Tax Incentives in Singapore

Leading through uncertainty Singapore Budget Commentary 2013

Foreword
Greetings from your tax team at Deloitte. The Minister for Finance presented the 2013 Budget Statement on 25 February 2013 and we are pleased to provide our commentary on the tax and certain other changes proposed therein. Overall, Budget 2013 offers various tax measures and sets out the strategies to achieve quality growth and build an inclusive society for Singapore. The tax measures are further explored in our commentary. It should be noted that the commentary is our interpretation of the changes proposed in the Budget Statement. As the proposals are yet to be enacted, and the legislation to enact the proposals is yet to be published, our comments in this commentary should not be considered definitive and should, therefore, be used only as a guide. If you need any clarification or advice, please contact your usual tax advisors at Deloitte. We hope you will find this commentary useful.

Contents
Summary
Proposed business tax changes Proposed personal tax changes Others 1 2 2

Business tax
Corporate income tax rebate Productivity and Innovation Credit (PIC) Scheme Enhancements to Financial Sector Incentive (FSI) Scheme Extending and redefining Qualifying Debt Securities (QDS) and QDS+ Incentive Schemes Extending the tax exemption on income derived by primary dealers from trading in Singapore Government Securities (SGS) Extending the Approved Special Purpose Vehicle Scheme (ASPV Scheme) Enhancement of Specialised Insurance Tax Incentive Scheme Extending the maximum tenure of the Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award Rationalising the Start-Up Tax Exemption (SUTE) Scheme Expiration of the deduction scheme for upfront land premium Expiration of the further tax deduction scheme for expenses incurred in relocation or recruitment of overseas talent Expiration of Offshore Insurance Business Scheme for Islamic Insurance and Reinsurance Expiration of the Tax Incentive Scheme for Family-Owned Investment Holding Companies Withdrawal of Overseas Enterprise Incentive (OEI) Scheme Withdrawal of the Approved Cyber Trader (ACT) Scheme Enhancement of tax incentives for insurance and reinsurance brokers 15 15 16 16 16 17 13 14 15 12 12 13 3 4 8 9

Personal tax
Personal tax rates / Personal tax rebate Rationalising the taxation of accommodation benefits Phasing out the Equity Remuneration Incentive Scheme (ERIS) Changes to CPF contribution rates for lower-income workers 18 18 19 21

Others
Increase in excise taxes for tobacco products Progressive property tax rates for residential properties Removal of property tax refund concession for vacant properties Road tax rebate Reducing concessionary foreign domestic worker levy New tiered Additional Registration Fee structure for vehicles Wage Credit Scheme (WCS) Renewal of COE for Commercial Vehicles 22 23 24 25 25 26 26 27

Appendices
A B C D E F Singapore corporate tax rates for the YAs 1959 to 2013 Comparison of current corporate tax rates in selected countries Comparative personal effective tax rates Rates of income tax for resident individuals for YA 2013 Personal reliefs for YA 2013 Comparative standard VAT / GST rates – 2013 28 29 30 31 32 39

Common abbreviations
CA COE CPF CIT EDB EEIA GST IRAS HDB IE Singapore IPR ITA JTC MAS MPA MoF PIC PE R&D SME SPR YA : Capital Allowance : Certificate of Entitlement : Central Provident Fund : Comptroller of Income Tax : Economic Development Board : Economic Expansion Incentives (Relief from Income Tax) Act : Goods & Services Tax : Inland Revenue Authority of Singapore : Housing & Development Board : International Enterprise Singapore : Intellectual Property Right : Income Tax Act : Jurong Town Corporation : Monetary Authority of Singapore : Maritime Port Authority of Singapore : Ministry of Finance : Productivity and Innovation Credit : Permanent Establishment : Research and Development : Small and Medium Enterprise : Singapore Permanent Resident : Year of Assessment

Summary
Proposed business tax changes
Effective: Immediate • • • • • Extending the tax exemption on income derived by primary dealers from trading in Singapore Government Securities (SGS) Extending the Approved Special Purpose Vehicle Scheme (ASPV Scheme) Enhancement of Specialised Insurance Tax Incentive Scheme Withdrawal of Overseas Enterprise Incentive (OEI) Scheme Withdrawal of the Approved Cyber Trader (ACT) Scheme

