From 4 to 24 July 2014, the Ministry of Finance (the “MOF”) sought feedback from the public on a draft Income Tax (Amendment) Bill 2014 (the “Draft Bill”). The proposed changes relate mainly to proposals announced in the 2014 Budget Statement as well as refinements to existing tax policies and tax administration arising from on-going reviews of the income tax system.
Budget 2014 changes
The following are some of the proposed changes to the Income Tax Act (the “ITA”) arising from the 2014 Budget Statement:
- Extend and enhance PIC scheme: The Productivity and Innovation Credit (“PIC”) scheme will be extended for three years till YA 2018 to give businesses more time to put in place productivity improvements. Further, a PIC+ scheme will be introduced under which the expenditure cap for qualifying SMEs will be increased from S$400,000 to S$600,000 per qualifying activity per YA. More details are set out in the Draft Income Tax (Productivity and Innovation Credit Plus Scheme) Regulations 2014. Another proposed change is that businesses will be required to employ at least three local employees for the last three months of the relevant period in respect of which a cash payout election is made. This change will take effect from YA 2016.
- Extend section 14A tax deductions for costs for protecting intellectual property: To encourage businesses to protect their intellectual property, the 100% tax deduction for qualifying intellectual property registration costs will be extended for another five years till YA 2020.
- Extend R&D tax measures: The additional 50% tax deduction on qualifying R&D expenditure granted under section 14DA of the ITA is extended for 10 years till YA 2025. The further tax deduction for EDB- approved large R&D projects, granted under section 14E of the ITA will be extended for five years till 31 March 2020.
- Extend section 19B WDA for acquisition of qualifying IP rights: To build Singapore as an intellectual property (“IP”) hub, the writing down allowance (“WDA”) granted on expenditure incurred on the acquisition of IP rights will extended for five years till YA 2020. The accelerated WDA for Media, Digital and Entertainment (“MDE”) companies will be extended for three years till YA 2018. It is also sought to clarify the type of “information that has commercial value” that would be eligible for WDA.
- Extend and enhance LIA scheme: The Land Intensification Allowance (“LIA”) scheme will be extended for another five years to 30 June 2020. Further, the following changes have been introduced with effect from 22 February 2014:
- Extend the LIA scheme to qualifying building or structure on airport land and port land;
- Expand the qualifying activities to include logistics activities; and
- Introduce a 10% incremental gross plot ratio (“GPR”) criterion for existing buildings that have met or exceeded the GPR benchmark, subject to transitional provisions.
- Remove requirement to withhold tax for payments made to branches in Singapore:To reduce compliance costs for businesses, it will no longer be necessary for payers to withhold tax on section 12(6) and (7) payments (i.e. royalty and interest payments) liable to be made on or after 21 February 2014 to permanent establishments that are Singapore branches of non-resident companies.
- Treatment of Basel Additional Tier 1 instruments: Basel III Additional Tier 1 instruments (other than shares) issued by Singapore-incorporated banks and other specified entities will be treated as debt for tax purposes. Accordingly, distributions on such instruments will be deductible for issuers and taxable in the hands of investors, subject to existing rules. The tax treatment applies to distributions liable to be made in the basis period for YA 2015 and thereafter.
- Extend and refine tax incentive schemes for Qualifying Funds: To continue to grow Singapore’s asset management industry, the tax incentive schemes under sections 13CA, 13R and 13X of the ITA will be extended for five years till 31 March 2019.
The Draft Bill also provides for refinements to existing tax policies and tax administration arising from on-going reviews of Singapore’s income tax system. These include:
- Additional measures to curb PIC abuse: Amendments to the ITA are proposed to address abusive arrangements where one of the main purpose is to receive PIC benefits:
- To qualify for cash payouts, the IT and automation equipment must be in use. This will take effect from YA 2016.
- The Comptroller of Income Tax will be given additional legislative powers to deny PIC benefits arising from arrangements which involve artificial, contrived or fraudulent steps, or are not carried out for bona fide commercial reasons, or where transactions are overvalued and not based on open market value.
- Penalties will be imposed on intermediaries who promote or facilitate claims for PIC benefits for such abusive arrangements.
- Enable ratification of the Convention on Mutual Administrative Assistance in Tax Matters: To allow Singapore to ratify the Convention on Mutual Administrative Assistance in Tax Matters done at Strasbourg on 25 January 1988 (the “Convention”), the ITA 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 ITA.
The following materials are available from the MOF website www.mof.gov.sg: