The Ministry of Finance has proposed a number of amendments to the Income Tax Act 1947 (ITA) comprising 14 amendments to revise existing policies, improve tax administration and align Singapore income tax laws with international tax developments, along with 19 amendments to give effect to tax measures previously announced in the 2023 Budget Statement. The proposed amendments are set out in the draft Income Tax (Amendment) Bill 2023 and a consultation exercise is currently underway (from 6 to 30 June 2023). The relevant documents for the public consultation are available here.
The key non-Budget 2023-related amendments are summarized below:
- to align the tax treatment of disposal gains derived from the sale of foreign assets (including movable and immovable property) with the European Union Code of Conduct Group guidance, a proposed new section 10L of the ITA will deem such gains received in Singapore on or after 1 January 2024 by entities of multinational enterprise (MNE) groups that lack economic substance in Singapore as taxable income under section 10(1)(g) of the ITA, regardless of whether the gains are capital in nature or not. This provision will not apply to such gains derived by:
- prescribed financial institutions;
- entities that qualify for certain prescribed incentive schemes under the ITA or the Economic Expansion Incentives (Relief from Income Tax) Act 1967;
- excluded entities (i.e. pure equity-holding entities or non-pure equity-holding entities that satisfy certain prescribed conditions); and
- for a non-pure equity-holding entity to qualify as an excluded entity, it must carry out a trade, business or profession in Singapore, have its operations managed or performed in Singapore (by employees or third parties), and have "reasonable economic substance" in Singapore (taking into account the number, qualification and experience of the entity's employees, the amount of business expenditure incurred by the entity in Singapore, and whether its key business decisions are taken in Singapore);
- under the proposed new section 68A of the ITA, certain prescribed classes of persons (intended to cover intermediaries such as commission-paying agencies and taxi or platform operators) must directly submit to the Comptroller of Income Tax the earnings information of self-employed persons (SEPs) with whom they have entered into an agreement or arrangement for carrying out any trade, business, vocation or profession;
- with effect from year of assessment (YA) 2024, the fixed expense deduction ratio (FEDR) will be extended under the proposed new section 14ZH of the ITA to cover SEPs who are delivery workers earning gross annual revenue of up to SGD 50,000. Such SEPs will be allowed to deduct expenses incurred based on a fixed percentage of gross income earned depending on the delivery mode (i.e., by van, by personal mobility devices or motorcycles, or by bicycles or on foot);
- the Comptroller (in addition to the Public Prosecutor) may exercise discretion to authorize:
- the commencement of prosecution of offences relating to the Automatic Exchange of Information (AEOI) provisions in the ITA; and
- officers to compound AEOI offences that are compoundable under the ITA; and
- the income of an estate under administration (EUA) may be assessed at the beneficiary level if the income is distributed to the beneficiary within the same calendar year of receipt or any longer period allowed by the Comptroller (as the case may be). Additionally, the Amendment Bill will equalize the tax treatment of an EUA and an estate held in trust (EHT) by allowing a Singapore tax resident beneficiary of an EUA to enjoy the same concessionary tax rates, tax exemptions and foreign tax credits as those currently granted to a Singapore tax resident beneficiary of an EHT.
It was previously announced during the Budget 2023 that Singapore intends to implement the Pillar Two Global Anti-Base Erosion (GloBE) rules of the OECD Base Erosion and Profit Shifting (BEPS) 2.0 project and a domestic tax to top-up the effective tax rate of large MNE groups operating in Singapore, from businesses' financial year commencing on or after 1 January 2025. The Amendment Bill, however, does not contain any amendments to give effect to the GloBE rules.