Effective: For start-ups incorporated from 26 February 2013 • Rationalising the Start-Up Tax Exemption (SUTE) Scheme

Effective: 28 February 2013 • Expiration of the deduction scheme for upfront land premium

Effective: 31 March 2013 • • Expiration of Offshore Insurance Business Scheme for Islamic Insurance and Reinsurance Expiration of the Tax Incentive Scheme for Family-Owned Investment Holding Companies

Effective: 1 April 2013 • Enhancement of tax incentives for insurance and reinsurance brokers

Effective: 30 September 2013 • Expiration of the further tax deduction scheme for expenses incurred in relocation or recruitment of overseas talent

Effective: 1 January 2014 • Extending and redefining Qualifying Debt Securities (QDS) and QDS+ Incentive Schemes

Effective: YA 2013 to YA 2015 • • • Corporate income tax rebate Productivity and Innovation Credit (PIC) Scheme Liberalisation of PIC automation equipment (YA 2013)

Effective: Various • Enhancements to Financial Sector Incentive (FSI) Scheme

Effective: Details to be announced by MPA • Extending the maximum tenure of the Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award

Singapore Budget Commentary 2013 1

Proposed personal tax changes
Effective: 15 February 2013 • Phasing out the ERIS (Start-Ups)

Effective: 31 December 2013 • • Phasing out the ERIS (All Corporations) and (SMEs) Changes to CPF contribution rates for lower-income workers

Effective: YA 2015 • Rationalising the taxation of accommodation benefits

Others
Effective: Immediate • Increase in excise taxes of between 1.5% and 25% for tobacco products

Effective: 26 February 2013 or first bidding exercise, March 2013 • New tiered Additional Registration Fee structure for vehicles

Effective: 1 March 2013 • Reducing concessionary foreign domestic worker levy

Effective: 1 July 2013 • Road tax rebate

Effective: Years 2013 to 2015 • Wage Credit Scheme (WCS)

Effective: 1 January 2014 • Removal of property tax refund concession for vacant properties

Effective: 1 January 2014 and 1 January 2015 • Progressive property tax rates for residential properties

Effective: To be announced • Renewal of COE for Commercial Vehicles

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Business tax
The Deputy Prime Minister and Minister for Finance (the Minister) delivered his 2013 Budget Statement on 25 February 2013. He reported that the Singapore economy grew by 1.3% in 2012. For 2013, the Government expects Singapore’s GDP growth to remain modest at between 1% and 3%. The Minister commented that the principal focus of this year’s budget is to gear towards achieving quality growth, mainly through innovation and higher productivity, which will benefit all Singaporeans. The Government is also taking major steps to build a fair and more inclusive society.

Corporate income tax rebate
The Minister did not propose any change in corporate tax rate. The Singapore corporate tax rate is currently 17%. The first $300,000 of chargeable income is, however, partially exempt from tax as follows: Chargeable income (CI) For every dollar of the first $10,000 For every dollar of the next $290,000 For every dollar exceeding $300,000 Portion of CI exempt from tax 75% 50% Portion of CI subject to tax 25% 50% 100%

Recognising that on top of high manpower costs, businesses also face other rising costs such as higher rentals, the Government has announced a special corporate income tax rebate from YA 2013 to YA 2015 to help businesses relieve their business costs. This rebate will be based on 30% of the tax payable up to a maximum rebate of $30,000 per YA. Based on the above, the effective tax rate for companies with chargeable income of, say, $500,000 is about 8.27%. Description Chargeable income (B) Less: Exempt income - 75% of first $10,000 - 50% of next $290,000 Chargeable income (after exempt income) (7,500) (145,000) 347,500 $ 500,000

Tax thereon @ 17% Less: 30% corporate income tax rebate Tax payable (A)

59,075.00 (17,722.50) 41,352.50

Effective tax rate (A/B)

