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Singapore Budget 2018 Synopsis

Introduction A budget for the future 3

Business tax Start-up Tax Exemption (SUTE) scheme 7

Partial Tax Exemption (PTE) for companies

Corporate income tax rebate 8

Enhance the tax deduction for qualifying expenditure on 10 qualifying R&D projects performed in Singapore

Enhance the tax deduction for costs on protecting 12 intellectual property (IP)

Enhance the tax deduction for costs on intellectual 13 property (IP) in-licensing

Enhancing the Double Tax Deduction 14 for Internationalisation (DTDi) scheme

Supportforfirmstobuildcapabilitiesandforgepartnerships 15

Introducing a review date for the WHT exemption on 18 container lease payments made to non-resident lessors

Extend the Investment Allowance (IA) scheme to include 19 qualifying investment in submarine cable systems landing in Singapore

Extend the tax transparency treatment for S-REITs 21 to REITs ETFs

Personal income tax

Personalincometaxrateandtaxrebate 25

Goods and services tax

Impending GST rate increase 27

GST on imported services 30

At a glance

Financial services

Introduce a tax framework for Singapore Variable Capital 33 Companies (S-VACCs)

ExtendandenhancetheFinancialSectorIncentivescheme 35

Enhance the Enhanced-Tier Fund scheme under section 36 13X of the ITA

Extend the Insurance Business Development – 38 Insurance Broking Business scheme and allow the Insurance Business Development – Specialised Insurance Broking Business scheme to lapse

Extend the tax deduction for banks (including merchant banks) 40 and qualifyingfinancecompaniesforimpairmentandlossallowances made in respect of non-credit-impaired financialinstruments

Extend the tax incentive scheme for Approved Special 41 Purpose Vehicle engaged in asset securitisation transactions

Extend the Qualifying Debt Securities incentive scheme and 42 allow the Qualifying Debt Securities Plus incentive scheme to lapse

Extend the tax exemption on income derived by primary 43 dealers from trading in Singapore Government Securities

Rationalise the withholding tax exemptions for the 44 financialsector

Miscellaneous Carbon tax 47

Increase in buyer’s stamp duty on the value of residential 49 property in excess of S$1m

ExtensionoftheWageCreditscheme 51

Encouragingaspiritofgiving 52

Deferringforeignworkerlevychanges 53

Tax services in Singapore 56

Singapore Tax Partners, Executive Directors 58 and Directors

Glossary of terms 60

At a glance

Budget 2018 has carefully laid out the plans to prepare Singapore for the next decade.

This multi-faceted Budget addresses the long-term challenges of the country and lays the foundation for a sustainable future for Singapore.

Whilst there were lots of pre-budget hype on raising tax revenues, the upward tax adjustments such as GST rate increase and reduction of partial tax exemption are slated for 2020 onwards. Ample advanced notice has been given to businesses and individualstoplantheirfinances,sendingaclearsignal that the Budget is forward-looking rather than reactive.

The delivery of the budget speech was striking. The Minister made commendable efforts to explain the “what”, “how” and “why”. What are the challenges faced by our country? How do we respond? Why do we need to increase our taxes?

“The future belongs to those who prepare for it today.”- Malcolm X

Preparing for the next decadeTechnology, globalisation and demographic shifts are the primary forces driving this current wave of disruption. They are fundamentally changing the way the world operates at an unprecedented speed.

Singapore's businesses, individuals and the government are not spared and cannot sidestep this march of disruption. It is however important to recognise that disruption brings not only challenges but also opportunities. Uschi Schreiber, EY's Global Vice Chair for Markets said, “The era of being afraid to make mistakes and take risks is over. Over the nextfivetotenyears,thosewhoareboldandableto embrace disruption – and transform the way we all operate – will be the winners”.

The next waves of technology revolution – the InternetofThings,virtualreality,artificialintelligence, robotics – have and will continue to disrupt traditional industries and displace existing jobs. Various non-tax initiatives such as Open Innovation Platform, Aviation Transformation Programme (ATP) and Maritime Transformation Programme (MTP) will help support companies’

A Budget for the future

1Introduction

3Singapore Budget 2018 Synopsis

“Budget 2018 has carefully laid out the plans to prepare Singapore for the next decade.”

innovation and transformation. Whilst not all jobs will be affected and not all affected jobs will be eliminated, Singaporeans need to invest in continuous learning and deepen their skillsets to stay relevant. The Tech Skills Accelerator (TeSA) and Capability Transfer Programme serve these objectives.

Globalisation fuelled by technology advancement will disrupt existing businesses by creating new competitors, remodelling supply chains and lowering price points. The higher cost of doing business in Singapore is not to the advantage of Singapore businesses. Singapore businesses have to increase productivity, create added value in their product and service offerings, and collaborate by entering into partnerships to compete effectively. The ASEAN Leadership Programme, Enterprise Development Grant and double tax deduction for internationalisation (DTDi) aim to support companies in enhancing their capabilities for internationalisation. At the same time, to foster pervasive innovation, the enhanced tax deductions announced for in-licensing, registration and research and development activities for intellectual properties (IP) will incentivise enterprises to buy and use new solutions as well as build their own or co-create solutions.

Anunfulfilledtaxwishistheabilitytoautomaticallyclaim writing down allowances for costs incurred in acquiring the economic ownership (and not

legal ownership) of an IP. It will indeed be a boost to further promote innovative activity if this legal ownership condition is removed.

Like other developed economies, Singapore is facing an aging population. By 2030, 28% of its population willbeabove65yearsold,accordingtotheUnitedNations’ 2017 World Population Aging report. This Budget addresses this challenge by enhancing the ElderShield insurance scheme, expanding the community network support, integrating health and social support, and strengthening the role andcapabilitiesofsocialserviceoffices.Thegovernment’s sharpened focus on companies investinginmoreefficientandsmartsolutions,including the funding support under the Productivity Solutions Grant, will also serve to improve productivity when human resources become more constrained with Singapore’s aging population.

Theextensionofthe250%taxdeductionschemefordonations made on or before 31 December 2021 to qualifying charities will continue to help build a giving society. It will be even more welcomed if this scheme becomes a permanent feature of our tax legislation.

Singapore Budget 2018 Synopsis4

Fiscal prudenceSingaporehasbeenadoptingaprudentfiscalpolicy by managing government expenditure growth carefully and getting good value for spending. For FY2017, Singapore expects an overall Budget surplus of S$9.6b or 2.1% of GDP, as announced during Budget 2018.

Over the next decade, it is expected that recurring government expenditure will continue to increase, especially in the areas of social development (i.e., education and healthcare) and security. The government plans to strengthen its operating revenue in the immediate term by increasing the top marginal buyer’s stamp duty rate from 3% to 4% on the value of residential property in excess of S$1m. In the near term from 2020 onwards, adjustments will be made to the Start-up Tax Exemption (SUTE) scheme and Partial Tax Exemption (PTE) scheme, GST rate will increase from 7% to 9% and carbon taxes will be adjusted fromS$5pertonnetoS$10-15pertonneofcarbon emission.

GST will also be extended to cover imported services such as consultancy, marketing, digital apps and music purchased from overseas suppliers, with effect from 1 January 2020. This is consistent with recommendations provided by the Organisation of Economic Co-operation and Developmentandaimstoleveltheplayingfieldforlocal suppliers.

Chung-Sim Siew Moon Partner and Head of Tax 20 February 2018

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ConclusionBudget 2018 is built on the themes laid out in past Budgets - Building our future, Strengthening socialsecurity(2015),Partneringforourfuture(2016), Moving forward together (2017) – and now Together, A Better Future (2018). Singapore Budgets are truly special because of their long-term vision and the explanation of that vision and purpose.

This Budget reminded Singapore businesses and individuals that disruption will bring challenges – and also new opportunities; but Singapore is ready to embrace these challenges and seize these opportunities.

Let us – the people, businesses, trade associations and chambers and government – come together, work together and make our aspirations a reality.

As the Chinese saying goes: 有志者事竟成*.

*Where there is a will, there is a way.


2Business tax

6 Singapore Budget 2018 Synopsis

Business tax

CurrentUnder the SUTE scheme, a new company can, subjecttoconditions,qualifyfor,ineachofthefirstthree YAs:

► 1►00%exemptiononthefirstS$100,000ofnormal chargeable income

► 50%exemptiononthenextS$200,000ofnormal chargeable income

Under the PTE scheme, all companies (excluding those that qualify for the SUTE) and bodies of persons, can qualify for, in each YA:

► 75%taxexemptiononthefirstS$10,000ofnormal chargeable income

► 50%taxexemptiononthenextS$290,000ofnormal chargeable income

ProposedThe tax exemption under the SUTE scheme will be adjusted to:

► 75%exemptiononthefirstS$100,000ofnormalchargeable income


This change will take effect on or after YA 2020 for all qualifying companies under the scheme. For example,ifaqualifyingcompany’sfirstYAisYA2019, the current SUTE parameters will apply in YA 2019 while the new parameters will apply in YAs 2020 and 2021.

The tax exemption under the PTE scheme will be adjusted to:

► 75%exemptiononthefirstS$10,000ofnormalchargeable income


Start-up tax exemption (SUTE) scheme

Partial tax exemption (PTE) for companies

This change will take effect on or after YA 2020 for all companies (excluding those that qualify for the SUTE scheme) and bodies of persons.

All other conditions of the SUTE and PTE schemes remain unchanged.

Points of view ► The proposed changes to the PTE and SUTE

schemes will result in additional taxes payable ofuptoS$8,500andS$12,750respectively.The impact is lower for companies earning less than S$300,000.

► The corporate income tax rate has remained at 17% since YA 2010. At 17%, Singapore’s headline corporate income tax rate is one of the lowest in the world.

► Hong Kong has a prevailing corporate income taxrateof16.5%.On29December2017,theHong Kong government proposed to implement atwo-tierprofitstaxratesregime,subjecttoconditions. Under the proposal, the tax rates for thefirstHK$2mofprofitsofcorporationswillbereducedby50%(i.e.,from16.5%to8.25%)andtheremainderoftheprofitswillcontinuetobetaxedat16.5%.Basedoncurrentexchangerate,acompanywithtaxableprofitsofapproximatelyHK$800,000 is likely to pay the same amount of tax under the proposed Hong Kong two-tier profitstaxratesregimeandundertheSingapore-proposed PTE scheme.

► With the proposed changes to the PTE scheme, and assuming our Singapore corporate income tax rate remains at 17%, an initial reaction is that the Singapore effective tax rate will be higher thanHongKongfortaxableprofitsabovetheHK$800,000 breakeven point. However, this comparison is not complete as Hong Kong only allows one entity among “connected entities” to be eligible for the proposed regime. This is unlike Singapore’s PTE scheme, which is available for all companies.


Business tax

CurrentCompanies enjoy a 20% corporate income tax rebate, capped at S$10,000 for YA 2018.

ProposedThe Minister did not propose any change to the corporate income tax rate of 17%.

To ease business costs and support restructuring by companies, the corporate income tax rebate will be enhanced and extended as follows:

► Corporate income tax rebate will be enhanced to 40% of tax payable and the cap is raised from S$10,000toS$15,000forYA2018.

► Corporate income tax rebate will be extended for another year to YA 2019, but at a reduced rate of 20% of tax payable and capped at S$10,000.

Corporate income tax rebate

Points of view ► TheIRAShasclarifiedthat:

► The corporate income tax rebate will be given to all companies including registered business trusts, non-resident companies and companies that receive income taxed at a concessionary tax rate. The rebate, however, will not apply to income derived by a non-resident company thatissubjecttofinalwithholdingtax.

