In
Singapore's 2004 budget it was announced that the first
$100,000 of normal chargeable income for new companies
would be exempt from tax in each of their first three
years of assessment between YA 2005 and YA 2009. The
Technopreneur Investment Incentive has been expanded
in scope and renamed the Enterprise Investment Incentive
(EII). Investors in start-ups awarded the EII will enjoy
tax deductions for any losses they incur in these start-ups.
To help SMEs make greater use of intellectual property,
the withholding tax on royalty payments was reduced
from 15% to 10%.
Operational Headquarter Companies ("OHC")
To qualify for this scheme the company must have a sizeable network of overseas companies in the south-east Asian region and be well established both in its home country and in its industry. The OHC must provide "qualifying" management, treasury or other approved headquarter related services to its subsidiaries, associated or related companies in other jurisdictions. A company which qualifies for this scheme is entitled to the following fiscal benefits:
- Income arising from the provision of "approved services" in Singapore to related companies are taxed at 10% for up to 10 years with a provision for an extension.
- Dividends:
In Singapore there are no withholding taxes levied
on dividends. Instead dividends are taxed at 20% (as
from 2005) with a tax credit being given for any corporate
tax levied on the profits out of which dividends are
paid. Where there is a shortfall between the tax credit
and the 20% charge levied on dividends the shortfall
must be made up by the company paying the dividend
and not by the shareholder receiving it. The income
of OHC are exempt from any further taxation on the
shortfall in so far as that shortfall is caused by
the concessionary fiscal status granted to the company.
In February, 2004, the terms of the HQ regime were improved,
with the maximum duration of the existing Regional HQ
scheme being extended from three to five years. The
qualifying criteria for HQ status includes incurring
a minimum expenditure of $3 million over three years
(at the time of writing). The new regulations allowed
two more years of a tax break, as long as these businesses
maintain their current spending levels. MNCs who have
recently established their regional headquarters in
Singapore can enjoy a 15 per cent tax rate for two more
years.
In April, 2004, the government extended the HQ tax regime under the Expansion Incentive for Partnerships scheme. Firms which are able to prove that they intend to expand their Singapore-based operations will receive a 50% tax exemption on qualifying overseas income over a certain amount (determined by the average of the partnership's profits for the provision of services in the region over the three years prior to the application).
Baker
& McKenzie tax partner, Edmund Leow welcomed the move,
observing at the time that: "Traditionally Singapore
has always tried to attract foreign investment from
multinational corporations with tax incentives. They
have now realized that professional services firms are
very important to the economy as well."
Finance And Treasury Centres (FTC)
The
Tax Incentive Scheme for Finance and Treasury Centres,
introduced in 2004, was designed to encourage multi-national
corporations to use Singapore as a base for conducting
treasury management activities.
The scheme provides a concessionary tax rate of 10% on all fee income received by the FTC from its subsidiaries, related companies and associates outside Singapore (approved network companies) for the provision of qualifying FTC services and qualifying activities conducted on own account, and on
interest, dividend and gains from transactions in foreign currency denominated stocks and bonds, foreign exchange trading, interest rate swaps, financial futures and options.
There is exemption from withholding tax on interest payments on foreign currency denominated borrowings by the FTC from overseas banks and approved network companies, provided the funds raised are used for the conduct of qualifying FTC activities. Borrowings from network companies exclude funds borrowed by network companies from sources other than banks.
The
FTC must meet the following minimum criteria: Annual
total business spending (TBS) of S$1m; 3 professional
staff employed by the FTC; and 3 qualifying FTC services
to 3 or more network companies.
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Approved Royalties Incentives
In certain circumstances full or partial exemption can be obtained from the payment of withholding taxes on royalties, technical assistance fees and contributions to research and development costs. For the exemption to apply the payments must be made to non-residents and there must be no resultant increase in the liability to tax by the non-resident person in his country of residence. In default of this exemption the standard rate of withholding taxes levied on such activities is 20% (15% for royalties, but see above) which generally speaking can only be reduced by the provisions of double taxation treaties.
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Accelerated Depreciation Allowances
Accelerated
depreciation allowances enable a company to reduce its
taxable profits, strengthen its asset base and improve
its cash flow. The normal rate of annual depreciation
for capital expenditure at the time of writing is an
initial 20% allowance with the balance being written
off at the rate of between 5-20% per annum. However
in certain circumstances accelerated depreciation allowances
are available which allow companies to set off 33% per
annum of the cost of all plant and machinery for each
of 3 years subsequent to purchase. In the case of prescribed
automation equipment, robots and certain environmental
related equipment (e.g. energy saving equipment) 100%
of the assets cost can be set off in the first year.
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Interest Payments to Non-Residents
The general
rule is that withholding tax (15% at the time of writing)
is deducted from interest repayments made to non-residents
without Singapore activities. Interest repayments may
be reduced in the following circumstances:
-
Double Taxation Treaty: Where the non-resident resides in a jurisdiction with which Singapore has signed a double taxation treaty jurisdiction.
-
Approved
Loans: Interest payments on approved loans made
by foreign institutions may be exempt from withholding
taxes. Approved loans are assessed on a case by
case basis and the exemption or reduction depends
on the amount, terms, purpose and use of the loan
in Singapore.
-
Qualifying Debt Securities: Interest payments on such instruments may also be exempted from withholding taxes.
-
"Approved" Asia Dollar Bond Deposits: So long as these bonds are held by approved banks and paid to non resident holders who do not carry on business in Singapore and have no permanent establishment there they are exempt from withholding taxes.
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