8.27%

Effective: YA 2013 to YA 2015

Singapore Budget Commentary 2013 3

Productivity and Innovation Credit (PIC) Scheme
The PIC scheme was first introduced in Budget 2010 and further enhanced in Budget 2011 and Budget 2012. It is aimed to encourage businesses to invest in productivity and innovation with the objective of attaining long term sustainable productivity-driven economic growth. Not surprisingly, it remains a major thrust of Budget 2013 as the Government continues to encourage businesses to intensify the efforts to achieve quality growth rather than manpower-driven growth. The PIC scheme is a broad-based tax scheme granting a total of 400% tax deduction or allowance for the first $400,000 of qualifying expenses incurred from YA 2011 to YA 2015 on each of the following 6 qualifying activities along the innovation value chain: (a) (b) (c) (d) (e) (f) R&D; acquisition of IPRs; registration of IPRs; approved industrial or product design projects undertaken primarily in Singapore; acquisition or leasing of qualifying PIC automation equipment; and training provided to employees so as to upgrade skills and capabilities.

The enhanced deduction or allowance under the PIC scheme is available for a period of 5 years, subject to the following expenditure cap: (a) (b) YA 2011 and YA 2012 – a combined expenditure cap of $800,000 applies for each of the qualifying activities; and YA 2013 to YA 2015 – a combined expenditure cap of $1,200,000 applies for each of the qualifying activities.

Businesses (including sole proprietors and partnerships) can also make an irrevocable option to convert the qualifying expenditure into cash, subject to a minimum qualifying expenditure of $400 per application. For the YA 2013 to YA 2015, the conversion rate is 60%, subject to a maximum expenditure cap of $100,000 (i.e. maximum cash payout of up to $60,000) per YA if they have: (a) (b) (c) incurred qualifying expenditure under the PIC during the basis period; active business operations in Singapore; and minimum three local employees (Singapore citizens or SPRs) in respect of whom the businesses have contributed CPF in the last month of the basis period for a relevant qualifying YA or last month of the financial quarter, as the case may be.

The cash payout application can be made after the end of each financial quarter or combined consecutive quarters in the business’ financial year. Once a qualifying expenditure is converted into cash, the same amount is no longer available for tax deduction or allowance. The cash payout quantum cannot be combined on expenditure across the 3 YAs (i.e. YA 2013 to YA 2015) and the cash payout is tax exempt.

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To further encourage businesses to boost their productivity and innovation, the Minister has proposed to enhance the existing PIC scheme in 3 main areas: (a) (b) (c) cash bonus for participating firms; IP in-licensing; and liberalisation of qualifying PIC automation equipment.

PIC Bonus To encourage small businesses to undertake meaningful productivity investments, businesses that invest a minimum of $5,000 per YA in qualifying activities under the PIC scheme will receive a dollar-for-dollar matching cash bonus subject to an overall cap of $15,000 for all 3 YAs combined. The cash bonus will be paid over and above the existing PIC benefits of: (a) (b) 400% PIC tax deductions/allowances up to $400,000 in expenditure for each PIC qualifying activity; and/or cash payout at 60% on up to a maximum expenditure cap of $100,000 of the qualifying expenditure.

Businesses (including sole proprietors and partnerships) qualifying for the PIC Bonus are those that have: (a) incurred at least $5,000 in PIC qualifying expenditure (net of grant or subsidy by the Government or any statutory board) during the basis period for the YA in which a PIC Bonus is claimed; active business operations in Singapore; and at least 3 local employees (Singapore citizens or SPRs with CPF contributions) excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company. A business is considered to have met the 3 local employees condition if it contributes CPF on the payroll of at least 3 local employees: (i) in the last month of the basis period for the YA to which the deductions/allowances relate where 400% tax deductions/allowances on qualifying PIC expenditure are claimed; or in the last month of the quarter or combined consecutive quarters to which the cash payout option relates where PIC cash payout on qualifying PIC expenditure is claimed.

