The Minister for Finance, Mr Tharman Shanmugaratnam, delivered the Budget Statement for the Financial Year 2014 (“Budget 2014”) on 21 February 2014. This article highlights some of the tax changes announced in Budget 2014:
- Enhancements to Productivity and Innovation Credit (“PIC”) Scheme: Under the PIC Scheme introduced in Budget 2010 (and which was due to expire in the year of assessment (“YA”) 2015), businesses are entitled to enhanced deductions or allowances on the amount of expenditure incurred (subject to an annual ceiling) on each of six categories of qualifying activities, namely, expenditure on research and development, registration of intellectual property (“IP”), acquisition and in-licensing of IP, design activities, automation of processes, and training of employees.
The following changes to the PIC Scheme were announced:
- The PIC Scheme will be extended for three years till YA 2018.
- The expenditure cap of S$400,000 of qualifying expenditure per activity will continue to apply and may be combined for YA 2016, YA 2017 and YA 2018 (i.e. S$1.2 million per qualifying activity). A business may continue to elect to convert tax deductions or allowances into a non-taxable cash grant of up to S$60,000 for each YA, but with effect from YA 2016, this condition will be subject to the business having employed at least three local employees for a consecutive period of at least three months, prior to claiming the cash grant.
- A new PIC+ scheme has been introduced to provide support to small and medium enterprises which make substantial investments in their businesses, subject to conditions.
- PIC benefits have been extended to costs incurred in training employees engaged under centralised hiring arrangements.
- With effect from YA 2015, the tax deferral option will no longer be available.
- IP-related deductions: The following deductions, which were due to expire in YA 2015, have been extended:
- Entities which have incurred capital expenditure in acquiring IP rights for use in their trade or business, are presently entitled under section 19B of the ITA to write-down such expenditure fully over a period of five years. These writing-down allowances will continue to be available till YA 2020.
- Accelerated writing-down allowances will continue to be available to EDB-approved media and digital entertainment companies till YA 2018.
- Under section 14A of the ITA, businesses may claim a full tax deduction on registration costs incurred for qualifying IP. These deductions will continue to be available till YA 2020.
- Waiver of withholding tax for Singapore branches: Singapore payers are no longer required to withhold tax on payments which are deemed to be derived from Singapore under sections 12(6) and 12(7) of the ITA (e.g. interest and royalties) where the recipients are permanent establishments which are Singapore branches of non-resident companies. Previously, waivers of the obligation to withhold were only granted to Singapore branches of certain non-resident banks and to non-bank entities upon application and subject to certain conditions. This change will take effect for all payment obligations that arise on or after 21 February 2014.
Basel III Additional Tier 1 Instruments: Basel III Additional Tier 1 instruments (other than shares) issued by Singapore-incorporated banks will be treated as debt for tax purposes and accordingly, distributions on such instruments will be deductible for issuers and taxable in the hands of investors, subject to ordinary tax principles. This tax treatment will be applicable to distributions accruing in the basis period for YA 2015 onwards, where such Additional Tier 1 instruments are issued by Singapore-incorporated banks (excluding their foreign branches) in accordance with Monetary Authority of Singapore Notice 637 - Notice on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore.
Qualifying Funds: The following tax incentive schemes for local and foreign investment funds managed by fund managers in Singapore, which were due to expire on 31 March 2014, have now been extended till 31 March 2019:
- The “Qualifying Fund Scheme” for non-resident or offshore companies and trusts pursuant to section 13CA of the ITA and the Income Tax (Exemption of Income of Nonresidents Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010.
- The “Resident Fund Scheme” for Singapore-resident companies incorporated in Singapore pursuant to section 13R of the ITA and the Income Tax (Exemption of Income of Approved Companies Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010.
- The “Enhanced-Tier Fund Scheme” pursuant to section 13X of the ITA and the Income Tax (Exemption of Income Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010.
Further changes will be made to the Qualifying Fund Scheme and the Resident Fund Scheme.
- Foreign-Sourced Income Exemption Scheme for Listed Infrastructure Registered Business Trusts: To encourage the listing of more infrastructure assets in Singapore, and subject to conditions being met, the following income will now be exempt from tax under section 13(12) of the ITA: (a) Dividend income originating from foreign-sourced interest income which relates to qualifying offshore infrastructure projects or assets, and (b) Interest income derived from qualifying offshore infrastructure projects or assets.
- Designated Unit Trust (“DUT”) Scheme: Presently, under the DUT Scheme, specified income derived by a unit trust with DUT status is not taxed in the hands of the trustee, and tax is only imposed in the hands of certain investors when distributions are made. It was announced in Budget 2014 that the DUT Scheme will be limited to unit trusts offered to retail investors with effect from 21 February 2014, but unit trusts which have been accorded DUT status prior to this date will be allowed to retain such status. With effect from 1 September 2014, and subject to conditions being met, unit trusts are no longer required to make a formal application for DUT status for the Scheme to be applicable.
- Stamp duty: New rates are applicable for leases executed on or after 22 February 2014. For leases of up to four years, the stamp duty rate will be 0.4% of the total rent for the entire period of the lease. For leases exceeding four years, or for an indefinite term, the stamp duty rate will be 0.4% of four times of the average annual rent for the entire period of the lease.
The Budget Speech for the Financial Year 2014 is available from the Budget 2014 website http://www.singaporebudget.gov.sg