Singapore: Corporate Investment
Pioneer industries - Corporations manufacturing approved products with high technological content, providing qualifying services or engaging in countertrade activities may apply for tax exemption for five to fifteen years. Dividends paid out of exempt pioneer profits are not subject to tax in the hands of recipients. Corporations may apply for their post pioneer profits to be taxed at a reduced rate under the Development and Expansion Incentive (see below).
High-value-added or expanding industries - Corporations engaging in new high-value-added projects, expanding or upgrading their operations, or undertaking incremental activities after their pioneer or post pioneer period may apply for their profits to be taxed at a reduced rate of not less than 5% for an initial period of up to 10 years. The total tax relief period is subject to a maximum of 20 years (inclusive of the post pioneer relief period previously granted, if applicable). This is known as the Development and Expansion Incentive.
Export of services - An approved enterprise providing selected services with respect to overseas projects is given tax exemption on 90% of the qualifying export income. The exemption is given for a period of five years, with provision for an extension.
In February 2008, Singapore's Minister for Finance, Tharman Shanmugaratnam, announced 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.
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 was 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.
Business tax measures announced in the 2009 budget included:
- Unutilized trade losses and capital allowance for YA 2009 and YA2010 can be carried back to set off against Assessable Income of three immediately preceding YAs up to a limit of SGD200,000.
- Businesses that incur qualifying Renovation and Refurbishment expenses in the basis periods for YA 2010 and YA 2011 can deduct such expenses in one year instead of over three years, subject to the cap of SGD150,000 for each relevant three-year period.
- Companies Limited by Guarantee (CLGs) will be allowed to qualify for the tax exemption scheme for new start-up companies effective from YA2010.
- A new tax framework for qualifying amalgamations will be introduced.
- An accelerated write-down of capital allowance (CA) will be allowed on plant and machinery acquired in the basis periods for YA 2010 and YA 2011. CA is computed based on 75% of the capital expenditure for the first YA and 25% of the capital expenditure for the second YA.
- Under the Block Transfer Scheme (BTS), withholding tax (WHT) exemption can be granted in respect of interest payable on a loan taken by a shipping enterprise from a lender outside Singapore to acquire a Singapore-flagged ship. This WHT exemption is for ships registered with the Singapore Registry of Ships (SRS) on any date from January 1, 2009 to December 31, 2013.
- The tax exemption schemes for foreign investors and qualifying resident funds, tax incentive schemes for approved trustee companies and financial sector incentive companies will be enhanced by expanding the list of specified income and designated investment.
- The tax deduction for collective impairment provisions made by banks, merchant banks or finance companies under MAS Notices 612, 811 and 1005 will be extended for a further three years, subject to conditions.
During his keynote address to Singapore’s Fourth Start-up Enterprise Conference in June, 2010, the Permanent Secretary for Finance, Peter Ong, illustrated how the competitive tax regime in Singapore encourages the growth of new start-up companies.
“Singapore offers a very competitive tax regime designed to encourage new start-up companies,” he said. “Under the full tax exemption scheme, a newly incorporated company that meets the qualifying conditions effectively pays only 5.6% on the first SGD300,000 (US$213,000) of the income they earn in their first three years.”
“After this period,” he continued, “start-ups can continue to pay less than 9% tax on the same amount, thereby allowing new entrepreneurs to retain a larger portion of their earnings to be ploughed back to grow their businesses.”
He pointed out that, this year, the government has also unveiled an unprecedented tax benefit in the form of the Productivity and Innovation Credit, to encourage start-ups and small- and medium-sized enterprises (SMEs) to invest in productivity and innovation. As an illustration, for the first SGD300,000 that a start-up invests in staff training, it can deduct SGD750,000 from its taxable income.
The same start-up will enjoy another SGD750,000 deduction should it invest in automation. “The Productivity and Innovation Credit also allows businesses to convert the enhanced tax deduction into a cash payout,” he added, “a move that would come in handy in helping start-ups and SMEs ease their cash flow.”
Ong then illustrated the programme which supplies young start-ups with grants of up to SGD50,000 to start their innovative business, while the Start-Up Enterprise Scheme provides a co-financing option of up to SGD1m in funding start-ups with innovative and viable content.