(b) (c)

(ii)

Where 400% tax deductions/allowances are claimed in the income tax return, the IRAS will compute the amount of PIC Bonus for each YA upon filing of the income tax return. Where PIC cash payout is claimed via the PIC Cash Payout Application Form, IRAS will compute the amount of PIC Bonus upon approval of the PIC cash payout claim. Businesses can either file claims for PIC Bonus with the PIC Cash Payout Application Form up to 4 times a year; or once a year with the filing of Form C. Businesses whose PIC cash payout applications for YA 2013 and/or YA 2014 have already been approved by the IRAS will also receive the PIC Bonus. It should be noted that the PIC Bonus is taxable. The IRAS will release further details by March 2013.

Effective: YA 2013 to YA 2015

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IP in-licensing IPR is defined to mean the right to do or authorise the doing of anything which would, but for the right, be an infringement of any: (a) (b) (c) (d) (e) (f) (g) (h) patent; copyright; trademark; registered design; geographical indication; lay-out design of integrated circuit; trade secret or information that has commercial value; or grant of protection of a plant variety.

Presently, businesses that license IPRs rather than acquire the IP do not qualify for the PIC Scheme. Many of these businesses are SMEs. In order to help these businesses, the Minister has proposed that the PIC scheme be enhanced to include IP in-licensing as a qualifying activity. The enhancement therefore extends the qualifying activities under “Acquisition of IP rights” to include IP in-licensing. Cost of IP acquisition and in-licensing of IP will be eligible for enhanced allowance/ deductions under the PIC scheme, up to a combined cap of $400,000 per YA. Similarly, cost of IP acquisition and in-licensing of IP will qualify for a cash payout under the PIC scheme, subject to conditions. The current PIC qualifying activity of “Acquisition of IP rights” will be renamed to “Acquisition and In-Licensing of IP” to reflect the change. The IRAS will release further details by April 2013.

Effective: YA 2013 to YA 2015

Liberalisation of PIC automation equipment Currently under the PIC Scheme, businesses can claim enhanced CA/deduction on the expenditure incurred to acquire or lease qualifying PIC automation equipment. PIC automation equipment is defined to mean: (a) (b) any automation equipment that is prescribed by the Minister; or any automation equipment which the Minister or a person appointed by him has approved as PIC automation equipment.

6

A prescribed list of automation equipment can be found in the Income Tax (PIC Automation Equipment) Rules 2012. Such a list provides tax certainty to businesses for their PIC claims as automation equipment on the prescribed list qualifies for PIC automatically. Where the automation equipment is not on the prescribed list, taxpayers can apply, on a case-by-case basis, to the IRAS to seek approval to claim enhanced CA/deduction under the PIC scheme. The IRAS would assess the equipment based on the following criteria: (a) (b) the equipment automates the current core work processes of the business; the equipment enhances the productivity of the principal trade of the business (for example in terms of reduced man-hours, more output or improved work processes); and the equipment is not a basic tool (i.e. one which is necessary for carrying out the trade or business, and is commonly used in the industry) used in the business. If it is a basic tool: (i) the technology used in the equipment must be more advanced than or superior to the technology used in other automation equipment used by the applicant in performing a similar function in the business; or no other automation equipment performing a similar function has been used by the applicant in that business before.

(c)

(ii)

Responding to calls from the public to make it easier and allow more equipment to qualify as PIC automation equipment, the Minister has proposed the following enhancements: (a) for equipment that is not on the prescribed list, the IRAS will assess and grant approval for PIC benefits based on the following liberalised conditions: (i) the equipment automates or mechanises, whether in whole or in part, the work processes, whether core or non-core of the business; the equipment enhances productivity of the business (for example, in terms of reduced man hours, more output or improved work processes); and equipment that is a basic tool will be allowed, so long as: (b) it increases productivity compared to the existing equipment used in the business; or it has not been used in the business before.

(ii)

(iii)

the term “automation equipment” is also changed to “IT and automation equipment” as the PIC scheme already supports IT-related software besides automation equipment. the prescribed equipment list will be updated regularly to take into account feedback from businesses.

(c)

IRAS will release the updated equipment list and PIC examples on their website by 26 February 2013.

