On 7 October 2014, the Income Tax (Amendment) Bill 2014 (the “Bill”) was introduced in Parliament. The Bill seeks to implement the tax changes in the 2014 Budget Statement and make other amendments to the Income Tax Act (the “Act”) arising from on-going reviews of the income tax system.
By way of background, the Ministry of Finance (the “MOF”) carried out a public consultation on a draft version of the Bill from 2 to 24 July 2014 and issued its response to the feedback received on 24 September 2014.
The following are some of the key changes to be made under the Bill.
Budget 2014 changes
- Extend and enhance PIC scheme: The Productivity and Innovation Credit (“PIC”) scheme will be extended for three years till YA 2018. Capital expenditure incurred on the provision of a website for the purpose of a trade, business or profession will be considered as qualifying capital expenditure incurred on the provision of PIC automation equipment under the PIC scheme. The PIC automation equipment must be in use before expenditure on the provision of the equipment may be treated as a qualifying expenditure under the PIC scheme. For the year of assessment (“YA”) 2016 onwards, the period for satisfying the requirement of employment of three local employees will be extended from one month to three months.
- Extend section 14A tax deductions for costs for protecting IP: To encourage businesses to protect their intellectual property, the 100% tax deduction for qualifying intellectual property (“IP”) registration costs will be extended for another five years till YA 2020. At the same time, the period in which an enhanced deduction for such costs may be allowed will be extended till YA 2018.
- Extend section 14DA enhanced deduction for qualifying R&D expenditure: The period in which an enhanced deduction of 50% of qualifying R&D expenditure granted under section 14DA may be allowed will be extended till YA 2025. Further, the period in which an enhanced deduction of 250% and 300% of qualifying R&D may be allowed will be extended till YA 2018.
- Extend section 19B writing down allowances for acquisition of qualifying IP rights: To build Singapore as an IP hub, the Act will be amended:
- To extend till the last day of the basis period for YA 2020, the period in which IP rights must be acquired for its capital expenditure to be given a writing-down allowance;
- To extend till the last day of the basis period for YA 2018, the period in which IP rights pertaining to media and digital entertainment (MDE) contents must be acquired for its capital expenditure to be given a writing‑down allowance; and
- To extend till YA 2018, the period in which an enhanced writing down allowance may be made for capital expenditure incurred in acquiring IP rights.
- Extend and enhance LIA scheme: The period during which a person may apply for a land intensification allowance (“LIA”) will be extended to 30 June 2020. Changes will also be made to enable the allowance to be given for construction and renovation carried out on land that is zoned for airport or port use.
- Remove requirement to withhold tax for payments made to branches in Singapore: To reduce compliance costs for businesses, the Act will be amended to remove the requirement to withhold tax on interest payments liable to be paid on or after 21 February 2014 to Singapore branches of non-resident companies.
- Treatment of Basel Additional Tier 1 instruments: Distributions from Basel III Additional Tier 1 capital instruments (other than shares) issued by Singapore-incorporated banks and other specified entities will be treated as interest derived from debt securities. Such distribution will (subject to conditions) then be deductible as interest against the income of the issuer of the instruments, and taxable as interest income in the hands of the holders of the instruments, unless exempt from tax. As it is treated as interest derived from debt securities, it may be taxed at the concessionary tax rate that applies to income derived from qualifying debt securities, where applicable.
- Additional measures to curb PIC abuse: Amendments to the Act are proposed to address abusive arrangements where one of the main purposes is to receive PIC benefits. An abusive arrangement is one which involves an artificial contrived or fraudulent step intended to obtain such benefit, which results in the payment for goods or service for an amount that exceed their open market value for nobona fide commercial reason apart from getting a PIC benefit. The promoter of such abusive schemes will be guilty of an offence.
- Enable ratification of the Convention on Mutual Administrative Assistance in Tax Matters: The Act will be amended to enable a multilateral treaty which provides for exchange of tax information between countries to be prescribed as an exchange of information arrangement for the purposes of the Act. This will allow Singapore to ratify the Convention on Mutual Administrative Assistance in Tax Matters done at Strasbourg on 25 January 1988.