The Singapore budget 2014

For all businesses:

This year’s budget did not emphasise on significant tax changes. The government wants to restructure the Singapore economy to achieve quality growth. Businesses that make investments in productivity to save manpower or achieve innovative breakthroughs will be actively supported by the government.
Businesses had called for greater support from the government as businesses continue to face a challenging operating environment with rising business cost and a tight labour market. With the Singapore Budget 2014, the government is hoping to achieve a fair & equitable society.

 

PIC scheme 

The Productivity and Innovation Credit Scheme was due to expire in the Year of Assessment (YA 2015). This has been extended for another three years till YA 2018. The PIC scheme allows businesses a deduction of 400% (capped at $400,000) of their qualifying expenditure incurred per YA against their taxable income. The qualifying expenditures span from six broad categories of investments such as training, R&D expenditure or investment in automation equipment.
To encourage businesses to spend more on productivity and innovation improvement the government extended the PIC Scheme for another three years. The fact that there is a gradual increase among SMEs also encourages the government to extend the scheme for a longer period.

 

PIC & scheme

In order to boost productivity and promote innovation the government introduced the PIC + Scheme for SMEs.
This scheme was introduced by the government to help firms that are making more substantial investments to transform their businesses. PIC + Scheme will take effect for expenditure incurred in YA 2015 to YA 2018.
The expenditure cap for qualifying expenditures SMEs will be increased from $400,000 to $ 600,000 per qualifying activity per YA.
A qualifying SME is defined as:

  • Its annual turnover is less than $100 million; or
  • Its employment size is not more than 200 workers

The combined expenditure cap will be up to $1.4 million for YA 2015 ($400,000 for YA 2013 & 2014 respectively and $600,000 for YA 2015) and up to S$1.8 million for YA 2016 to YA 2018.The expenditure cap for PIC cash payout will remain at $100,000 of qualifying expenditure per YA. The deferral option for the cash pay-out scheme will lapse with effect from YA 2015 to help businesses relieve cash flow concerns.
SMEs can also continue to claim a further deduction of up to 300% on qualifying R&D expenditure up to $400,000 under the PIC Scheme which has been extended till YA 2018.

 

R&D tax incentive

The government took a more measured approach by extending the R&D tax incentive for a further 10 years to 2025. To encourage private R&D, the government extended the 50% additional tax deduction administered by the EDD for another five years till 31 March 2020.

 

Micro-loan programme

SMEs will be more willing and encouraged to take up loans/funding from banks due to the increased Government risk-share in the Micro-Loan Programme (MLP) from 50%-70%. This programme was introduced in 2001 and supports SMEs with less than 10 employees and $1m turnover. The government, under this programme, shares with SMEs the risk for bank loans below $100,000 to encourage banks to lend to small and budding businesses.

 

Training of individuals under centralised hiring arrangements

Companies that incurred training expenses on individuals who were hired under centralised hiring arrangements were not allowed the PIC claim on the training expenses incurred as they were not considered their legal employers.
The government has now enhanced the PIC Scheme to allow companies to claim the PIC benefits on the training expenses incurred with effect from YA 2014.

 

The three-local employees

Companies must have employed at least three local employees and contribute CPF on their payroll in the last month of the quarter or combined consecutive quarters which relates to the cash payout option.
With effect from YA 2016, the government has made a condition that the companies will have to meet the above condition for a consecutive period of at least three months prior to claiming the cash payout.

 

Tax deferral option to lapse

From YA 2011 to 2014, companies could defer their tax for the current YA with the PIC qualifying expenditure incurred capped @ $100,000.
With effect from YA 2015, the tax deferral option will lapse as the PIC cash payout carries out the same function of assisting companies relieve cash flow concerns.

 

Section 19B writing down allowance scheme (WDA)

The government extended the Section 19B Writing Down Allowance for costs incurred to acquire qualifying Intellectual Property Rights for another 5 years until 2020. The government wants to promote Singapore as an IP hub through this measure.
The accelerated WDA Scheme allows Media and Digital Entertainment (“MDE”) companies to accelerate writing down period from five years to two years, subject to EDB’s approval.

 

Section 14A tax deduction scheme for registration costs of intellectual property

Companies are encouraged by the government to safeguard their intellectual property.
The 100% tax deduction will be extended for five years till YA 2020. Businesses can also continue to claim until YA 2018 a further 300% deduction on up to S$400,000 of such qualifying costs under the PIC scheme.

 

Land Intensification Allowance (LIA) scheme

The LIA Scheme is open to companies in the manufacturing sector and now extended to businesses in the logistics sectors and carrying out qualifying activities on airport and port land. The government wants to continue encouraging businesses to optimise land use.
Conditions to be met to qualify for LIA Scheme:

  • The building/structure must meet the Gross Plot Ratio (“GPR”) benchmark applicable for the qualifying trade; and
  • 80% of the total floor area of the relevant building is utilised by a single user for carrying out the qualifying trade.
  • New condition: Existing buildings that have already met or exceeded the GPR benchmark to meet a minimum incremental GPR criterion of 10% will be introduced.