► Companies need not factor in the corporate incometaxrebatewhenfilingtheirestimated chargeable income and income tax returns (Form C/C-S) as the IRAS will compute and allow the corporate income tax rebate automatically.

► For companies that have already received their notices of assessment for YA 2018 and YA2019reflectingthelowerornilcorporateincome tax rebate respectively, they are still required to make payment of the tax payable stated in the notices of assessment by the due date. The IRAS will issue revised notices of assessment to affected companies by May 2018 and refund any excess tax paid. If a company is paying taxes by instalments, it will need to continue with the payment schedule based on the instalment plan. The revised notice of assessment and instalment plan will be issued by the IRAS to the company by May 2018.


Business tax

► The proposed enhancement to and extension of the corporate income tax rebate are part of the continued measures to support businesses, in particular SMEs as they cope with rising business costs. The proposed increase in the rebaterateforYA2018willbenefittax-payingSMEs most as the amount of corporate income tax rebate they will receive may be two times of the rebate applicable before the enhancement. For example, an SME with a tax payable of S$37,500willreceivethefullcorporateincometaxrebateofS$15,000,comparedwithS$7,500before the enhancement. The enhancement thus provides SMEs with more immediate cash flowrelief.Atthesametime,theincreaseinthecaptoS$15,000meansthatlargertax-payingcompanies are not left out – they will also get an additionalrebateofuptoS$5,000.

► According to statistics provided by the IRAS on its website, for YA 2016, approximately 77% of tax-paying companies had a chargeable income of S$200,000 and below. The proposed enhancement to the corporate income tax rebate for YA 2018 will bring down the effective tax rate ofsuchcompaniestolowerthan5%.However,the proposed increase and extension will only benefittax-payingcompanies.

► Companies may consider deferring capital allowances claims or planning their group loss relief claims to optimise the amount of corporate income tax rebate.

► If the corporate income tax rebate is not extended after YA 2019 and with the phasing out of the PIC Scheme after YA 2018, companies, especially SMEs, may need to continue to look towards other avenues such as grants to ease theircashflowpressuresgoingforward.


Business tax

CurrentBusinesses that have incurred qualifying expenditure on qualifying R&D projects performed in Singapore can claim the following:

► 150%taxdeductionforstaffcostsandconsumables incurred

► 100% tax deduction for other qualifying expenditure

ProposedTo support businesses to build their own innovations, the government will increase the tax deduction for staff costs and consumables incurred on qualifying R&D projects performed in Singapore from150%to250%.

All other conditions of the scheme remain unchanged.

This change will take effect from YA 2019 to YA2025.

Enhance the tax deduction for qualifying expenditure on qualifying R&D projects performed in Singapore


Business tax

Points of view ► With the expiry of the 400% tax deduction on

qualifying R&D staff costs and consumables expenditure under the PIC post YA 2018, the proposal to increase the total tax deduction for qualifyinglocalR&Dexpenditurefrom150%to250%willbeawelcomereliefforbusinessesas they seek to build their own innovations and enhance their competitive advantage through R&D.

► Unlike the PIC, which capped the 400% R&D tax deductiontothefirstS$400,000ofqualifyingR&DexpenditureperYA(thereafter150%forlocalR&Dexpenditure),theproposed250%R&D tax deduction does not impose a cap on qualifying expenditure. As such, businesses incurringsignificantR&Dexpenditureon qualifying R&D projects performed in Singapore will be able to correspondingly enjoy greaterbenefits.

► Based on the current 17% headline corporate taxrate,a250%R&Dtaxdeductionwillequatetoanaftertaxbenefitof42.5%(i.e.,42.5centsfor every qualifying dollar of R&D expenditure). This rate is comparable to other jurisdictions with attractive R&D tax incentives such as Australia (43.5%forSMEsand38.5%forlargecompanies),Ireland(37.5%),andtheUK(43.7%forSMEsand 8.91% for large companies), and Hong Kong’s recently introduced 200%/300% R&D deduction(49.5%onfirstHK$2mperyearand33% thereafter).

► However,theproposed250%R&Dtaxdeductionprovides no option for businesses in a tax loss position to cash out their R&D tax deductions, unlike many other jurisdictions such as Australia, IrelandortheUK.Assuch,the250%R&Dtaxdeduction may be limited in its effectiveness for SMEs and start-ups who may not be in a tax paying position and are relying heavily on cash to financeongoingR&Defforts.

► Another key difference in comparison to other jurisdictions is the current stringent eligibility criteria and practical burdensome process involved in claiming R&D tax deductions in Singapore,whichhascreatedfairlysignificantuncertainty for businesses in terms of their abilitytobenefitfromtheenhancedR&Dtax deductions. This issue may detract from the desired outcome of an increase in local R&D activities.

► As the current total R&D tax deduction for local qualifying expenditure under sections 14D/DA(1) oftheITAis150%,thediscretionary200%R&Dtax deduction under section 14E of the ITA has been an attractive alternative for taxpayers. The proposed increase of the section 14D/DA(1) tax deductionto250%willreducetheattractivenessof the section 14E tax deduction and brings into question the continued relevance of the said incentive scheme. In addition, section 14E currently limits the total amount of tax deduction allowed under sections 14, 14D, 14DA and 14E to 200% in respect of each approved project. For section 14E to continue to be a meaningful alternativeincentiveforR&D,refinementsmaybe required to remove the limitation to the 200% tax deduction.


Business tax

CurrentBusinesses that have incurred qualifying IP registration costs can claim 100% tax deduction under section 14A(1) of the ITA on such costs.

The scheme is scheduled to lapse after YA 2020.

ProposedTo encourage businesses, in particular smaller ones, to register and protect their IPs, the government will:

► ExtendtheschemetillYA2025

► Enhancethetaxdeductionto200%forthefirstS$100,000 of qualifying IP registration costs incurred for each YA


Points of view ► The current PIC scheme, which will lapse after

YA 2018, provides enhanced deduction or cash conversionbenefit(subjecttocertaincaps)onqualifying IP registration costs. The proposed enhanced deduction, which is scheduled to take effect from YA 2019, will be welcomed by businesses.

► The proposed enhanced deduction has a lower qualifying expenditure cap, as compared to the PIC scheme. This appears to be in line with the government’s objective of encouraging smaller businesses to register and protect their IPs. Having said that, it is noted that the cash conversion option under the PIC scheme, which is commonly elected by small enterprises, is not available under the proposed scheme.

Enhance the tax deduction for costs on protecting intellectual property (IP)

► The current legislation requires the claimant to be the legal and economic owner of the IP upon registration. This raises the question of whether the legal and economic ownership condition can stillbefulfillediftheclaimantisnotsuccessfulinits application for IP registration. In the context ofPIC,theIRAShadprovidedclarificationsthatPICbenefitsaregrantedregardlessofthe outcome of the application as long as the business has incurred the qualifying registration cost.AsimilarclarificationbytheIRASonthe proposed enhanced deduction will help to eliminate the uncertainty.

► Based on the existing section 14A(1) of the ITA, the 100% tax deduction is available to “a person carrying on a trade or business”. Partnership is notincludedinthedefinitionof“person”underthe ITA. A separate provision under section 14AspecificallyallowspartnershipstoclaimPIC enhanced deductions. It is hoped that the proposed enhanced deduction will be made available to all businesses including partnerships.

► The current legislation imposes a claw back requirement for the 100% tax deduction if the claimant sells, transfers or assigns all or any part of the qualifying IP that is subject to claim. The enhanced deductions under PIC are clawed back only if the claimant sells, transfers or assigns all or any part of the qualifying IP or the application for the registration or grant of the qualifying IP for which such costs were incurred, within oneyearfromthedateoffilingtheapplication.We await further details on whether and how claw back of the proposed enhanced deduction will apply.


Business tax

CurrentBusinesses that have incurred qualifying IP in-licensing costs can claim 100% tax deduction under sections 14 or 14D of the ITA on such costs.

ProposedTo support businesses to buy and use new solutions, the government will enhance the tax deduction from 100%to200%forthefirstS$100,000ofqualifyingIP in-licensing costs incurred for each YA.

Qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded research performers or other businesses, but exclude related party licensing payments, or payments for IP where any allowance was previously made to that person.


Points of view ► The proposed enhanced tax deduction from YA

2019 is welcomed, in view of the expiry of the PIC scheme in YA 2018.

► Under the PIC scheme, all businesses are allowedtoclaimPICbenefitsonqualifyingIPin-licensing costs incurred for use in their trade or business, subject to other PIC conditions. The proposed enhanced tax deduction is applicable to qualifying IP in-licensing costs made by a qualifying person. To facilitate the adoption oftechnologyandinnovationbyallfirms,itishopedthatthedefinitionofqualifyingpersonsbeflexibleenoughtocoveralltypesofbusinessesorbusinessforms.UnderthecurrentITAdefinition,persons do not include partnerships.

Enhance the tax deduction for costs on intellectual property (IP) in-licensing

► TheIRAShasclarifiedthatqualifyingIPin-licensing covers patents, copyrights, registered designs, geographical indications, lay-out designs of integrated circuit, trade secrets or information that has commercial value, and plant varieties. Trademarks and any rights to the use of software are excluded.

► TheIRAShasalsoclarifiedthatqualifyingIPlicensing costs will exclude any part of the costs which is subsidised by grants or subsidies from the government or a statutory board, cost on transfer of ownership of the rights as well as legal fees and other costs related to the licensing of each right.

► From an implementation perspective, it will be helpful if interested persons may approach a designated government body for a published list of qualifying publicly funded research performers and/or the IP that may be available for in-licensing.

► Apart from qualifying IP in-licensing payments made to publicly funded research performers, the proposed enhanced tax deduction also extends to qualifying IP in-licensing payments made to other businesses. To encourage the in-licensing of a wider range of IP, other businesses should include overseas IP owners.

► ►IPin-licensingpaymentsmadetonon-Singaporetax residents are subjected to Singapore WHT at 10% under the ITA. As the proposed enhanced tax deduction is targeted at smaller companies, which may likely be made to bear the WHT, it will further incentivise such smaller companies to in-license IP if Singapore WHT is exempted on qualifying IP in-licensing payments.


Business tax

CurrentUnder the DTDi scheme, businesses are allowed tax deduction of 200% on qualifying market expansion and investment development expenses under sections 14B and 14K of the ITA, subject to approval from IE Singapore or Singapore Tourism Board (STB).

No prior approval is needed from IE Singapore or STBfortaxdeductiononthefirstS$100,000ofqualifying expenses incurred from 1 April 2012 to 31 March 2020 on the following activities:

► Overseas business development trips or missions

► Overseas investment study trips or missions

► Participation in overseas trade fairs

► Participation in approved local trade fairs

ProposedTo further encourage internationalisation, the S$100,000 expenditure cap for claims without prior approval from IE Singapore or STB will be raised toS$150,000perYA.Businessescancontinuetoapply to IE Singapore or STB on qualifying expenses exceedingS$150,000,oronexpensesincurredonother qualifying activities.

All other conditions of the scheme remain the same. This change will apply to qualifying expenses incurred on or after YA 2019.

IE Singapore and STB will release further details of the change by April 2018.

Enhancing the Double Tax Deduction for Internationalisation (DTDi) scheme

Points of view ► The enhancement of the DTDi scheme

expenditure cap is to further support businesses to internationalise. This will be welcomed by businesses especially SMEs, which have been increasingly looking towards internationalisation as a growth strategy as they continue to face rising costs and manpower pressures in Singapore.

► It is noted that the proposed enhancement will take effect before the qualifying expenditure period lapses from 1 April 2020. In the absence of any announcement of the extension of the qualifying period, it appears that the proposed enhancement is only available for a short period from YA 2019 to 31 March 2020.

► The scheme is currently not available to companies that are already enjoying other forms of tax incentives or concessions (such as Finance & Treasury Centre Incentive, Global Trader Programme and Investment Allowance). Thisrestrictionremainsunlessspecificapprovalis granted.


Business tax

PriortotheBudget2018announcement,therearesignificantcomplexitiesandoverlapsinobjectives,support mechanisms and qualifying costs or activities between the different grant schemes as shown in the following:

Current

Type of grant Objective Support level Qualifying cost categories/support

Capability Development Grant (CDG)

Support SMEs to scale up business capabilities, ensure business sustainability and support future efforts in areas of partnerships, product diversification and internationalisation.

Focus areas include: ► Branding and marketing ► Product development ► Enhancing business processes

for productivity ► Intellectual property ► Business model

transformation

Cash grants defray up to 70% of qualifying costs

Manpower, consultancy, training, certification and equipment costs

Global Company Partnership (GCP)

Support companies in internationalisation efforts

Focus areas include: ► Market access ► Manpower development ► Overseas market promotion ► Capability building

Cash grants defray up to 50%or70%ofqualifying costs

Manpower, overseas office rental and consultancy services

ProposedCDG and GCP grants will be combined into the Enterprise Development Grant (EDG). The EDG will provide funding support for up to 70% of qualifying costs from FY2018 to FY2019. EDG will be administered by Enterprise Singapore (ESG).

Support for firms to build capabilities and forge partnerships


Business tax

Current Even with the conclusion of the PIC Automation scheme effective from YA 2018, there are a number of existing schemes that support the companies’ adoption of pre-approved digital technologies, consulting and infocomm technology solutions including iSPRINT and SMEs Go Digital Programme (pre-approved technology solutions). Some of these schemes may be consolidated into the new Productivity Solutions Grant (PSG).

ProposedThe existing grant schemes that support pre-scoped, off-the-shelf productivity solutions will be streamlined into one PSG. The PSG will provide funding support for up to 70% of qualifying costs.

Current

Type of grant Objective Support level Qualifying cost categories/support

Partnerships for Capability Transformation (PACT) Programme (SPRING and EDB)

To identify and implement collaborative projects between the large organisations (LO) and local SMEs in areas of:

► Knowledge transfer from an LO to at least one SME

► Capability upgrading of an LO’s new or existing suppliers

► Development and test-bedding of innovative solutions between an LO and at least one SME

Up to 70% funding support for qualifying costs

Manpower-related costs

Professional services

Prototyping-related services

Technical support services

Equipment, materials, consumables and software

Intellectual property acquisition

Collaborative Industry Projects (CIP)

Supports collaborations between enterprises and industry partners, such as Trade Associations and Chambers, to source for suitable solutions to help overcome industry-specific business challenges.

Upto50%or 70% funding support

Solutions development and/or adoption costs.

Software-and equipment-related project cost

ProposedThe existing PACT (SPRING and EDB) and the CIP will be combined into the PACT scheme. PACT will provide funding support of up to 70% of qualifying costs, for collaborations between companies in areas including capability upgrading, business development and internationalisation. PACT will be administered by EDB and ESG.


Business tax

Points of viewIn his budget speech, the Finance Minister reiterated the need to take a more cluster-based approach in the next phase of Singapore’s Industry Transformation Map (ITM) journey – to reap synergies, strengthen linkages across multiple industries, and to explore potential new opportunities.

The move to merge SPRING and IE Singapore into ESG will enable a holistic approach towards developing the SMEs and allow a more integrated support for them to internationalise, develop capabilities, and ultimately be more competitive both locally and abroad.

Aligned with the cluster-based approach of the ITMs and the creation of ESG, the proposed streamlining of the various incentive schemes into the three key pillar schemes namely the PACT, EDG and PSG, will minimise overlaps and confusion amongst companies, particularly the SMEs, who may not have the resource nor bandwidth to navigate the intricacies of the various schemes.

The three key grant support schemes are targeted at supporting companies through the different stages of their growth within the ITM:

► Industry ecosystem partnership: The PACT scheme is aimed at leveraging large organisations as demand and technology drivers to upgrade the capabilities of other smaller Singapore-based companies. Through this process, the government hopes to enhance collaborations and encourage knowledge or technology transfer.

► Business excellence: The EDG will help companies to develop or enhance their internal organisational, innovation and international market capabilities. Through this scheme, companies can accelerate their internationalisation efforts and build differentiating competencies that would allow them to win in the global market.

► Automation or digital capability enhancement: The PSG will help companies that are currently smaller and lack economies of scale to cost-effectively implement standard solutions to improve their current process or capabilities through technology adoption. The PSG will likely be targeted at adoption of digital and automation solutions for these companies.

The budget of more than S$800m that has been set aside for these schemes demonstrates the growing recognition that all companies, in particularSMEs,playasignificantroleinachievingsuccess on the ITMs. The streamlining of the various incentive schemes, which will simplify the process and minimise confusion, is a step in the right direction to accelerate the growth of these SMEs.


Business tax

CurrentWHT exemption is allowed on lease payments made to non-resident lessors (excluding permanent establishments in Singapore) for the use of qualifying containers for the carriage of goods by sea.

ProposedA review date of 31 December 2022 will be introduced to ensure that the relevance of the scheme is periodically reviewed.

This means that unless the scheme is extended, such payments accruing to a non-resident lessor under any lease or agreement entered into on or after 1 January 2023 in respect of the use of a qualifying container for the carriage of goods by sea will be subject to WHT.

Points of viewThe WHT exemption was introduced with effect from 19 January 1979 under section 13(4) of the ITA. Given that the WHT exemption has been in place for more than three decades, the review is timely to ensure its relevance and usefulness.

However, it is hoped that the WHT exemption will be extended beyond 31 December 2022 to maintain Singapore’s competitiveness as a global maritime hub. In many situations, the Singapore lessees are the ones bearing the WHT under the lease agreements. The cost of doing business for the Singapore lessees will increase in the event that the WHT exemption is not extended and the Singapore lessees are required to account for the WHT on a gross-up basis.

Introducing a review date for the WHT exemption on container lease payments made to non-resident lessors

► As part of the review, further enhancements could be considered including:

► Expanding the scope of the WHT exemption to include the leasing of intermodal equipment and other non-standard containers such as offshore containers.

► Expanding the scope of the WHT exemption tocoveralternativeformsoffinancingsuchas hire purchases and loans with respect to the purchase of containers. Currently, WHT exemptions on the purchase of containers are only available to entities under the Maritime Sector Incentive – Maritime Leasing (Container) scheme.

► ProvidingclarificationsonWHTexemptionwith respect to the following types of leases in view of the adoption of FRS 116 – leases for companies with annual reporting periods beginning on or after 1 January 2019:

► Short-term leases or low value leases ► Right-of-use assets (ROU assets) not

treated as sale ► ROU assets treated as sale

► Companies looking to renew or enter into new lease agreements with non-resident lessors may wish to conclude the agreement before 1 January 2023. Otherwise, for agreements entered into on or after 1 January 2023, there could be additional tax costs in the event that the WHT exemption is not extended.

► ►CompaniescanalsomitigateanypotentialWHT costs by exploring tax exemption under thebusinessprofitsarticleortheshippingarticle of tax treaties between Singapore and the foreign countries where the lessor is tax resident in. However, WHT exemption may not be available if the lessors are tax resident in non-treaty countries.


Business tax

CurrentCapital expenditure incurred on submarine cable systems does not qualify for IA.

ProposedTo strengthen Singapore’s position as a leading digital connectivity hub, the government will extend the IA scheme in respect of productive equipment to capital expenditure incurred on newly-constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions.

All other conditions of the IA scheme apply, except for the following that will be permitted:

► The submarine cable systems can be used outside Singapore.

► The submarine cable systems, on which IA has been granted, can be leased out under the indefeasible rights of use (IRU) arrangements.

This change will take effect for capital expenditure incurred between 20 February 2018 and 31 December 2023, inclusive of both dates.

Extend the Investment Allowance (IA) scheme to include qualifying investment in submarine cable systems landing in Singapore


Business tax

Points of view ► The proposed extension of the IA scheme to

capital expenditure incurred on submarine cable systems landing in Singapore demonstrates the government’s commitment to encourage new and strategic infrastructure for digital connectivity to support the emergence and adoption of new technologies.

► Currently, IA grants an additional allowance basedonaspecifiedpercentagenotexceeding100% of the capital expenditure incurred on specifieditemsonanapprovedproject.Tofurther incentivise and spur e-commerce and digital activities across the industry, it is hoped that the percentage of IA claim under the proposed extension can be up to 100% of the capital expenditure.

► The eligibility for the current IA scheme is subject to the following restrictions:

► The productive equipment needs to be used inSingapore(exceptwherespecificapprovalis given for the equipment to be used outside Singapore, such as capital expenditure incurred for a project for the operation of any space satellite).

► The productive equipment cannot be sold, leased out or disposed during the IA qualifying period or within two years after the end of the qualifying period.

► Under the proposed extension, the permissions granted for the submarine cable systems to be used outside Singapore and to be leased out under the IRU arrangements will allow the grantors of IRUs who incur the capital expenditure on the submarine cable systems landinginSingaporetobenefitfromthisincentive scheme. However, the current restriction under the IA scheme on the sale, lease or disposal of the productive equipment on which IA is granted should continue to apply.

► Section19DoftheITAdefines“internationaltelecommunications submarine cable system” to be an international submarine cable that is laid in the sea and includes its cable landing station and any other equipment ancillary to the submarine cable system. The proposed extension raises the following questions:

► Whatisthedefinitionof“newly-constructedstrategic submarine cable systems landing in Singapore”?

► What is considered strategic?

► Can equipment ancillary to the submarine cable system be covered under the extension of the IA scheme?

► Can capital expenditure incurred to upgrade or enhance any existing submarine cable systems landing in Singapore be covered under the extended IA scheme?

► What other conditions must be met in order to qualify for the extended IA scheme?

► It is noted that the sunset clause of the proposed IA’s coverage on capital expenditure incurred in relation to submarine cable systems is set as the same date for other projects under the IA scheme as provided under the current legislation.


Business tax

CurrentDistributions made by S-REITs to REITs ETFs out ofspecifiedincomederivedbyS-REITsaresubjectto tax at the prevailing corporate tax rate of 17% in the hands of REITs ETFs. All investors of REITs ETFs will not be taxed on the distributions made out of such income from REITs ETFs.

Extend the tax transparency treatment for S-REITs to REITs ETFs

ProposedTo have parity in tax treatments between investing in individual S-REIT and via REITs ETF with investments in S-REITs, the following tax treatment will be accorded to REITs ETFs:

► Tax transparency treatment1 on the distributions received by REITs ETFs from S-REITs, which are madeoutofthelatter’sspecifiedincome.

► Tax exemption on such REITs ETFs distributions received by individuals, excluding individuals who derive any distribution:

► Through a partnership in Singapore ► From the carrying on of a trade, business

or profession

► 10% concessionary tax rate on such REITs ETFs distributions received by qualifying non-resident non-individuals2.

Subject to conditions, the tax concessions for REITs ETFs will take effect on or after 1 July 2018, with a review date of 31 March 2020, which is the same as that for other tax concessions for S-REITs. Application for the tax transparency treatment can be submitted to the IRAS on or after 1 April 2018.

