Introduction
The
Government of Singapore provides a comprehensive package
of tax concessions and incentives to businesses, the
very nature of which reflects the direction in which
the authorities are trying to steer economic development.
Singapore is a densely populated country with a high
standard of living, a shortage of land and a high cost,
highly skilled labor force and accordingly the country
comparative advantage lies in the development of high
value, export-orientated service industries.
In
Malaysia by contrast a surplus of land, a large labor
pool and low labor costs have resulted in the development
of a low value, labor intensive, export-orientated manufacturing
economy. The result has been that labor-intensive components
industries have moved to Malaysia whereas Singapore
has seen the growth of industries engaged in computer-aided
design & manufacturing, financial services, research
& development and the production of computers &
robots.
The
government plays a key role in driving Singapore economic
development through the granting of fiscal incentives.
The allocation of an incentive depends primarily on
such considerations as the amount of investment involved,
the technical output, the export potential, the employment
opportunities and the general conduciveness to Singapore
economic activity.
Most
of the incentives are granted under the Economic Expansion
Incentives (Relief from Income Tax) Act and can be subdivided
into 4 categories, incentives for manufacturing and
service companies, incentives for financial services
companies, incentives which are aimed at specific sectors
of the economy and incentives which apply to all sectors
of the economy.
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Pioneer
Status
Pioneer
status is traditionally given to high-tech companies
which introduce high-tech skills to the economy. High-tech
companies include business entities engaged in computer
based information services, engineering services, technical
services, the development or production of industrial
designs and other computer related services. A company
designated pioneer status is entitled to the following
fiscal benefits:
- Profits
are fully exempted from corporate income tax for a
period of up to 15 years. The current rate of corporate
income tax is 17% (18% in 2009).
- Dividends:
In Singapore there are no withholding taxes levied
on dividends. Instead dividends are taxed at the standard
rate 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 standard rate charge levied on dividends,
the shortfall must be made up by the company paying
the dividend and not by the shareholder receiving
it. In the case of Pioneer Status companies the shortfall
is exempt from any further taxation.
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Development & Expansion Scheme Status
Development
& Expansion scheme status has replaced the incentive
known as post-pioneer status. It is available to companies
whose pioneer status has expired and which are engaged
in capital investment to upgrade or modernize production
capacity. The investment must have significant economic
spin offs.
A company designated development and expansion scheme
status is entitled to the following fiscal benefits:
- Income
relating to "qualifying activities" is subject
to a corporate income tax rate of not more than 10%.
"Non-qualifying activities" are taxed at
the normal corporate income tax rate of 17%.
-
Dividends: In Singapore there are no withholding taxes
levied on dividends. Instead dividends are taxed at
the standard rate, 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 standard rate charge levied
on dividends the shortfall must be made up by the
company paying the dividend and not by the shareholder
receiving it. In the case of companies which hold
Development & Expansion Scheme status the shortfall
is exempt from any further taxation in so far as the
shortfall is caused by tax free income from "qualifying"
activities.
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Expansion
Incentive
Expansion
incentives are fiscal benefits aimed at encouraging
companies to boost productivity through increased mechanization
and automation. The incentive consists in exempting
from taxation all income which exceeds the level of
income earned prior to the expansion plan being put
into operation. Expansion incentive certificates are
available to growth orientated manufacturing and service
companies including entities which have pioneer status.
A company granted an expansion incentive certificate
is entitled to the following fiscal benefits:
- All
income which exceeds the level of income earned prior
to the expansion plan being put into operation is
exempt from corporate income tax. The concession is
available for a period of 10 years (extendable for
a further 10 years in the case of service companies).
The relief is usually (at the time of writing) granted
to companies incurring expenditure of at least S$10m
(US$5.7m) on the purchase of productive equipment
used for the manufacture of "approved products".
-
Dividends: In Singapore there are no withholding taxes
levied on dividends. Instead dividends are taxed at
the standard rate, 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 standard rate charge levied
on dividends the shortfall must be made up by the
company paying the dividend and not by the shareholder
receiving it. Companies which hold "expansion
incentive certificates" are exempt from any further
taxation on the shortfall in so far as the shortfall
results from the concessionary tax status granted.
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Export Incentives
The
purpose of this incentive is to increase the value of
exports through the provision of the following fiscal
incentives:
- 90%
(at the time of writing) of "qualifying"
export income is exempt from corporate income tax.
"Qualifying" export income refers to any
annual increase in export income. The exemption period
is 5-10 years in the case of companies engaged in
the provision of services (with a provision for extension)
and 3-15 years in the case of companies engaged in
the production of manufacturing products.
-
Dividends: In Singapore there are no withholding taxes
levied on dividends. Instead dividends are taxed at
the standard rate, 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 standard rate charge levied
on dividends the shortfall must be made up by the
company paying the dividend and not by the shareholder
receiving it. Companies which hold "export incentive
certificates" are exempt from any further taxation
on the shortfall in so far as that shortfall is a
direct result of the concessionary tax status granted.
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Investment
Allowance Incentive
Investment
allowance incentives entitle a corporation to set off
against profits up to 50% of the cost of "qualifying"
capital expenditure which has been incurred on the purchase
of plant, machinery and factory buildings (excluding
land) for the purpose of an "approved project" which
involves either research & development, the provision
of specialized engineering or technical services, the
promotion of tourist industries (other than hotels)
or the manufacture of any product. The allowance is
in addition to the right of every corporation to annually
depreciate the cost of a fixed asset and set off the
amount of depreciation against taxable profits. In this
respect investment allowances represent a form of double
deduction. The allowance is granted as an alternative
and not in addition to pioneer status and export incentives.
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Overseas
Enterprise Incentives
Companies
engaged in providing designated services to "approved"
overseas projects are entitled to the following fiscal
concessions:
- "Qualifying
export services income" is taxed at the concessionary
rate of 10% for a maximum initial period of 10 years.
The recipients of the services cannot be Singaporean
residents or companies with permanent establishments
in Singapore. The company providing the service must
at least be 50% owned by Singaporean citizens or permanent
residents and must be incorporated and resident in
Singapore for tax purposes.
-
Dividends: In Singapore there are no withholding taxes
levied on dividends. Instead dividends are taxed at
the standard rate, 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 standard rate charge levied
on dividends the shortfall must be made up by the
company paying the dividend and not by the shareholder
receiving it. Companies which have been granted "overseas
enterprise incentives" are exempt from any further
taxation on the shortfall in so far as that shortfall
is caused by the concessionary tax status.
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Double
Deduction for R & D expenses
Certain
"qualifying" R & D expenses can be deducted
twice from profits for corporate income tax purposes.
The incentive generally covers computer software, agro-technology,
information industries and medical research and laboratory
testing.
In
the 2008 budget, it was announced that the government
would:
"Increase
the quantum of tax deduction for expenditure incurred
on research and development (R&D) done in Singapore
from 100% to 150%. This means that for every $100,000
of local R&D expenditure incurred, $150,000 may
be claimed as a tax deduction."
This higher deduction was to be available from Year
of Assessment (YA) 2009 to YA 2013.
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