The scheme will be extended for five years till 30 June 2020. The enhancements are effective for LIA approvals granted and capital expenditure incurred on or after 22 February 2014.

 

Withholding tax

A person making payments which fall under the scope of Section 12(6) and 12(7) of the SITA is obliged to withhold tax in respect of such payments if they are made to non-residents of Singapore. Non-residents included Singapore branches of non-resident companies.
Payment obligations to Singapore branches of non-resident companies that arise on or after 21 February 2014 are no longer subject to these withholding tax obligations.
The Singapore branches will need to declare such receipts when filing their annual tax returns and will be assessed for income tax.

Financial Sector

Treating Basel III Additional: Tier one instruments as debt for tax purposes

A new type of capital instruments under the Basel III global capital standards are the additional Tier 1 instruments. Singapore incorporated banks are required to meet minimum capital adequacy ratios that are 2% higher than the Basel III requirements with affect from 1 January 2015 and also meet the requirements from 1 January 2013 two years ahead of the Banking Supervision’s 2015 timeline.
The government wants to provide tax certainty and thus, such instruments other than shares, will be treated as debt for tax purposes. Distribution on such instruments will be:

  • Deductible for issuers.
  • Taxable in hands of investors.

The above is subject to existing rules.
This tax treatment will apply to distributors accrued in the basis period for YA 2015 and thereafter.

 

Recovery of GST for qualifying funds

Qualifying funds that are managed by prescribed fund managers in Singapore are allowed to claim GST incurred on expenses at a fixed rate.
This concession will be extended for five years till 31 March 2019.
The Monetary Authority of Singapore (MAS) will release further details of the change by end March 2014.

 

Other tax incentives

Investment Allowance (“IA”) scheme for aircraft rotables to lapse

The scheme was introduced on 10 September 2004 to encourage investments in aircraft rotables that would increase the productive capacity of the aerospace maintenance, repair & overhaul companies.
As the scheme is assessed to be no longer relevant, it will be allowed to lapse after 31 March 2015.

 

Tax incentive schemes for qualifying funds

Funds managed by Singapore-based fund managers (“Qualifying funds”) currently enjoy the following tax concession, subject to conditions:

  • Tax exemption on specified income derived from designated investments; and
  • Withholding tax exemption on interest and other qualifying payments made to all non-resident persons (excluding Permanent Establishment in Singapore).

In the government’s effort to anchor and continue to grow Singapore’s asset management industry, the Section 13CA, 13R and 13 X schemes will be extended for five years till 31 March 2019. Section 13C will be allowed to lapse after 31 March 2014.
The 3 schemes will be refined as follows:

  • Section 13CA scheme will include trust funds with resident trustees which are presently covered under the Section 13C scheme, with effect from 1 April 2014.
  • The investor ownership levels for the Sections 13CA and 13R schemes will be computed based on the prevailing market value of the issued securities on that day instead of historical value. This will take effect from 1 April 2004; and
  • It will include loans to qualifying offshore trusts, interest in certain limited liability companies and bankers acceptance. This will apply to income derived on or after 21 February 2014 from such investments.

Other existing conditions of the schemes remain unchanged.

 

Foreign sourced income exemption scheme for listed infrastructure Registered Business Trusts (“RBTs”)

Foreign-sourced income derived by listed infrastructure RBTs in Singapore are exempt from tax if the income falls within certain scenarios specified under Section 13(12) of the SITA.
The norm is for the Ministry of Finance to grant approval for exemption for foreign-sourced income received in Singapore on a case-by-case basis. This includes tax exemptions for foreign-sourced dividends that originate from interest income and foreign-sourced interest income derived from a qualifying offshore infrastructure project/assets.
The foreign-sourced income exemption for listed infrastructure RBTs will be enhanced as follows:

  • The specified scenarios under Section 13(12) will include dividend income originating from foreign-sourced interest income so long as it relates to the qualifying offshore infrastructure project/asset; and
  • Instead of obtaining of approval on a case-by-case basis, interest income derived from a qualifying offshore infrastructure project/asset will automatically qualify for Section 13(12) exemption provided certain qualifying conditions are met. Verification of the meeting of qualifying conditions will be done by IRAS, instead of the Minister of Finance.

 

Designated Unit Trust (“DUT’) scheme

Specified income derived by a DUT is taxed upon distribution in the hands of certain investors. Qualifying foreign investors and individual (Unless such income is derived through a partnership in Singapore or is derived from the carrying on of a trade, business or profession) are exempted from tax on any distribution made by a DUT. The following changes will be made in order to streamline and rationalise the DUT Scheme.

  • The scheme will be limited to unit trusts offered to retail investors with effect from the 21st of February 2014. Non-retail unit trust may consider other fund schemes;
  • Existing non-retail unit trusts that were approved under the scheme prior to 21 February 2014 may continue to retain their DUT status; and
  • From 1 September 2014, retail unit trusts do not have to apply for the DUT scheme. They will get to enjoy the benefits of the scheme, provided they meet the specified conditions.