The MAS and IRAS will release further details of the change by March 2018.

1Tax transparency treatment means that the trustee of the REITs ETF is not subject to tax on the specified income that is distributed to the unit holders. Instead, such distributions are taxed in the hands of the unit holders depending on their profile. For example:(i) Individuals who derive any distribution through a partnership in Singapore or from the carrying on of a trade, business or profession: tax at

the individual’s tax rates(ii) Other individuals: exempt from tax(iii) Qualifying non-resident non-individuals: tax at a 10% concessionary tax rate(iv) Companies incorporated and resident in Singapore: tax at the prevailing corporate tax rate

2This refers to a non-resident non-individual unit holder who:(i) Does not have any permanent establishment in Singapore(ii) Carries on any operation through a permanent establishment in Singapore, where the funds used by that person to acquire the units in that

REITs ETF are not obtained from that operation


Business tax

Points of view ► The proposed tax change for REITs ETFs is a

long awaited tax change, since the listing of the firstREITsETFinSingaporein2016.Itwillbevery welcomed by the markets, fund managers and investors.

► The types of S-REIT income that qualify for tax transparency treatment under section 43(2A) oftheITA(specifiedincome)are:

i) Rental income or income from the management or holding of immovable property but not including gains from the disposal of immovable property.

ii) Income that is ancillary to the management or holding of immovable property but not including gains from the disposal of immovable property.

iii) Income that is payable out of rental income or income from the management or holding of immovable property in Singapore, but not out of gains from the disposal of such immovable property.

iv) Distribution from an approved sub-trust of the S-REIT out of income referred to in paragraphs (i), (ii) and (iii) above.

v) Rental support payment that is paid to the trustee on or after 29 December 2016 by:

► The seller who sold to the trustee the property or any interest in the owner of the property

► A person who wholly owns (directly or indirectly) the seller

► Any other person approved by the Comptroller

► The tax transparency treatment accorded to S-REITs is subject to various conditions. Amongst others, the conditions include:

► To distribute at least 90% of the S-REIT’s specifiedincometoitsunitholdersin the same year in which the income is derived by the trustee.

► To comply with the necessary WHT requirements.

► To ensure that mechanism will be put in place to allow the trustee to ascertain whether or not tax is to be deducted from a distribution (including the content of any prescribed form that has to be completed and submitted by the unit holders, and the retention period of such form).

► Toensurethatthereissufficientinformationand documentation (besides the declaration forms submitted by the unit holders and nominees) to verify the identity of the unit holdersandbeneficiariesandbesatisfied that they qualify for a waiver of WHT, the finalWHTrateof10%orexemptionoftax.

► Toobtainconfirmationfromtheultimatebeneficiariesthattheyarequalifyingunitholders or qualifying non-resident non-individual unit holders, where the units are held through more than one tier of nominees.

► The conditions that REITs ETFs will have to meet in order to qualify for tax transparency treatment will be released by March 2018. It is expected that REITs ETFs will be required to comply with conditions similar to those applicable to S-REITs for tax transparency treatment. Hence, there will be a compliance cost to be incurred by REITs ETFs.


Business tax

► Under the tax transparency treatment accorded to S-REITs, the trustee of S-REITs will not be subjecttotaxonspecifiedincomedistributedtounit holders. Qualifying unit holders of S-REITs willreceivedistributionsoutofspecifiedincomewithout deduction of tax. Such distributions will be taxed in the hands of the unit holders, unless the unit holders or the distributions arespecificallyexemptfromtax.REITsETFs,being domestic unit trusts, are not qualifying unit holders and hence they currently receive distributionsfromS-REITsoutofspecifiedincome after deduction of tax at the prevailing corporate tax rate of 17%. With the proposed change,presumablythedefinitionofqualifyingunit holders for S-REITs should be expanded to include REITs ETFs that are accorded the tax transparency treatment so that they can receive gross distributions from S-REITs, i.e., without deduction of tax.

► Under the current treatment, Singapore corporateinvestorswhofinancetheirinvestments in REITs ETFs with interest-bearing borrowing are not able to claim tax deduction on the attributable interest expense as the distributions from REITs ETFs are exempt from tax in their hands. With the proposed change, Singapore corporate investors should be able to obtain a tax deduction on such interest expense attributable to the taxable portion of the distributions received from REITs ETFs and thus reducing the effective tax payable on such distributions.

► The tax concessions for REITs ETFs is subject to a review date of 31 March 2020, which is the same as that for other tax concessions for S-REITs. However, it is noted that for S-REITs, the review date of 31 March 2020, in relation to the proposed change, is only applicable to the 10% concessionary tax rate on distributions made out ofspecifiedincometoqualifyingnon-residentnon-individuals. It is hoped that the review date of 31 March 2020 will not apply to the tax transparency treatment as this treatment is not subject to the review date of 31 March 2020 in the case of S-REITs. Further, the tax exemption for individuals is not a concession granted specificallytoinvestmentsinS-REITs.

► The YA in which a unit holder will be assessed on specifiedincomedistributedbyanS-REITfollowsthe YA in which that income is derived by the S-REIT. Given that the S-REITs that REITs ETFs investinarelikelytohaveadifferentfinancialyear end, it is hoped that an exception will be made such that unit holders of REITs ETFs who are liable to tax on distributions they receive from REITs ETFs, e.g., Singapore corporate unit holders will be assessed on the distributions in the YA which follows the YA of the REITs ETFs, or perhaps to simplify further, which follows the YA of the unit holders.


3Personal income tax


Personal income tax

Personal income tax rate and tax rebate

Current The income tax rates for Singapore tax resident individuals with effect from YA 2017 range from zeropercentforthefirstS$20,000ofchargeableincome to 22% for chargeable income exceeding S$320,000. A tax rebate of 20% of tax payable, cappedatS$500pertaxpayer,wasavailabletoalltax resident individual taxpayers for YA 2017. With effect from YA 2018, the total amount of personal income tax relief that an individual can claim will be capped at S$80,000 per YA.

ProposedThere is no change to the personal income tax rates and the personal income tax relief cap. There will not be any tax rebates accorded for YA 2018. Instead, the government has declared a one-off SG Bonus of S$100, S$200 and S$300 (depending on income) to be given to all Singaporeans aged 21 and above in 2018.

1 Active national service reservist man married to a non-working spouse with two dependent children

Points of view ► ►Theimplementationofhigherincometax

rates with effect from YA 2017 as well as the personal income tax relief cap with effect from YA 2018 affect mainly the higher income earners. The government is of the view that the current personal income tax regime is sufficientlyprogressiveandequitable.Assuch,no further change or enhancement is required at the moment.

► ►Taxrebatesaccordedbythegovernmentinprioryears provided welcomed relief to individuals who pay personal income tax but such a tax rebate willnotbenefitanon-taxpayer.Forexample,thetaxrebateaccordedforYA2017benefitedonlytax resident individual taxpayers who earned anannualincomeofmorethanS$42,5001. As such, we see the announcement of the one-off and tiered SG bonus in Budget 2018 as a more equitable approach.


4Goods and services tax



Current GSTwasfirstimplementedinSingaporeatalowrate of 3% on 1 April 1994. The GST rate was subsequentlyraisedto4%in2003,5%in2004andthen 7% in 2007, where it has remained since.

ProposedTo support the recurrent needs from healthcare, security and other social spending, the Minister has announced that the government plans to raise GST by two percentage points, from 7% to 9%, sometime intheperiodfrom2021to2025.Theexacttimingof the GST increase will depend on the state of the economy, how much Singapore’s expenditures grow and how buoyant are the existing taxes.

The Minister also announced that the GST increase will be implemented in a progressive manner and the government will:

► Continue to absorb GST on publicly-subsidised education and healthcare

► Enhance the permanent GST Voucher scheme when the GST is increased, so as to provide more help to lower-income households and seniors

► Implement an offset package for a period to help Singaporeans, especially the lower-income and middle-income households, adjust to the GST increase

Impending GST rate increase

Points of view ► ►ItisnotcertainiftheGSTincreasewillbean

immediate step-up from the current GST rate or staggered in a two-step approach.

► Although not primarily a tax on businesses, the GST increase will result in additional irrecoverable GST costs to the following groups of businesses:

► Businesses which are not registered for GST, as they are not entitled to claim from the government the GST incurred on their purchases.

► Residential property developers or mixed developers and businesses in the financial services sector, as these businesses are partially exempt and are likely not able to claim the GST incurred on their purchases in full.

► Charities and non-profit organisations which are engaged mostly in non-business activities, due also to the inability to fully recover the GST incurred on their purchases.

Singapore Budget 2018 Synopsis 27


► As the GST increase is only expected sometime from2021to2025,businesseswillhavesufficient time to prepare for the GST increase including addressing their accounting system and procedure changes, transitional issues and communication strategy. New supplies and purchase contracts that will straddle into 2021 and beyond should take into consideration the GST increase. The action plan should also include training the relevant staff within the organisation so that they understand the impact on the business, particularly during the transition period.

► ►BesidesUtilities-Saveandserviceandconservancy charges rebates, from the past GST increase, we can expect the offset package to include top ups to Post-Secondary Education Accounts, property tax rebate, assistance for low income families with children and assistance for pensioners.

► Notwithstanding the proposed increase in GST, the Singapore GST rate remains low by comparison with VAT and GST rates elsewhere in the world, as indicated in the tables of comparative rates on the next page.

Extract from Singapore GST: past, present and future,publishedinEY’sIssue4,2015ofYouandthe Taxman magazine:

“To keep pace with the ever-changing economy and meet the demands of social spending, the GST system would have to evolve. The question is would this involve changes to the tax rate, the tax rules or the tax base?

Change is inevitable. To remain relevant, Singapore has to continually reinvent itself in all areas – be it taxation or otherwise. As the saying goes 'The future belongs to those who prepare for it today' ”.

Extract from Implications of an impending GST hike, published in EY’s Issue 4, 2017 of You and the Taxman magazine:

“As a GST rate hike in the coming years becomes more imminent, businesses will have to start considering the impact of a hike and ensure that they have adequate resources to mitigate the impact.”

What we said previously …



7

8

5

6

7

10

10

12

15

17

0 2 4 6 8 10 12 14 16 18

Singapore

Japan

Taiwan

Malaysia

Thailand

Australia

Indonesia

Philippines

New Zealand

China

Country

8

17

20

19

21

20

25

25

0 5 10 15 20 25 30

Switzerland

Luxembourg

UK

Germany

Netherlands

France

Denmark

Sweden

Percentage

Percentage

Country

#

# Rate to be increased from 7% to 9% between 2021 and 2025.

Prevailing standard GST/VAT rates in selected countries

Asia-Pacific

Europe



GST on imported services

Current GST is not applicable on imported services provided by an overseas supplier, which does not have an establishment in Singapore.

ProposedTo ensure that the Singapore tax system remains fair and resilient in a digital economy, the Minister announced that with effect from 1 January 2020, GST on imported services will be implemented.

Business-to-Business imported services will be taxed via a reverse charge mechanism. Only businesses that (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply reverse charge. The reverse charge mechanism requires the local business customer to account for GST to the IRAS on the services it imports. The local business customer can in turn claim the GST accounted for as its input tax, subject to the GST input tax recovery rules.

Business-to-Consumers (B2C) imported services, on the other hand, will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators,whichmakesignificantsuppliesofdigitalservices to local consumers to register with the IRAS for GST. OVR will apply to overseas suppliers whose annual global turnover exceeds S$1m and whose sale of digital services to consumers in Singapore exceeds S$100,000. Once GST-registered, they will collect GST for the IRAS on their B2C supplies of digital services.

The IRAS will release further details by end-February 2018.



Points of view ► The introduction of GST on imported services is designedtoensurealevelplayingfieldbetweenlocal and overseas suppliers. It is also in-line with increased calls for international co-ordination efforts in aligning GST treatment of cross-border services and intangibles with international practice and other tax administrations.

► The proposed implementation of the reverse charge mechanism will impact certain groups of businesses,primarilyfinancialinstitutions,mixedand residential property developers and holding companies. For these impacted businesses, they will need to determine exactly how the reverse charge mechanism will impact their key business processes and implement a strategy to ensure that they are ready to meet the challenges of this new requirement effective 1 January 2020.

► For affected businesses, it is advisable that impact assessments be undertaken addressing both purchases from overseas third party vendors and related parties to establish whattheresultingfinancialimpactcouldbe,understand what information is needed and the steps required to meet the future compliance obligations and understand non-IT system impacts such as vendor communications, contracting and pricing.

► Fromafinancialservicessectorperspective,Singaporeisawell-establishedfinancialcentreandmanyfinancialinstitutionshaveeithertheir global or regional headquarters located here. The introduction of the reverse charge mechanism will carry with it an extra GST cost, both in terms of increased compliance and an increase in irrecoverable GST incurred. Like many countries,theOVRwillmostlikelybeasimplifiedGST registration where overseas suppliers and electronic marketplace operators, if registered for GST, will charge and account for GST but not be entitled to claim any GST incurred. These overseas suppliers and electronic marketplace operatorswillmostlikelyfilea“payonly”GST return.

► EvenwiththeintroductionofsimplifiedGSTregistration for overseas suppliers and electronic marketplace operators, enforcing the GST registration could be a challenge for the IRAS since these overseas suppliers and electronic marketplace operators are all established outside Singapore.

► The proposed OVR does not affect e-commerce for low value goods. For imports of low-value goods (where the goods are imported by air or post and the value is below S$400), it is still under review by the government.


5Financial services


Financial services

Current Funds structured as companies1, as well as trusts2 and limited partnerships3, can qualify for tax exemption under sections 13CA, 13R and 13X of the ITA and these incentivised funds are given GST remission,whichallowsthemtoclaimGSTatafixedrecovery rate.

Fund managers approved under the Financial Sector Incentive – Fund Management (FSI-FM) scheme can qualify for 10% concessionary tax rate on the income derived from managing an incentivised fund.

The MAS is studying the regulatory framework for S-VACCs to further develop and strengthen Singapore’s position as a hub for both fund management and fund domiciliation. An S-VACC is a new structure designed for collective investment schemes4 (CIS), and will accommodate a variety of traditional and alternative asset classes and investment strategies.

ProposedA tax framework for S-VACC will be introduced to complement the S-VACC regulatory framework:

► An S-VACC will be treated as a company and a single entity for tax purposes5.

► Tax exemption under sections 13R and 13X of the ITA will be extended to S-VACCs.

► 10% concessionary tax rate under the FSI-FM scheme will be extended to approved fund managers managing an incentivised S-VACC.

► The existing GST remission for funds will be extended to incentivised S-VACCs.

Introduce a tax framework for Singapore Variable Capital Companies (S-VACCs)

The conditions under the existing schemes above remain unchanged.

The changes will take effect on or after the effective date of the S-VACC regulatory framework.

MAS will release further details of the tax framework for S-VACCs by October 2018.

Points of view ► The global asset management industry has

experienced high growth in assets under management (AUM) over the past decade. Singapore continues to be a vibrant and leading international fund management centre, with AUM growing by 7% in 2016 to S$2.7t6. A conducive business environment as well as a robust regulatory and tax framework have played an important role in contributing to Singapore’s success.

► While Singapore has developed into a leading fund management hub, many funds distributed and managed out of Singapore are pooled into fund vehicles, which are domiciled outside Singapore, particularly on account of the legal framework in Singapore. At present, a Singapore-domiciled fund vehicle can be set up as a company, a limited partnership or a unit trust. The current legal requirements and tax rules of each of these vehicles have certain limitations, which have restricted the number of Singapore-domiciled fund vehicles.

1Under sections 13CA, 13R and 13X of the ITA 2Under sections 13CA and 13X of the ITA 3Under section 13X of the ITA 4As defined under section 2(1) of the Securities and Futures Act 5For compliance ease, only one set of tax return is required to be filed with the IRAS 62016 Singapore asset management survey conducted by the MAS


Financial services

► In March 2017, the MAS commenced public consultation on a new corporate structure for investment funds (the S-VACC) with a view to address the existing limitations and offer Singapore-based fund managers more flexibility and efficiency with respect to Singapore fund vehicles.

► Variable capital corporate form funds have been successfully legislated by several countries. Most notably, Luxembourg, Ireland, the Cayman Islands and the UK each offers a variable capital corporate form fund. In Hong Kong, the Securities and Futures Commission is working towards operationalising a new open-ended fund company (OFC) structure by 2018.

► The S-VACC will be governed by a new S-VACC Act, which will allow an S-VACC to be set up as an open-ended or closed-ended fund and will also allow the creation of sub-funds with segregated assets and liabilities within an S-VACC.

► The concept of the S-VACC has been received positively by the traditional as well as alternative asset management industry. The announcement that the MAS will release a tax framework to complement the S-VACC regulatory framework and the key features of such a tax framework provide greater clarity and certainty to fund managers who are considering setting up new funds in the form of S-VACCs.

► In our view, treated as a company, an S-VACC should be able to, inter alia:

► Demonstrate that it is a tax resident of Singapore and obtain a certificate of residence from the IRAS to access Singapore’s tax treaties network.

► Declare dividends to its shareholders, which are exempt from Singapore tax under Singapore’s one-tier corporate tax system.

► Access the foreign-sourced income exemption and foreign tax credit system that are available to all Singapore tax resident companies so long as the associated conditions are met.

► For the S-VACC to be viewed as a viable and possibly a more attractive alternative to the existing suite of Singapore and non-Singapore fund vehicles commonly set up by Singapore

fund managers, an S-VACC should also be eligible for existing tax incentives available to such fund vehicles. Hence, the confirmation on the applicability of the section 13R and section 13X tax incentive schemes as well as the GST remission scheme to an S-VACC is a positive message. In addition, the extension of the FSI-FM scheme to cover an incentivised S-VACC should help promote the attractiveness of the S-VACC to Singapore fund managers.

► Currently, the tax exemption schemes under sections 13R and 13X of the ITA have a sunset clause of 31 March 2019. With the MAS expected to release further details of the tax framework for the S-VACC by October 2018, we believe that the next Budget should seek to extend these incentive schemes.

► To provide both simplicity and certainty, as well as to adhere to international tax practices, we hope the following items can be addressed in the tax framework for S-VACC to be released by October 2018:

► Can an existing Singapore company convert to or amalgamate with an S-VACC? If so, can this be achieved in a tax-neutral manner?

► Where the S-VACC is incentivised under either section 13R or section 13X tax incentive scheme, will the WHT exemption pursuant to section 13(4) of the ITA and the Income Tax (Exemption of Interest and Other Payments For Economic and Technological Development) (No.2) Notification 2012 be available to the S-VACC?

► Where an S-VACC has sub-funds:

► Should the relevant conditions under section 13R and 13X of the ITA apply to each sub-fund independently or to the S-VACC as a whole?

► Will the tax liability of each sub-fund be ring-fenced from the S-VACC and from every other sub-fund?

► As each sub-fund within an S-VACC is not proposed to be a distinct person, will transactions between two or more sub-funds within an S-VACC need to adhere to the arm’s length principle and transfer pricing documentation requirements under the ITA?


Financial services

Current The Financial Sector Incentive (FSI) scheme accords concessionarytaxratesof5%,10%,12%and13.5%onincomefromqualifyingbankingandfinancialactivities, headquarters and corporate services, fund management and investment advisory services. The FSI scheme is scheduled to lapse after 31 December 2018.

The trading in loans and their related collaterals, excluding immovable property, is a qualifying activity that is accorded a concessionary tax rate of13.5%.

ProposedTo further strengthen Singapore’s position as a leadingfinancialcentre,theFSIschemewillbeextended till 31 December 2023.

The scope of trading in loans and their related collaterals is expanded to include collaterals that are prescribed infrastructure assets or projects. The change will apply to income derived on or after 1 January 2019 in respect of new and renewal awards approved on or after 1 June 2017.

All other conditions of the scheme remain the same.

MAS will release further details of the change by May 2018.

Points of view ► As part of the Government’s periodic review

of tax incentives to ensure that they remain competitive and relevant, the FSI scheme was revised in May 2017 to remove currency restrictions and restrictions on local versus offshore counterparties. At the same time, in order to maintain tax neutrality, the FSI-Standard Tier scheme’s concessionary tax ratewasincreasedfrom12%to13.5%fornew and renewal awards approved on or after 1 June 2017.

Extend and enhance the Financial Sector Incentive scheme

► The proposed extension of the FSI scheme was anticipated by the financial sector industry and its extension until 31 December 2023 will further strengthen financial intermediation and deepen capabilities in key financial services and banking activities in Singapore.

► In addition to the proposed extension in date, a change in scope of trading in loans and their related collaterals is proposed.

► Until last year, the incentivised activity of trading in loans and their related collaterals excluded immovable properties in Singapore, and in June 2017, this exclusion was expanded to all immovable properties, in and outside Singapore. The proposed inclusion of collaterals that are prescribed infrastructure assets and projects within the FSI scheme is a step towards aligning Singapore’s efforts to keep its capital market relevant to infrastructure development, a key area of focus for the emerging markets within Asia.

► Based on a report released on 16 October 2017, the Forum on Harmful Tax Practices has assessed that Singapore’s tax incentives satisfy the international standards on countering harmful tax practices under the OECD/G20 Base Erosion Profit Shifting project. This is a recognition by the OECD and the international community of Singapore’s continued efforts to keep its incentives relevant and sustainable, not only from Singapore’s perspective but from the perspective of the global community, and has paved the way for the renewal of the FSI scheme.


Financial services

Current Tax exemption under the Enhanced-Tier Fund scheme is available for companies, trusts and limited partnerships, subject to qualifying conditions.

ProposedTo cater for more diverse fund structures, tax exemption under the Enhanced-Tier Fund scheme will be extended to all fund vehicles constituted in all forms. Besides companies, trusts and limited partnerships, all fund vehicles will be able to qualify for the Enhanced-Tier Fund scheme if they meet all qualifying conditions.


The change will take effect for new awards approved on or after 20 February 2018.

The MAS will release further details of the change by May 2018.

Enhance the Enhanced-Tier Fund scheme under section 13X of the ITA


Financial services

Points of view ► The Enhanced-Tier Fund scheme was introduced

by the MAS in 2009 and provides Singapore-based fund managers with greater flexibility as compared to the section 13CA tax incentive scheme and the section 13R tax incentive scheme, for example, in relation to the legal form, location and/or tax residency of the fund vehicle.

► This has enabled Singapore-based fund managers to secure global mandates where the fund vehicle is often located outside Singapore to cater to investors’ needs.

► Over the years, the MAS has proactively refined the Enhanced-Tier Fund scheme in order for it to remain flexible and relevant as global fund structures have continued to evolve.

