Overview of Tax Changes – Singapore Budget 2023
BusinessesEnhance the Double Tax Deduction for Internationalisation (DTDi) Scheme
E-commerce is an increasingly important and relevant mode of overseas expansion for businesses. To support businesses in their efforts to overcome initial challenges and build up capabilities in internationalising via e-commerce, the scope of the DTDi scheme will be enhanced to include a new qualifying activity "e-commerce campaign" and cover the following e-commerce campaign startup expenses paid to e-commerce platform/service providers:
- Business advisory: Advisory on market promotion and execution plans (e.g., choice of suitable e-commerce platforms);
- Account creation: Assistance with setting up accounts on e-commerce platforms, and the right to sell on e-commerce platforms;
- Content creation: Design of e-commerce campaign publicity materials (e.g., e-store banners, online product images); and
- Product listing and placement: Uploading content on products/services to e-commerce platforms, and selection of suitable frequency and timing to display content on products/services.
Prior approval is required from EnterpriseSG to enjoy DTDi on the new qualifying activity. For each business, EnterpriseSG will only approve DTDi support for e-commerce campaigns for a maximum period of one year applied on a per-country basis.
The above enhancement will take effect for qualifying e-commerce campaign startup expenses incurred on or after 15 February 2023. EnterpriseSG will provide further details of the changes by 28 February 2023.
Implement the Global Anti-Base Erosion (GloBE) Rules (i.e., Income Inclusion Rule and Undertaxed Profits Rule) and Domestic Top-up Tax (DTT)
Singapore plans to implement the GloBE rules and DTT from the financial year starting on or after 1 January 2025. The Government will continue to monitor international developments and adjust the implementation timeline as needed if there are delays internationally. The Government will also continue to engage businesses and provide them with sufficient notice ahead of any rules becoming effective.
Introduce the Enterprise Innovation Scheme (EIS)
To encourage businesses to engage in R&D, innovation and capability development activities, the following suite of tax measures will be enhanced or introduced under the EIS:
- Enhance the tax deduction to 400% for the first SGD 400,000 of staff costs and consumables incurred on qualifying R&D projects conducted in Singapore for each Year of Assessment (YA) from YA2024 to YA2028.
- Enhance the tax deduction to 400% for the first SGD 400,000 of qualifying IP registration costs incurred per YA from YA2024 to YA2028.
- Enhance the tax allowance/deduction to 400% for the first SGD 400,000 (combined cap) of qualifying expenditure incurred on the acquisition and licensing of IP rights per YA from YA2024 to YA2028. This enhancement will only be available to businesses that generate less than SGD 500 million in revenue in the relevant YA.
- Enhance the tax deduction to 400% for the first SGD 400,000 of qualifying training expenditure incurred on qualifying courses (i.e. courses that are eligible for SkillsFuture Singapore (SSG) funding and aligned with the Skills Framework) per YA from YA2024 to YA2028.
- Introduce a 400% tax deduction for up to SGD 50,000 of qualifying innovation expenditure incurred on qualifying innovation projects carried out with polytechnics, the Institute of Technical Education, and other qualified partners per YA from YA2024 to YA2028.
- Allow businesses to, in lieu of tax deductions/allowances, opt for a non-taxable cash payout at a cash conversion ratio of 20% on up to SGD 100,000 of total qualifying expenditure across all qualifying activities in the above points per YA. The cash payout option will be capped at SGD 20,000 per YA, and will only be available to businesses that have at least three full-time local employees (Singapore Citizens or Permanent Residents with CPF contributions) earning a gross monthly salary of at least SGD 1,400 in employment for six months or more in the basis period of the relevant YA.
- The sunset dates for section 14A (Deduction for costs of protecting IP), section 14C (Deduction for qualifying expenditure on R&D), section 14D (Enhanced deduction for qualifying expenditure on R&D), section 14U (Enhanced deduction for expenditure on licensing IP rights) and section 19B (Writing-down allowance for capital expenditure on acquiring IP rights) of the Income Tax Act 1947 (ITA) will be extended till YA2028, in line with the above enhancements.