Effective: YA 2013

Singapore Budget Commentary 2013 7

Enhancements to Financial Sector Incentive (FSI) Scheme
Currently, pursuant to Section 43Q of the ITA and the regulations issued thereunder, the FSI scheme comprises the following 12 awards that grant concessionary tax rates of 5%, 10% or 12% on income from qualifying activities:

Concessionary tax rate of 5% (i) FSI – Bond Market (FSI-BM) award;
(ii) (iii) (iv) (v) (vi) (vii) FSI – Credit Facilities Syndication (FSI-CFS) award; FSI – Equity Market (FSI-EM) award; FSI – Islamic Finance (FSI-IF) award; FSI – Derivatives Market (FSI-DM) (Exchange-Traded Commodity Derivatives) award; FSI – DM (Financial) award; FSI – DM (Financial, Over-The-Counter and Exchange-Traded Commodity Derivatives) award;

(viii) FSI – DM (Over-The-Counter Commodity Derivatives) award; (ix) FSI – DM (Over-The-Counter and Exchange-Traded Commodity Derivatives) award;

Concessionary tax rate of 10% (x) FSI – Fund Management (FSI-FM) award;
(xi) FSI – Headquarter Services (FSI-HQ) award; and

Concessionary tax rate of 12% (xii) FSI – Standard Tier (FSI-ST) award;

The FSI scheme will expire on 31 December 2013 except for the FSI-IF award which will expire on 31 March 2013. In order to continue the growth of financial sector activities in Singapore, the FSI scheme (excluding the FSI-IF) award will be extended for a further period of 5 years to 31 December 2018. The Minister has also proposed the following enhancements to the FSI scheme: (a) (b) The 5 separate FSI-DM sub-awards will be merged to form a single FSI-DM award. The FSI-BM and FSI-EM awards will be merged to form a single FSI-Capital Markets (FSI-CM) award. Currently, debt securities substantially arranged by FSI-BM award recipients may be regarded as Qualifying Debt Securities (QDS), subject to conditions under the QDS scheme. The QDS scheme will apply to debt securities substantially arranged by recipients of the FSI-CM award and FSI-ST award with effect from 1 January 2014. The range of incentivised activities and financial instruments will be broadened for the FSI-ST, FSI-CM and FSI-CFS awards.

(c)

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(d)

Withholding tax exemption will be granted automatically to FSI-HQ award recipients on interest payments made during the period of their FSI-HQ award for qualifying loans. This will take effect from 25 February 2013. The FSI-IF award will be allowed to expire on 31 March 2013. The existing qualifying Islamic Finance activities will be incentivised under the FSI-ST award.

(e)

Existing award recipients will continue to enjoy the concessionary tax rates under their existing awards till the end of their award tenures. There are currently different qualifying criteria for the FSI-DM sub-awards and also for the FSI-BM and FSI-EM awards. It is not yet clear what the qualifying criteria will be under the single FSI-DM and the FSI-CM awards. The MAS will release further details by end June 2013.

Effective: Various dates

Extending and redefining QDS and QDS+ Incentive Schemes
Tax concessions are available, subject to conditions, under the QDS and QDS+ schemes, on qualifying income derived by the relevant persons. Qualifying income under these schemes refers to interest, discount, prepayment fee, redemption premium and break costs. QDS scheme The following tax concessions under the QDS scheme are, subject to conditions, available on qualifying income from QDS derived by specified persons: • • • • Tax exemption for qualifying non-residents and qualifying individuals. 10% concessionary tax rate for qualifying companies and bodies of persons. 12% concessionary tax rate for FSI-ST award holders. Withholding tax exemption for qualifying non-residents.