► Leading fund jurisdictions such as Luxembourg, Ireland and the UK each offer fund vehicles that have features of a company, trust or a limited partnership, but may not squarely fall within Singapore’s legal definition of these vehicles.

► As the popularity of such fund vehicles amongst investors continues to grow, it is important for Singapore-based fund managers to be able to provide certainty to investors that the fund vehicles will qualify. This enhancement to the Enhanced-Tier Fund scheme is therefore a welcome move and should enhance Singapore-based fund managers’ ability to attract more mandate from international investors.

► As we await details from the MAS in May 2018, we hope that the following aspects will be addressed:

► The proposed enhancement refers to “all fund vehicles constituted in all forms”. In our view, the definition of a “fund vehicle” should be consistent with the intent of the Enhanced-Tier Fund scheme to include all vehicles that are solely in the business of making investments. We do not expect additional conditions to be imposed by the MAS in order to qualify as a “fund vehicle”.

► The Enhanced-Tier Fund scheme requires the fund vehicle to be managed or advised directly by a Singapore-based fund manager. In practice, even where a fund vehicle is managed by a Singapore-based fund manager, there may not be a direct contractual agreement between the Singapore-based fund manager and the fund vehicle due to legal or commercial reasons. To broaden the scope of the enhancement, the MAS may wish to consider if the requirement of being “managed or advised directly” should not be restricted by such contractual arrangements.

► We also encourage the MAS to consider legislating a similar enhancement for the section 13CA tax incentive scheme. The section 13CA tax incentive scheme is currently only applicable to trust funds and non-resident individuals or companies. To further develop Singapore as a leading hub for fund management activities, the MAS should consider enhancing the section 13CA tax incentive scheme to include all fund vehicles constituted in all forms as well, provided all the qualifying conditions are met.


Financial services

Current The Insurance Business Development – Insurance Broking Business (IBD-IBB) scheme grants approved insurance and reinsurance brokers a concessionary tax rate of 10% on commission and fee income derived from insurance broking and advisory services.

The Insurance Business Development – Specialised Insurance Broking Business (IBD-SIBB) scheme grants insurance and reinsurance brokers a concessionarytaxrateof5%oncommissionandfeeincome from specialty insurance broking activities.

The two schemes are scheduled to lapse after 31 March 2018.

ProposedTo further strengthen Singapore’s position as a leading insurance and reinsurance centre, the IBD-IBB scheme will be extended till 31 December 2023.

All conditions of the IBD-IBB scheme remain the same.

To streamline and simplify the insurance tax incentives, the IBD-SIBB scheme will be allowed to lapse after 31 March 2018. With the lapsing of the IBD-SIBB scheme, specialty insurance broking and advisory services will be incentivised under the IBD-IBB scheme at a concessionary tax rate of 10%.


Extend the Insurance Business Development – Insurance Broking Business scheme and allow the Insurance Business Development – Specialised Insurance Broking Business scheme to lapse


Financial services

Points of view ► The IBD scheme was first announced in Budget 2015andsubsequentlyrefinedinBudget2016to streamline and simplify the tax incentives for insurance businesses. This included subsuming the following schemes under the IBD umbrella scheme: IBD-Marine Hull and Liability Insurance Business, IBD-Captive Insurance and IBD-Specialised Insurance (IBD-SI) schemes.

► The tax incentives for insurance brokers were also subsumed under the IBD umbrella scheme and renamed as IBD-IBB and IBD-SIBB with effect from 1 June 20171.

► The consolidation of the various tax incentives for the insurance sector under one scheme provides a comprehensive yet simplified framework for insurance businesses and enables new entrants to easily assimilate into Singapore’s developed insurance sector.

► With the specialty insurance broking and advisory services now being incentivised under the IBD-IBB scheme at a concessionary tax rate of 10%, this appears to be an intended move to place all incentivised insurance brokers on the same level playing field.

► It is noted that insurers and reinsurers underwriting specialised insurance business, which are approved under the IBD-SI scheme continue to enjoy concessionary tax rates of 5%(fornewawardsfrom1September2016to31 August 2019), 8% (for new awards from 1 September 2019 to 31 August 2021) or 10% (for renewal awards from 1 September 2016 to 31 August 2021). It appears that the concessionary tax rate applicable to insurers, reinsurers as well as insurance brokers in respect of specialised insurance business may be aligned beyond 31 August 2021.

► We hope that the MAS will consider aligning the sunset date for the various tax incentives under the IBD scheme to a single date to enable businesses to utilise the incentives more effectively. We also urge the MAS to continuously review the IBD scheme to ensure that the scheme remains competitive and relevant to further enhance Singapore’s position as an insurance hub in Asia.

1MAScircularFDDCir05/2017dated11May2017


Financial services

Current Under section 14I of the ITA, banks and qualifying financecompaniescanclaimataxdeductionforimpairment losses on non-credit-impaired loans and debt securities made under FRS 109, and any additional loss allowances as required under MAS Notices612,811and1005(collectivelyreferredtoas “MAS Notices”), subject to a cap.

The tax deduction under section 14I is scheduled to lapse after YA 2019 (for banks and qualifying financecompanieswithDecemberFYE)orYA2020(forbanksandqualifyingfinancecompanieswithnon-December FYE).

ProposedTo promote the overall robustness and stability of theSingaporefinancialsystem,thetaxdeductionunder section 14I of the ITA will be extended untilYA2024(forbanksandqualifyingfinancecompanieswithDecemberFYE)orYA2025(forbanksandqualifyingfinancecompanieswithnon-December FYE).



Extend the tax deduction for banks (including merchant banks) and qualifying finance companies for impairment and loss allowances made in respect of non-credit-impaired financial instruments

Points of view ► This is the fourth time that the tax deduction

under section 14I of the ITA (first introduced in 2005)hasbeenextended.Theextensionofthetax deduction will allow banks and qualifying finance companies (which are required to comply with the requirements of FRS 109 for the financial year beginning on or after 1 January 2018 and the relevant MAS Notices) to continue to claim tax deduction for non-credit-impaired loans and debt securities, subject to the stipulated caps under section 14I.

► Taking into consideration the effective date of FRS 109 and in view of the significant changes in the basis of computing impairment under FRS 109 as compared to FRS 39, the extension is timely and relevant for banks and qualifying finance companies.

► The current definition of “securities” under section 14I(7) of the ITA includes stocks and shares, but excluding those issued or guaranteed by governments and stocks and shares held by a bank or qualifying finance company and issuedbyanycompanyinwhich5%ormoreof the total number of its issued shares are beneficially owned, directly or indirectly, by the bank or qualifying finance company at any time during the basis period for the relevant YA. Given that there is no impairment requirement for equity instruments under FRS 109, we expect the definition of “securities” to be amended to exclude stocks and shares.

► It remains to be seen what may be covered in the further details of the change to be released by the MAS.


Financial services

Current The Approved Special Purpose Vehicle (ASPV) scheme grants the following tax concessions to an ASPV engaged in asset securitisation transactions:

► Tax exemption on income derived by an ASPV from approved asset securitisation transactions

► GST recovery on its qualifying business expenses atafixedrateof76%

► WHT exemption on payments to qualifying non-residentsonover-the-counterfinancialderivatives in connection with an asset securitisation transaction

► Remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved asset securitisation transactions

The ASPV scheme is scheduled to lapse after 31 December 2018.

ProposedTo continue developing the structured debt market, the ASPV scheme will be extended till 31 December 2023, with the exception of stamp duty remission, which shall be allowed to lapse after 31 December 2018.

All other conditions of the ASPV scheme remain the same.

The MAS will release further details of the extension by May 2018.

Points of view ► The extension of the ASPV scheme is welcome

and in line with Singapore’s initiative to continue to develop its capital market as it is imperative for that development to offer a diverse suite of products including structured debt.

Extend the tax incentive scheme for Approved Special Purpose Vehicle engaged in asset securitisation transactions

► The ASPV scheme provides tax certainty and mitigates the tax inefficiencies that an SPV may otherwise face, as a result of mismatches in timing between the receipt of income and the payment of expenses, in an asset securitisation transaction.

► The refinement of the ASPV scheme in 2008 removed the requirement for all debt securities issued by the ASPV to be Qualifying Debt Securities (QDS). Whilst this enabled non-QDS issuer SPVs to apply for the ASPV status, the ASPV will need to withhold tax on interest (and certain related payments) paid to non-residents on any non-QDS issued by the ASPV.

► If a WHT exemption (including on non-QDS issuance) is provided to ASPVs as a part of the ASPV scheme, the ASPVs will have more flexibility in terms of issuance of debt securities in tranches and this should enhance Singapore’s attractiveness as a hub for asset securitisation. The WHT exemption under the ASPV scheme will reduce the administrative burden of the ASPVs in seeking approval under the ASPV scheme and making the requisite QDS filings separately. However, Singapore corporate investors will continue to be subject to tax at 17% on interest income derived from such non-QDS issuance as compared to 10% on interest derived from QDS issuance.

► With the lapse of remission of stamp duties on the instrument relating to transfer of assets to the ASPV for approved asset securitisation transactions, sponsors of ASPVs will have to carefully consider stamp duty as a part of the transaction cost, if applicable.


Financial services

Current The Qualifying Debt Securities (QDS) scheme offers the following tax concessions on qualifying income from QDS:

► 10% concessionary tax rate for qualifying companies and bodies of persons in Singapore

► Tax exemption for qualifying non-residents and qualifying individuals

To qualify as QDS, debt securities must be substantiallyarrangedbyfinancialinstitutionsin Singapore.

The Qualifying Debt Securities Plus (QDS+) scheme grants tax exemption for all investors on qualifying income derived from QDS that are:

► Debt securities (excluding Singapore Government Securities) with an original maturity of at least 10 years

► Islamic debt securities or sukuk1

The QDS and QDS+ schemes are scheduled to lapse after 31 December 2018.

ProposedTo continue supporting the development of Singapore’s debt market, the QDS scheme will be extended till 31 December 2023.

As part of the government regular review of tax incentives, the QDS+ scheme will be allowed to lapse after 31 December 2018.

Extend the Qualifying Debt Securities incentive scheme and allow the Qualifying Debt Securities Plus incentive scheme to lapse

Debt securities with tenure beyond 10 years and Islamic debt securities that are issued:

► After 31 December 2018 can enjoy tax concessions under the QDS scheme if the conditionsoftheQDSschemearesatisfied

► On or before 31 December 2018 can continue to enjoy the tax concessions under the QDS+ scheme if the conditions of the QDS+ scheme aresatisfied


Points of view ► The QDS scheme is instrumental and continues to

add impetus to the development of Singapore’s corporate debt market. The extension of the scheme for another five years is indicative of the relevance and effectiveness of the scheme in enhancing and further promoting the development of the debt market.

► As a part of the government’s pragmatic approach of regularly reviewing and testing the relevance of tax incentives, the QDS+ scheme is allowed to lapse after 31 December 2018.

► The QDS+ scheme, which mainly catered to long term debt securities with tenure beyond 10 years and Islamic debt securities, had provided tax exemption to the investors on qualifying income, compared to the concessionary 10% tax rate on qualifying income under the QDS scheme. A similar tax exemption is also available for qualifying income from qualifying project debt securities, which specifically caters to long term infrastructure finance and was extended for the second time in 2017. This reflects Singapore’s focus on using tax incentives to encourage specific economic activities.

1Subject to the condition that any amount payable by the issuer to the investors of sukuk is not deductible against any income of the issuer accruing in or derived from Singapore.


