Mar. 4 – The Minister for Finance delivered Singapore’s yearly budget to the Singapore Parliament last week. The main focus of the budget was to continue the process of restructuring Singapore’s economy by increasing the productivity of its workforce, reducing Singapore’s dependence on its foreign workforce and providing incentives to encourage local businesses to be more efficient.
The Singaporean Government initiated various policies to meet the social demands of the population, including increasing staff salaries through Governmental credits and cooling the Singapore residential property market to allow more Singaporeans to enter. To fund these policies, some tax incentives that were previously available were withdrawn, and greater taxes on investors in Singapore’s high-end residential property market were instated.
Below is a summary of the key Budget initiatives that may impact non-residents looking to invest into Singapore.
Revamped residential property tax structure
In order to open up the Singaporean real estate market to locals, the Minister proposed changing the property tax rate structure. The previous tax structure included a 10 percent flat rate for non-owner-occupied properties and a 6 percent rate for owner-occupied-properties with an annual value of at least S$65,000. Now, marginal rates of 19 percent and 15 percent for both non-owner-occupied and owner-occupied-properties with annual values of at least S$90,000 and S$130,000 respectively will be introduced.
This revised property tax structure will be introduced starting January 1, 2014 and will be fully enacted on January 1, 2015.
Fund Management Incentives
To maintain the growth of its financial sector, the Minister proposed that the Financial Services Scheme (FSI scheme), which includes the FSI Fund Management Award, be extended for an additional five years to December 31, 2018. The FSI Fund Management Award provides a concessionary tax rate of 10 percent for certain fund management and investment advisory activities.
Qualifying debt securities tax scheme extended
The Singapore Income Tax Act provides for a concessionary tax scheme for income from qualifying debt securities (QDS), namely the QDS Scheme and QDS+ scheme. These schemes allow qualifying income from certain debt securities to be either completely exempt from taxes under the Act or taxed at a concessionary rate of 10 percent.
These schemes were due to expire on December 31, 2013, but will be extended by an additional five years to December 31, 2018.
Tax exemptions revisions
In the past, companies were eligible to receive a 100 percent tax exemption on the first S$100,000 they made, followed by a 50 percent tax exemption on the next S$200,000 of chargeable income. However, the new Budget adds that investment holding companies are no longer eligible for this type of tax exemption. An investment holding company is defined as a company whose principal activity refers to investment holdings in which income is derived from rental fees, dividends or interests.
Corporate Income Tax Rebate
Companies will now receive a 30 percent Corporate Income Tax Rebate capped at S$30,000 per Year of Assessment from 2013 to 2015.
Productivity and Innovation Credit List Revised
The prescribed list of equipment from which businesses can claim capital allowances/deductions (of up to 400 percent) from acquiring or leasing automation equipment was expanded by the Revenue authorities to not only make the current procedures easier to abide by, but to also add equipment that does qualify for the productivity and innovation credit (PIC) benefits. The prescribed equipment list will be updated regularly to take into account feedback from businesses.
In addition, eligible businesses that incur a minimum of S$5,000 of PIC expenditures will receive a dollar-for-dollar matching cash bonus (capped at S$15,000 over a 3-year period). Expenditures incurred due to the in-licensing of intellectual property will also qualify for the PIC benefits.
Maritime Sector Initiative–Approved International Shipping Enterprise (MSI–AIS) Award
Companies currently are granted MSI–AIS Awards that last for 10-years that may be renewed for a maximum of 30 years. To promote the growth of Singapore’s maritime industry, the maximum tenure for an MSI-AIS award was increased by 10 years to a total of 40 years.
In addition, qualifying shipping income from non-Singapore flagged ships is exempted from taxes.
Double tax deduction scheme to expire
Businesses currently enjoy double tax deductions on certain expenditures they incur from the recruitment and relocation of overseas talent and their families to Singapore. However, this Scheme is set to expire on September 30, 2013, and the new Budget proposes to not extend this Scheme.
Reduction in Dependency Ratio Ceiling and S-Pass Salary Increase
The Dependency Ratio Ceiling (DRC) refers to the maximum permitted ratio of foreign workers to total workforce that a company can hire. The new Budget proposes to reduce the overall DRC and S-Pass numbers to 40 percent and 15 percent respectively.
In addition, S-Pass qualifying salaries have been increased from S$2,000 to S$2,200.
Taxation of accommodation benefits
Accommodation benefits that employees enjoy will now be taxed according to the actual market value of the accommodations in question. This tax is scheduled to be enacted in 2015.