Provide an Option to Accelerate the Write-off of the Cost of Acquiring Plant and Machinery (P&M)
In the basis period for YA2024 (i.e., financial year ending in 2023), businesses will have an option to accelerate the write-off of the cost of acquiring P&M over two years. This option, if exercised, is irrevocable.
The rates of accelerated capital allowance (CA) allowed are as follows:
- 75% of the cost incurred to be written off in the first year (i.e., YA2024); and
- 25% of the cost incurred to be written off in the second year (i.e., YA2025).
The above option will be in addition to the options currently available under sections 19 and 19A of the ITA.
No deferment of CA claims is allowed under the option. This means that if a business opts for the accelerated write-off option, it needs to claim the capital expenditure incurred for acquiring P&M based on the rates of 75% (in YA2024) and 25% (in YA2025) over the two consecutive YAs.
Provide an Option to Accelerate the Deduction for Renovation or Refurbishment (R&R) Expenditure
To provide temporary broad-based support to businesses during this period of restructuring, businesses that incur qualifying expenditure on R&R during the basis period for YA2024 (i.e., financial year ending in 2023) will have an option to claim R&R deduction in one YA (i.e., accelerated R&R deduction). The cap of SGD 300,000 for every relevant period of three consecutive YAs will still apply. This option, if exercised, is irrevocable. This option will be in addition to the existing option currently available under section 14N of the ITA.
Extend the Investment Allowance (IA) Scheme
To continue encouraging businesses to make capital investments in plant and productive equipment in Singapore, the IA scheme will be extended till 31 December 2028.
Extend the IA-100% Scheme for Automation Projects
To continue to encourage businesses to transform through automation, the IA-100% scheme will be extended till 31 March 2026, with the same parameters.
Extend the Pioneer Certificate Incentive (PC) and Development and Expansion Incentive (DEI)
To continue encouraging companies to anchor and grow strategic high value-added manufacturing and services activities in Singapore, the PC and DEI will be extended till 31 December 2028.
Extend the IP Development Incentive (IDI)
To continue supporting the use and commercialisation of IP rights arising from R&D activities in Singapore, the IDI will be extended till 31 December 2028.
Extend and Refine the Qualifying Debt Securities (QDS) Scheme
To continue supporting the development of Singapore's debt market, the QDS scheme will be extended till 31 December 2028. The scope of qualifying income under the QDS scheme will be streamlined and clarified such that it includes all payments in relation to the early redemption of a QDS. To ensure continued relevance, the requirement that the QDS has to be substantially arranged in Singapore will be rationalised, as follows:
- For all debt securities that are issued on or after 15 February 2023, they must be substantially arranged in Singapore by a financial institution holding a specified licence (instead of a Financial Sector Incentive (FSI) company).
- For insurance-linked securities (ILS) that are issued on or after 1 January 2024, if they are unable to meet the condition in (a) above, at least 30% of the ILS issuance costs incurred by the issuer must be paid to Singapore businesses.
All other conditions of the scheme remain the same. The Monetary Authority of Singapore (MAS) will provide further details by 31 May 2023.
Extend the Tax Exemption on Income Derived by Primary Dealers from Trading in Singapore Government Securities (SGS)
To continue supporting primary dealers and encourage trading in SGS, the tax exemption on income derived by primary dealers from trading in SGS will be extended till 31 December 2028. All other conditions of the scheme remain the same.
Extend and Refine the Tax Incentive Scheme for Approved Special Purpose Vehicle (ASPV) Engaged in Asset Securitisation Transactions (ASPV scheme) and Introduce a New Sub-scheme to Support Covered Bonds
To continue developing the structured debt market, the ASPV scheme will be extended till 31 December 2028. Instead of a fixed rate of 76%, the GST recovery rate will be the prevailing GST recovery rate/methodology accorded to licensed full banks under MAS for the specific year in question. All other tax concessions and conditions of the ASPV scheme remain the same. Further, to support the issuance of covered bonds in Singapore, a new sub-scheme named ASPV (Covered Bonds) will be introduced for the special purpose vehicle holding the "cover pool" in relation to the covered bonds as defined in MAS Notice 648. The ASPV (Covered Bonds) scheme will take effect from 15 February 2023 to 31 December 2028 and will be administered by MAS. MAS will provide further details by 31 May 2023.