Financial services

Current Tax exemption is granted on income derived by primary dealers from trading in Singapore Government Securities (SGS).

The tax exemption is scheduled to lapse after 31 December 2018.

ProposedTo strengthen our primary dealer network and encourage trading in SGS, the tax exemption on income derived by primary dealers from trading in SGS will be extended till 31 December 2023.

The MAS will release further details of the extension by May 2018.

Points of view ► As part of its strategy to develop Singapore as an

international debt hub, the MAS first introduced the above exemption in 1999 to enhance the efficiency and liquidity of the SGS market. The market has since grown significantly, making it one of the fastest developing bond markets in Asia.

► Tax exemption for income derived by a primary dealer from trading in SGS has since been renewed thrice and the proposed fourth extension by another five years is testimony of Singapore’s continued efforts to grow the SGS market.

Extend the tax exemption on income derived by primary dealers from trading in Singapore Government Securities


Financial services

Current Interest payments made by a tax resident or permanent establishment in Singapore to non-tax-residentsaresubjecttoWHTatarateof15%in general.

ThereisarangeofWHTexemptionsforthefinancialsectorwhichapplytodifferentfinancialinstitutionsfor payments made under different types of financialtransactions.

ProposedAs part of the government’s process to continually review tax concessions to ensure relevance and usefulness, the following changes are made:

a) To ensure that the relevance of the tax concessions is periodically reviewed, a review date of 31 December 2022 will be introduced for the WHT exemptions for the following payments:

► Payments made under cross currency swap transactions by Singapore swap counterparties to issuers of Singapore dollar debt securities

► Payments made under interest rate or currency swaptransactionsbyfinancialinstitutions

► Payments made under interest rate or currency swap transactions by the MAS

► Specifiedpaymentsmadeundersecuritieslending or repurchase agreements by specifiedinstitutions

b) The following WHT exemptions will be legislated, along with a review date of 31 December 2022:

► Interest on margin deposits paid by members of approved exchanges for transactions in futures

► Interest on margin deposits paid by members of approved exchanges for spot foreign exchange transactions (other than those involving the Singapore dollar)

Rationalise the withholding tax exemptions for the financial sector

The change in (b) will take effect for payments under agreements entered into on or after 20 February 2018.

c) The WHT exemptions for the following payments will be withdrawn:

► Interest from approved Asian Dollar Bonds

► Paymentsmadeunderover-the-counterfinancialderivative transactions by companies with Financial Sector Incentive-Derivatives Market (FSI-DM) awards that were approved on or before 19 May 2007

The change in (c) will take effect for payments under agreements entered into on or after 1 January 2019.

Unless the WHT exemptions under (a) and (b) are extended, the WHT exemptions will cease to apply to payments that are liable to be made under agreements entered into on or after 1 January 2023.

WHT exemptions will continue to apply to payments that are liable to be made on or after 1 January 2023 under agreements entered into on or before 31 December 2022. All other conditions of the schemes remain the same.

More details on the above are expected to be released by May 2018.


Financial services

Points of view ► The introduction of the sunset clause for the

exemptions under (a), (b) and (c) introduces potential uncertainty for the financial institutions relying on the above exemptions. The financial impact of such a sunset clause should be one of the key considerations for financial institutions as they plan their business. Accordingly, the additional details of the exemptions should be reviewed upon their release in May 2018.

► The scope of the WHT exemption has been broadened to include any members of approved exchanges, which do not qualify as financial institutionsasprescribedundersection45Iof the ITA and hence had not qualified for the exemption previously.

► The withdrawal of the exemption from WHT on interest from Asian Dollar Bonds should have minimal impact to financial institutions in view of the declining relevance of the Asian dollar bond market in Singapore. Similarly, as the FSI-DM awards approved on or before 19 May 2007 should have expired by now, the impact to financial institutions from the withdrawal of the WHT exemption on payments made on over-the-counter financial derivative transactions by companies with FSI-DM awards that were approved on or before 19 May 2007 should not be significant. Moreover, most FSI-DM companies are likely financial institutions and would have qualified for the exemption under the administrative concession.


6Miscellaneous


Miscellaneous

As a signal of Singapore’s commitment to reduce greenhouse gas (GHG) emissions, the intention to levy carbon tax with effect from 2019 was expressed in Budget 2017.

To encourage companies to reduce GHG emissions, the government announced in Budget 2018 that a carbon tax will be applied on facilities that produce 25,000tonnesormorecarbondioxide-equivalent(tCO2e) of emissions in a year.

Thecarbontaxwilltaketheformofafixed-pricecredits-based (FPCB) mechanism. Taxable facilities will pay the tax by purchasing and surrendering the number of carbon credits corresponding to their GHG emissions. These credits will be issued by National Environment Agency at the prevailing carbon tax rate.

Carbon tax

ThecarbontaxratewillbesetatS$5pertCO2eofemissionsfrom2019to2023.Thefirstpaymentofthe carbon tax will be in 2020, based on emissions in calendar year 2019.

The government will review the carbon tax rate by 2023, and intends to increase the rate to between S$10-S$15pertCO2eofemissionsby2030.

More details on the carbon tax framework will be announced by the Ministry of the Environment and Water Resources’ (MEWR) Committee of Supply. The Carbon Pricing Bill (CPB) also will be tabled in parliament in March 2018.


Miscellaneous

Points of viewHaving a credit-based mechanism provides the flexibilityforSingaporeandSingaporecompaniesto plug into any future globally accepted emissions trading scheme (ETS) or other national ETS. It is also a signal that Singapore recognises its global responsibility towards emission reduction and is therefore future-ready to support emissions reducing initiatives taken anywhere globally, once mutual recognition of ETS is put in place. Having said this, the MEWR has stated in its recent response to feedback by the public on the draft CPB that the linkage of Singapore’s carbon tax system to such ETS is not imminent.

To ensure that implementation of the carbon taxiseconomicallyefficient,thecarbontaxwill apply uniformly to all sectors without exemption. Uniformity in the tax rate ensures a fair and transparent carbon pricing and will send a consistent message to businesses across all sectors to build up their efforts to reduce carbon emissions. According to the National Climate Change Secretariat, there are about 41 companies that are responsible for 80 per cent of Singapore's greenhouse gas emissions and will have to pay carbon tax. These companies are mainly in power generation, wafer fabrication, semiconductor, waste management,pharmaceutical,petroleumrefiningand chemical sectors.

A phased approach to implementation of the carbon tax is taken, with an initial carbon tax rate ofS$5pertCO2eofemissionsfrom2019to2023coupled with a review of the carbon tax rate to be undertaken by 2023. Having the initial carbon tax rate lower than the range of S$10 to S$20 as announced during Budget 2017 is much welcomed as it will allow taxable facilities more time to adjust andimplementenergyefficiencyprojects.Alowerrate would also be less disruptive to the market and will not erode the competitiveness of the taxable facilities.

Subsequent review of the carbon rate will allow the government to consider international climate change developments, the progress of emission mitigation efforts of the affected companies as well as the impact of the carbon tax on the nation’s international economic competitiveness.

The introduction of the carbon tax also promises new opportunities for businesses. Businesses that are proactive in reducing carbon emissions willfindthemselvesbecomingmorecompetitiveas more countries impose tighter limits on their carbon emissions and international agreements take effect. New growth areas such as renewable energy and clean technology can also be explored. The carbon tax revenue to be collected can also be channelledtofundenergyefficiencymeasuresandinitiatives as well as innovative ventures in such new growth areas.

Undoubtedly, there will be an increase in compliance costs for the taxable facilities. The administration of the new tax including reporting requirements is designed to be straightforward, practical, and costefficient,tominimisethecomplianceburdenon the affected emitters. With this in mind, the carbon tax framework as proposed in the CPB is designed based on international standards to give clear guidance on the monitoring, reporting andverification.Further,whererelevant,existingprocedures and requirements under the Energy Conservation Act are also built into the CPB so as to minimise additional compliance burden on affected companies.


Miscellaneous

CurrentBuyer’s stamp duty (BSD) is payable on the purchase of immovable properties (residential and non-residential) at rates ranging from 1% to 3% as follows:

Purchase price or market value of property

Rates

First S$180,000 1%

Next S$180,000 2%

Amount exceeding S$360,000 3%

Additional conveyance duties for buyers (ACDB) of up to 18%, comprising the existing BSD at 1% to 3% and the highest rate of additional buyer’s stampdutyat15%,isalsoapplicableonqualifyingacquisitions of property-holding entities (PHE), whose primary tangible assets are Singapore residential properties. This ACDB is payable on top of the BSD payable on acquisition of shares.

Increase in buyer’s stamp duty on the value of residential property in excess of S$1m

ProposedTo improve the progressiveness of the stamp duty regime, the top marginal BSD rate on acquisition of residential properties will be increased from 3% to 4%. The following revised rates will apply to all residential properties acquired on or after 20 February 2018:

Purchase price or market value of residential property

Rates

First S$180,000 1%

Next S$180,000 2%

Next S$640,000 3%

Amount exceeding S$1,000,000 4%

New remissions rules are proposed along with the above adjustment to the BSD rate for the acquisition of:

► Residential properties during the transitional period

► Residential land for non-residential development

With the above increase in BSD rate, the top marginal rate of ACDB is correspondingly adjusted to 19%.

The BSD rate for non-residential properties remains the same.


Miscellaneous

Points of view ► The BSD rate was last amended more than 20

years ago in 1996 when it was reduced to keep pace with property price increases and to help lower business costs. With the change in social demographics of Singapore over the years, the current change is in line with the government’s plan to shift towards a more progressive tax system.

► As the new top marginal BSD rate of 4% will apply only when the value of the residential property acquired exceeds S$1m, the majority of Housing DevelopmentBoardflatpurchasesshouldnotbeaffected by this change. Coupled with the fact that the revised BSD rate will not apply to non-residential properties, it is quite clear that this change is designed to increase the tax incidence on the wealthy and improve the progressiveness of our stamp duty regime. It is also interesting to note that this increase comes at a time when there is a spate of collective or en-bloc sales of residential properties in Singapore.

► For illustration purposes, the BSD payable for a condominium unit worth S$2m will increase from S$54,600toS$64,600whilsttheBSDpayableforagoodclassbungalowworthS$25mwillincrease from S$744,600 to S$984,600.

► A transitional provision is available for cases where an Option to Purchase (OTP) has been granted on or before 19 February 2018. For such cases, the buyer may apply to the IRAS for a remission to apply the current BSD rates, instead of the revised BSD rates, if the OTP is exercised within three weeks of the proposed change (i.e., on or before 12 March 2018) or the OTP validity period, whichever is earlier.

► Asthedefinitionof“residentialproperty”forstampdutypurposesisnotonlyconfinedto units for residential usage but would also include land zoned as, amongst others, “residential”, “commercial and residential” and “white”, property developers who acquire such “residential land” for development purposes will also be affected by this BSD increase.

► It is therefore welcomed that the IRAS has also providedupfrontclarificationthatremissionforthis increase in BSD (by way of the difference of the BSD rates for residential and non-residential properties) may be available in the case where a buyer acquires (i) “residential land” that is wholly or partially restricted by the relevant authorities from residential use and development; or (ii) “residential land” that has no use restriction but the buyer wishes to build a 100% non-residential development on the land. This remission is subject to various conditions.

► The aforesaid remissions for the increase in BSD do not apply to the increase in ACDB in the case of an indirect acquisition of residential property via a PHE. For example, it may be possible that a prospective buyer is granted an option to purchase the PHE before 20 February 2018 but only exercises it thereafter. While such transactions may not be common, it is hoped that similar remissions for the increase in ACDB for indirect acquisitions of residential property can be considered on a case-by-case basis.