QDS is defined in Section 13(16) of the ITA to mean: (a) (b) Singapore Government securities issued during the period from 28 February 1998 to 31 December 2013; Bonds, notes, commercial papers and certificates of deposits which are arranged in accordance with the Income Tax (QDS) Regulations: (i) by any financial institution in Singapore and issued during the period from 28 February 1998 to 31 December 2013; or by any approved bond intermediary and issued: A) during the period from 27 February 1999 to 31 December 2013 under any prescribed programme the arrangement of which is completed on or before 31 December 2003; or

(ii)

Singapore Budget Commentary 2013 9

B) (iii) (c)

during the period from 27 February 1999 to 31 December 2003 in any other case; or

by any FSI - BM company and issued during the period from 1 January 2004 to 31 December 2013,

Islamic debt securities which are arranged in accordance with the Income Tax (QDS) Regulations: (i) by any financial institution in Singapore and issued during the period from 1 January 2005 to 31 December 2013; or by any FSI - BM company and issued during the period from 1 January 2005 to 31 December 2013,

(ii)

but unless otherwise approved by the Minister or such person as he may appoint, excludes any debt securities issued on or after 10 May 1999 and any Islamic debt securities issued on or after 1 January 2005, which during its primary launch: (a) (b) are issued to less than 4 persons; and 50% or more of the issue of debt securities or Islamic debt securities is beneficially held or funded, directly or indirectly, by related parties of the issuer of those debt securities or Islamic debt securities.

Based on the above, any debt securities issued after 31 December 2013 would not be regarded as QDS and all QDS must be substantially arranged by financial institutions in Singapore. The Minister has now announced that the QDS scheme would be extended for a further period of 5 years from 1 January 2014 to 31 December 2018. The Minister has also indicated that the requirement that the QDS have to be substantially arranged in Singapore will be streamlined for QDS to be issued from 1 January 2014 to 31 December 2018 in order to ease compliance. The MAS has further clarified that the streamlining would be made in the following manner: (a) Where debt securities are issued under a programme set up during the period from 1 January 2014 to 31 December 2018, the programme must be wholly arranged by FSI-CM or FSI-ST award holders (qualifying programme). If a new issuer joins a qualifying programme, the participation of the new issuer must be wholly arranged by FSI-CM or FSI-ST award holders. If a debt tranche is not issued under a qualifying programme, more than half of the debt issued in that tranche must be distributed by FSI-CM or FSI-ST award holders. Where debt securities are issued during the period from 1 January 2014 to 31 December 2018 but not under a programme, more than half of the lead managers for the debt issue must be FSI-CM or FSI-ST award holders. If the FSI-CM and FSI-ST award holders are not appointed as lead managers, other proxies such as revenue or distribution work attributed to FSI-CM or FSI-ST award holders may be considered. If the issuer of the debt securities is based in Singapore, more than half of the revenue from arranging the issue must be attributed to FSI-CM or FSI-ST companies. If the issuer of the debt securities is not based in Singapore, more than half of the debt securities issued under the issuance must be distributed by FSI-CM or FSI-ST companies.

(b)

Further details will be released by the MAS by end June 2013.

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QDS+ Scheme The tax exemption under the QDS+ scheme is, subject to conditions, available on qualifying income derived by all investors from the following specified QDS: (a) Debt securities (excluding Singapore Government Securities) which: (i) (ii) (iii) (iv) (b) are issued during the period from 16 February 2008 to 31 December 2013; have an original maturity of at least 10 years; cannot be redeemed, called, exchanged or converted within 10 years from the date of their issue; and cannot be re-opened with a resulting tenure of less than 10 years to the original maturity date.

Islamic debt securities (or sukuk): (i) (ii) which are issued during the period from 16 February 2008 to 31 December 2013; and the amount payable from which is not deductible against any income of the issuer of those securities accruing in or derived from Singapore.

“Islamic debt securities” is defined in Section 43N(4) of the ITA to mean debt securities and trust certificates: (a) which are endorsed by any Shari’ah council or body, or by any committee formed for the purpose of providing guidance on compliance with Shari’ah law; and the amounts payable from such securities and trust certificates are periodic and supported by a regular stream of receipts from underlying assets.

