 Jan 2011. This includes the vehicle radio license fee.
8.2 Extension of Green Vehicle Rebate (GVR) Scheme
The current incentive grants rebate for additional registration fee for qualifying green vehicles. This incentive will be extended for one year to 31 Dec 2012.
8.3 Excise Taxes for Tobacco Products
There will be a 5% to 10% increase in excise taxes for 2 classes of non-cigarette tobacco products.
Back to Top
- Year of Assessment 2011 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 2011:
Personal Tax,
Partnerships,
Clubs,
Associations and
Management Corporations |
Filing due on 15 April 2011 |
| Corporate Tax |
Filing due on 30 November 2011 |
Back to Top