Other conditions remain unchanged. A review date of 31 March 2019 will be legislated to ensure that the relevance of the scheme is periodically reviewed. The MAS will release further details of the changes by the end of May 2014.

Property tax

Approved Building Project (“ABP”) scheme

Under the ABP Scheme, land under development can be granted property tax exemption for a period of up to three years, subject to conditions:

  • The foundation works of the project commented on or after 1st May 2001;
  • The project has the support of the EDB; and
  • The project costs at least $500 million (excluding costs).

If the project cost less than $500 million, the Minister for Finance must be satisfied that the project will create substantial benefits for Singapore.
A review date of 31 March 2017 will be legislated to ensure that the relevance of the scheme is periodically reviewed.

Other duties

Increase in betting duties

The Betting and Sweepstakes Duties Act imposes duty on betting activities.
The current rate on Totalisator or Pari-Mutuel Betting (excluding Horse Racing) and other Systems or Methods of Cash or Credit betting is 25% of gross bets (net of GST).
With effect from 1 July 2014, the duty rate for the abovementioned activities will be increased to 30% of gross bets (net of GST).

 

Excise Duties for Tobacco Products

New excise on cigarettes and other manufactured tobacco products will be increased by 10% to $388 per kilogram. The increase took effect from 21 February 2014.

Stamp duty rate restructure

  • Buyer Stamp Duty

Buyer’s stamp is charged as a specified amount for every $100 or part thereof of the consideration for land premiums and purchase of property.

Current Rates

Purchase Price or Market Value
(Whichever is higher)
Rates
Every $100 or part thereof of the first $180,000

$1

Every $100 or part thereof of the next $180,000
$2
Every $100 or part thereof of the remainder

Revised Rates

Purchase Price or Market Value
(Whichever is higher)
Rates
First $180,000

1%

Next $180,000
2%
Remainder

The changes took effect on 22 February 2014.

  • Stamp Duty on a Lease of an Immovable Property

The stamp duty payable is assessed on the annualised rental amount, regardless of the actual lease period. This was computed by applying the following rates to the average annual rent (AAR) amount.

Current stamp structure

Lease Period Stamp Duty Rates
Up to one year $1for every $250 or part thereof of the average annual rent.
Exceeding one year but not more than 3 years $2 for every $250 or part thereof of the average annual rent.
Exceeding 3 years or for any indefinite $4 for every $250 or part thereof of the average annual rent.

 

Exemption is granted where the AAR does not exceed $1,000.

 

Revised stamp structure

With effect from 22 February 2014, the stamp duty rates on leases were revised as follows:

Lease Period
(AAR > S$1,000)

Stamp Duty Rates
Up to 4 years 0.4% of the total rent for the entire period of the lease.
Exceeding 4 years or for any indefinite term 0.4% of four times of the AAR for the entire period of the lease.

 

  • Stamp Duty on Share Transfer

Stamp duty is payable on the instruments relating to the transfer of shares.

 

Current rates

Higher of Purchase Price or Market Value Stamp Duty Rates
Every $100 or part thereof $0.20

 

New rates

With effect from 22 February 2014, the share transfer duty rate was revised to 0.2% of the higher of the purchase price or market value of shares transferred, subject to a minimum duty of $1.

  • Stamp Duty on Mortgage Instruments

Stamp duty is charged as a specific amount for every $1,000 or part thereof.

Current duty

Amount of facilities granted or transferred

 

Rates

Mortgage Every $1,000 or part thereof of the amount of facilities granted.

$4

Equitable Mortgage

$2

Variation to Mortgage For every $1,000 of the amount transferred, assigned or disposed, inclusive of interest which is in arrears.

$4

Transfer, assignment or disposition of any mortgage or debenture

 

$2

(Subject to a maximum duty of $500)

 

New duty

With effect from the 22nd of February 2014, the mortgage duty rates were revised as follows:

Amount of facilities granted or transferred

 

Rates

Mortgage Based on the amount of facilities granted on the mortgage.

0.40%

Equitable Mortgage

0.20%

Variation to Mortgage Based on the amount transferred, assigned or disposed, inclusive of interest which is in arrears.

0.40%

Transfer, assignment or disposition of any mortgage or debenture

 

0.20%

(Subject to a maximum duty of $500)

 

Vehicle taxes


Carbon emissions-based Vehicle Scheme (CEVS) Green Vehicle Rebate (GVR) scheme

The CEVs is scheduled for a review in end 2014.
The GVR Scheme for commercial vehicles, buses and motorcycles was extended by 2 years till December 2014.
In respect of CEVs & GVR, it is proposed to:

  • Extend CEVs by six months, from 1 January 2015 to 30 June 2015; and
  • Extend GVR for commercial vehicles, buses & motorcycles by 6 months from 1 January to 30 June 2015.

 


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