(b)

Based on the above, the tax exemption under the QDS+ scheme would not apply to any debt securities issued after 31 December 2013. The Minister has now announced that the QDS+ scheme would be extended for a further period of 5 years from 1 January 2014 to 31 December 2018. In addition, as most debt securities have early termination clauses as a standard feature to allow issuers to redeem the securities under prescribed circumstances, debt securities with standard early termination clauses will be allowed, subject to conditions, to qualify for the tax exemption under the QDS+ scheme upon issuance. The MAS has further clarified that debt securities with such clauses that can be exercised within 10 years from the date of issue will continue to be excluded from the QDS+ scheme. Further details will be released by the MAS by end June 2013.

Effective: 1 January 2014

Singapore Budget Commentary 2013 11

Extending the tax exemption on income derived by primary dealers from trading in Singapore Government Securities (SGS)
The SGS market is a key element of Singapore’s domestic debt market. A liquid SGS market is necessary to define a benchmark yield curve, which private issuers can reference when pricing their bond issues. Primary Dealers play an essential role in SGS markets by fulfilling the role of market makers and driving the process of price discovery and trading liquidity. To encourage financial institutions to take on the role of SGS Primary Dealers, tax exemption is granted on income derived by SGS Primary Dealers from trading in SGS during the period from 27 February 1999 to 31 December 2013, under Section 43N(3)(b) of the ITA. The Minister has announced that the tax exemption on income derived by Primary Dealers from trading in SGS is extended for a further 5 years to 31 December 2018.

Effective: Immediate

Extending the Approved Special Purpose Vehicle Scheme (ASPV Scheme)
The ASPV scheme was introduced to apply from 27 February 2004 to 31 December 2013 to support the development of Singapore structured debt market as an alternative location for risk transfer and structured finance in Asia. The ASPV Scheme offers the following tax concessions to an ASPV that is set up for the purposes of and engaged in securitisation transactions of qualifying underlying assets or risks: (a) Tax exemption on income derived by an ASPV from asset securitisation transactions entered into from 27 February 2004 to 31 December 2013. Tax exemption on any payment by an ASPV from 27 February 2004 to 31 December 2013 to qualifying non-residents, such as a person who is not a Singapore tax resident and does not have a PE in Singapore, on over-the-counter (OTC) financial derivatives in connection with any asset securitisation transaction. Tax exemption on any payment which an ASPV is liable to make at any time during the life of an OTC financial derivative contract that is entered into from 15 February 2013 to 31 December 2013, to a person who is not a Singapore tax resident and does not have a PE in Singapore. The tax exemption for such contracts will apply for the entire duration of these contracts. Fixed GST recovery for business expenses incurred under the ASPV Scheme at the rate of 76%. To claim for GST incurred, the ASPV should submit quarterly statements to the Comptroller of GST on a calendar quarter basis. The ASPV must keep valid suppliers’ tax invoices for a period of not less than 5 years to support its GST claims. Stamp duty remission under Section 74 of the Stamp Duties Act to provide relief on the instrument of transfer of assets into the ASPV for asset securitisation transactions approved by the MAS.

(b)

(c)

(d)

(e)

To continue developing the structured debt market in Singapore, the ASPV Scheme will be extended for a further period of 5 years to 31 December 2018. All existing conditions of the ASPV Scheme will remain unchanged. Further details will be released by the MAS by May 2013.

Effective: Immediate

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Enhancement of Specialised Insurance Tax Incentive Scheme
Currently, Section 43C of the ITA and the regulations issued thereunder provide that the following income derived by an approved specialised insurer shall be exempt from tax for a period not exceeding 5 years: (a) (b) the underwriting income derived from accepting offshore qualifying specialised insurance business; and dividends and interest derived from outside Singapore, gains or profits realised from the sale of offshore investments and interest from Asian Currency Unit deposits derived from: (i) (ii) the investment of its insurance fund for offshore insurance business; and the investment of its shareholders’ funds used to support the offshore insurance business.

“Offshore qualifying specialised insurance risks” means: (a) (b) (c) (d) (e) terrorism risks; political risks; energy risks; aviation and aerospace risks; and agricultural risks.