Miscellaneous

The Wage Credit scheme (WCS) was initially introduced in Budget 2013. It was extended for two years (2016and2017)inBudget2015togiveemployersmoretimetorestructureandtoadjusttorisingcostsinthe tight labour market.

The WCS is now extended for another three more years (2018 – 2020) to support businesses embarking on transformation efforts, and to encourage employers to share productivity gains with their workers.

Under the extended WCS, the government will continue to co-fund the following percentages of wage increases of Singaporean employees earning a gross monthly wage of up to S$4,000, subject to a minimum grossmonthlywageincreaseofS$50:

► ►20%ofqualifyingwageincreasein2018 ► 15%ofqualifyingwageincreasein2019 ► 10% of qualifying wage increase in 2020

Only wage increases given in 2017, 2018 and 2019 and sustained in subsequent years will be supported under the extended WCS.

As with the current scheme, employers do not need to apply for the credit. They will receive their annual payouts automatically at the end of March of the subsequent year.

Extension of the Wage Credit scheme

100100 100

100 100 100100 100 100 100

Table 1: Illustration of the extended WCS benefits

Gross monthly wage increase after 2016 (S$)

Amount co-funded by the Government (20%) under existing WCS

S$20/month

Amount co-funded by the Government under extension of WCS

20% X S$200 = S$40/month

15%XS$300=S$45/month

10% X S$400 = S$40/month

2017 2018 2019 2020


Miscellaneous

As part of the government’s continuing efforts to promote philanthropy and volunteerism with the aim to buildamorecaringandcohesivesocietyinSingapore,itisextendingthe250%taxdeductionforqualifyingdonations, and the Business and IPC Partnership Scheme (BIPS).

Extending the 250% tax deduction for qualifying donationsCurrently,donorsareeligiblefora250%taxdeductionforqualifyingdonationsmadetoInstitutionsof a Public Character (IPC) and other qualifying recipients from 1 January 2016 to 31 December 2018.

TocontinuetoencourageSingaporeanstogivebacktothecommunity,the250%taxdeductionforqualifying donations will be extended for another three years, for donations made on or before 31 December 2021.


Extending the BIPSUnderBIPS,businessescurrentlyenjoya250%taxdeductiononqualifyingexpenditureincurredfrom 1 July 2016 to 31 December 2018 in respect of:

► The provision of services by his qualifying employee to an IPC during that period

► The secondment of his qualifying employee to an IPC during that period

ThequalifyingexpenditureissubjecttoacapofS$250,000perbusinessperYAandS$50,000perIPCpercalendar year.

To continue supporting employee volunteerism through businesses, BIPS will be extended for another three years to 31 December 2021. The MoF and IRAS are currently reviewing the administrative processes for BIPS based on feedback and suggestions received. Details of any change will be announced in the second half of 2018.

Encouraging a spirit of giving


Miscellaneous

Deferring foreign worker levy changes

The planned increase in foreign worker levy for the Marine Shipyard and Process sectors will be further deferred for one more year from 1 July 2018 to 30 June 2019 due to continued weakness in these sectors.

The levy rates for Marine Shipyard sector for Basic tier R1 (higher-skilled) and R2 (basic-skilled) workers will remain at S$300 and S$400 respectively. The levy rates for Process sector Basic tierR2(basic-skilled)workerswillremainatS$450,whilst the Man-Year Entitlement Waiver tier R2 workerswillremainatS$750.

Foreign worker levy rates for all other sectors and for S pass holders will remain unchanged.


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We provide you with effective processes to help improve your day-to-day reporting for indirect tax, reducing attribution errors, reducing costs and ensuring indirect taxes are handled correctly. We can support full or partial GST compliance outsourcing, identify the right partial exemption method and review accounting systems.

International Tax ServicesInternational Tax Services Executives are constantly looking to align their global tax position with their overall business strategy. We can help you manage your tax responsibilities by leveraging the global EY network of dedicated international tax professionals — working together to help you manage global tax risks, meet cross-border reporting obligations and deal with transfer pricing issues.

EY’s multidisciplinary teams can help you assess your strategies, assisting with international tax issues, from forward planning through reporting, to maintaining effective relationships with the tax authorities. We can help you build proactive and integrated global tax strategies that address the tax risks of today’s businesses and achieve sustainable growth.

Global Tax Desk Our market-leading Global Tax Desk network — a co-located team of highly experienced professionals from multiple countries — is located strategically in major business centers so that our desks can respond to your challenges immediately and cost-effectively, avoiding time zone barriers and the high price of international travel.

The desks work as a team — tackling the same problem from all sides — thoughtfully identifying considerations with your cross-border transaction. We work with you to help you manage global operational changes and transactions, capitalisation and repatriation issues, transfer pricing and your supply chain — from forward planning, through reporting, to maintaining effective relationships with tax authorities.

Transfer Pricing Our Transfer Pricing professionals help you build, manage, document, review and defend your transfer pricing policies and processes — aligning them with your business strategy.

Here’s how we can help you:

• Strategy and policy development• Governance optimisation and decision

making process to help:• Reduce impact of year-end adjustments• Monitor transfer pricing footprint• Coordinate across organisation

• Global or regional assistance to support transitions to new documentation requirements

• Controversy risk assessment, remediation or mitigation as a result of documentation requirements

• Global transfer pricing controversy and risk management

Operating Model Effectiveness Our multi-disciplinary Operating Model Effectiveness teams work with you on operating model design, business restructuring, systems implications, transfer pricing, direct and indirect tax, customs, humanresources,financeandaccounting.Wecan help you build and develop the structure that makes sense for your business, improve your processes and manage the cost of trade.

People Advisory ServicesAs the world continues to be impacted by globalisation, demographics, technology, innovation and regulation, organisations are under pressure to adapt quickly and build agile people cultures that respond to these disruptive forces. EY People Advisory Services believes a better working world is helping our clients harness their people agenda — the right people, with the right capabilities, in the right place, for the right cost, doing the right things.

We work globally and collaborate to bring you professional teams to address complex issues relating to organisation transformation, end-to-end employee lifecycles, effective talent deployment and mobility, gaining value from evolving and virtual workforces, and the changing role of HR in support of business strategy. Our EY professionals ask better questions and work with clients to create holistic, innovative answers that deliver quality results.

Transaction Tax ServicesEvery transaction has tax implications, whether it’s an acquisition, disposal, refinancing,restructuringorinitialpublicoffering. Understanding these implications can mitigate transaction risk, enhance opportunity and provide crucial negotiation insights. Transaction Tax Services comprises a worldwide network of professional advisors who can help you navigate the tax implications of your transaction. We mobilise wherever needed, assembling personalised, highly integrated global team, to work with you throughout the transaction life cycle, from initial due diligence through post-deal implementation. And we can suggest structuring alternatives to balance investor sensitivities, promote exit readiness and raise opportunities for improved returns.


If you would like to know more about our services or the issues discussed, please contact:

EY Tax leadership

Singapore Tax Partners, Executive Directors and Directors

Business Tax Services

Angela [email protected]

Lim Gek [email protected]

Russell [email protected]

Helen [email protected]

Choo Eng [email protected]

Goh Siow [email protected]

Lim Joo [email protected]

Ang Sau [email protected]

Toh Ai [email protected]

Toh [email protected]

Tax Policy and ControversyChung-Sim Siew [email protected]

Business Incentives AdvisoryTan Bin [email protected]

Private Client ServicesKoh Chin [email protected]

Global Compliance and Reporting

Soh Pui [email protected]

Chai Wai [email protected]

Chia Seng [email protected]

Ivy [email protected]

Tan Ching [email protected]

Teh Swee [email protected]

Nadin [email protected]

Chionh Huay [email protected]

Grace [email protected]

Corporate ServicesDavid [email protected]

Financial Services Organisation

Amy [email protected]

Stephen [email protected]

Desmond [email protected]

Louisa [email protected]

Mriganko [email protected]

Moong Jee [email protected]

Helen [email protected]

Michele [email protected]

Rajesh [email protected]

Indirect Tax

Global TradeAdrian [email protected]

GST ServicesYeo Kai [email protected]

Chew Boon [email protected]

Chung-Sim Siew Moon Partner and Head of Tax [email protected]

International Tax Services

International TaxChester [email protected]

Wong Hsin [email protected]

Aw Hwee [email protected]

Transfer PricingLuis [email protected]

Stephen [email protected]

Jonathan Bé[email protected]

Sharon [email protected]


Real Estate Lim Gek [email protected]

Ivy [email protected]

Technology, Media and Telecommunications Chia Seng [email protected]

Resources Angela [email protected]

Consumer Products & Retail Soh Pui [email protected]

Life SciencesTan Ching Khee [email protected]

Diversified Industrial Products Russell [email protected]

Government & Public SectorTan Bin [email protected]

HospitalityHelen [email protected]

ShippingGoh Siow [email protected]

Emerging & Private EnterpriseChai Wai [email protected]

China Overseas Investment NetworkTan Ching [email protected]

InsuranceAmy [email protected]

Wealth & Asset ManagementDesmond [email protected]

Banking & Capital MarketsStephen [email protected]

Indirect Tax — Global Trade Donald Thomson [email protected]

Indirect Tax — GSTTracey Kuuskoski [email protected]

Life SciencesRichard Fonte [email protected]

Operating Model EffectivenessEdvard [email protected]

Nick [email protected]

Paul [email protected]

Braedon [email protected]

People Advisory Services

MobilityGrahame [email protected]

Kerrie [email protected]

Panneer [email protected]

Sarah [email protected]

Wu Soo [email protected]

Tina [email protected]

Grenda [email protected]

Pang Ai [email protected]

Talent and RewardSamir [email protected]

Transaction Tax

Darryl Kinneally [email protected]

Sandie Wun [email protected]

Asia-Pacific Tax Centre

India Tax DeskGagan Malik [email protected]

UK Tax DeskBilly Thorne [email protected]

Korea Tax DeskChung Hoon Seok [email protected]

Japan Tax DeskHiroki [email protected]

US Tax DeskGarrett Davidson [email protected]

Industry sectors


Glossary of termsThefollowingdefinitionsapplythroughoutthisbudgetsynopsisunlessotherwisestated:

Comptroller – Comptroller of Income Tax EDB – Singapore Economic Development BoardFYE – Financial year endGST – Goods and services taxIE Singapore – International Enterprise Singapore IRAS – Inland Revenue Authority of SingaporeITA – Income Tax ActMAS – Monetary Authority of SingaporeMinister – Minister for Finance OECD – Organisation for Economic Co-operation and DevelopmentPIC – Productivity and Innovation Credit R&D – Research and developmentREITs ETFs – Singapore-listed Real Estate Investment Trusts Exchange-Traded FundsS-REITs – Singapore-listed Real Estate Investment TrustsSME – Small-and-medium enterpriseSPRING – Standards, Productivity and Innovation Board (SPRING Singapore) VAT – Value added tax YA – Year of Assessment


Tax thought leadership Ernst & Young Solutions LLP’s Tax sources aims to give you insights on the tax issues that matter in today’s fast-changingbusinessenvironment.Tofindouthowthese tax issues impact your business, read You and the Taxman.

Past issues of You and the Taxman can be downloaded from www.ey.com/SG/en/Services/Tax/Library---You-and-the-taxman

You and the Taxman Issue 4, 2017

You and the Taxman Issue4,2015








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EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com.

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Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A)

In line with EY’s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

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