Extend and Refine the Financial Sector Incentive (FSI) Scheme
To continue supporting the growth of financial sector activities in Singapore, the FSI scheme will be extended and refined as follows:
- The FSI scheme will be extended till 31 December 2028.
- The existing concessionary tax rates will be streamlined to two tiers of 10% and 13.5% for new and renewal awards approved on or after 1 January 2024, as follows:
- FSI-Capital Market, FSI-Derivatives Market and FSI-Credit Facilities Syndication – from 5% to 10%;
- FSI-Fund Management and FSI-Headquarter Services – remain at 10%;
- FSI-Trustee Companies – from 12% to 13.5%; and
- FSI-Standard Tier – remain at 13.5%.
- The qualifying activities will be updated to ensure continued relevance.
MAS will provide further details of the changes by 31 May 2023.
Under the FSI-Headquarter Services, Withholding Tax exemption is granted on interest payments made to qualifying non-residents during the award tenure on qualifying loans. The Withholding Tax exemption will similarly be extended till 31 December 2028.
Extend the Insurance Business Development – Insurance Broking Business (IBD-IBB) Scheme
To further strengthen Singapore's position as a leading insurance and reinsurance centre, the IBD-IBB scheme will be extended till 31 December 2028. All other conditions of the scheme remain the same.
Extend the Tax Concession for Deduction of General Provisions for Doubtful Debts and Regulatory Loss Allowances Made in Respect of Noncredit-impaired Financial Instruments for Banks (Including Merchant Banks) and Qualifying Finance Companies
To continue to promote the overall robustness and stability of the Singapore financial system, the tax deduction under section 14G of the ITA will be extended till YA2029 (for banks, merchant banks, and qualifying finance companies with a 31-December FYE) or YA2030 (for banks, merchant banks, and qualifying finance companies with a non-31-December FYE).
Extend Three Tax Measures Relating to Submarine Cable Systems
Currently, there are three tax measures relating to submarine cable systems:
- Withholding Tax exemption on payments made to non-residents for use of international telecommunications submarine cable capacity under indefeasible right to use (IRU) agreements. This is scheduled to lapse after 31 December 2023.
- Writing-down allowance for the acquisition of an IRU over its useful life. This is scheduled to lapse after 31 December 2025.
- IA for the construction and operation of submarine cable systems in Singapore. This is scheduled to lapse after 31 December 2023.
To maintain and enhance Singapore's international connectivity, all three tax measures will be extended till 31 December 2028, with the same parameters.
Withdraw the Tax Deduction for Expenditure Incurred on Building Modifications for Benefit of Disabled Employees
The scheme will be withdrawn from 15 February 2023. Introduced in Budget 1989, the scheme has become less relevant over the years. Since then, other support schemes (e.g., the Open Door Programme Job Redesign Grant) have been introduced to help employers recruit and retain disabled employees, or to support employers for accommodations beyond (and including) physical modifications of the workplace. Section 14N on tax deductions for Renovation and Refurbishment, introduced in Budget 2008, can also be tapped upon for workplace modifications without the need for prior approval from government agencies.
Income Tax Changes for Businesses, Individuals and Bodies of Persons
Extend the 250% Tax Deduction for Qualifying Donations to Institutions of Public Character (IPCs) and Eligible Institutions
To continue encouraging Singaporeans to give back to the community, we will extend the 250% tax deduction to qualifying donations made from 1 January 2024 to 31 December 2026. All other conditions of the scheme remain the same.
Extend and Enhance the Corporate Volunteer Scheme (CVS)
- To continue supporting corporate volunteering, we will extend the 250% tax deduction on qualifying expenditure incurred under the CVS until 31 December 2026.
- The scope of qualifying volunteering activities will be expanded to include activities that are conducted virtually (e.g., online mentoring and tuition support for youths/children) or outside of the IPCs' premises (e.g., refurbishment of rental flats).
- The cap on qualifying expenditure per IPC per calendar year has been doubled to SGD 100,000. The above enhancements will take effect from 1 January 2024. All other conditions of the scheme remain the same.
With effect from 1 April 2023, the scheme will be renamed from the Business and IPC Partnership Scheme (BIPS) to CVS.Source: IRAS.gov.sg