The sunset date for this scheme is 31 August 2016. With effect from 25 February 2013, the scheme will be enhanced to exempt from tax the qualifying income derived from offshore Catastrophe Excess of Loss (CAT-XOL) reinsurance layers providing coverage for more than 1 risk arising from a single event and against natural perils. All existing conditions of the scheme remain unchanged. The MAS will release further details by end April 2013.

Effective: Immediate

Extending the maximum tenure of the Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award
With effect from 1 June 2011, the Maritime Sector Incentive (MSI) scheme consolidated the maritime tax incentives previously offered and created 3 broad categories of tax incentives for entities based in Singapore and involved in international shipping operations, maritime leasing activities and shipping support services. The MSI scheme is administered by the MPA. Specifically, the MSI-AIS Award is intended to incentivise international shipping enterprises that base their operations in Singapore. It confers tax exemption on qualifying income derived from international shipping operations and automatic withholding tax exemption on qualifying payments made in respect of qualifying foreign loans taken to finance the purchase or construction of foreign ships.

Singapore Budget Commentary 2013 13

Currently, companies are granted the MSI-AIS award for a 10-year period, with the possibility of renewal up to a maximum tenure of 30 years, subject to conditions. To promote the growth of Singapore’s maritime industry, the maximum tenure of the MSI-AIS award will be increased from 30 years to 40 years. Companies can be granted the MSI-AIS award for a 10-year period, with the possibility of renewal up to a maximum tenure of 40 years, subject to conditions.

Effective: Details to be announced by the MPA

Rationalising the Start-Up Tax Exemption (SUTE) Scheme
Under the current SUTE scheme, a new start-up company that satisfies the qualifying conditions can claim full tax exemption on the first $100,000 of chargeable income, and 50% tax exemption on the next $200,000 of chargeable income, for each of its first 3 consecutive YAs. To qualify for the SUTE scheme, a company (including a company limited by guarantee) must: (a) (b) (c) be incorporated in Singapore; be a tax resident of Singapore for that YA; and have no more than 20 shareholders where: (i) (ii) all of the shareholders are individuals beneficially and directly holding the shares in their own names; or at least one shareholder is an individual beneficially and directly holding at least 10% of the total number of issued ordinary shares of the company,

throughout the basis period for that YA. The Minister has proposed that the SUTE will no longer be available to the following: (a) Property development companies that buy or lease land and arrange for a building to be built on the land in order to lease, manage or sell the building; and Investment holding companies whose principal activity is that of investment holding and which derive only investment income such as rental, dividend, or interest income.

(b)

Property development companies typically incorporate a new company for each new property development, while investment holding companies derive only passive income. The SUTE is designated to encourage entrepreneurship and is not intended for such companies. Property development and investment holding companies will however still be able to enjoy the partial tax exemption, i.e., 75% tax exemption on the first $10,000 of chargeable income, and 50% tax exemption on the next $290,000 of chargeable income. All existing conditions of the SUTE scheme remain unchanged.

Effective: For start-ups incorporated from 26 February 2013

14

Expiration of the deduction scheme for upfront land premium
Currently, under Section 14N of the ITA, deductions are granted for upfront land premium paid by a lessee in respect of a designated lease for the construction or use of a building or structure on JTC or HDB industrial land for the purposes of carrying on any qualifying activity in that building or structure, provided the lease tenure is for a period of 30 years or less during the period from 1 January 1998 to the last day of the basis period for the YA 2003 of the lessee or for a period of 60 years or less on or after the first day of the basis period for the YA 2004 of the lessee and before 28 February 2013. The lessee shall be allowed, for each YA in the basis period for which the qualifying activity is carried on, deduction of an amount of each expenditure ascertained by a prescribed formula. The above scheme was introduced in 1998 to assist lessees who pay upfront land premium in respect of leases of industrial land to encourage industrialisation. The Minister has proposed to allow the scheme to expire for leases granted on or after 28 February 2013 in view that it is no longer relevant.

Effective: 28 February 2013

Expiration of the further tax deduction scheme for expenses incurred in relocation or recruitment of overseas talent
To allow employers to claim a further tax deduction in respect of prescribed expenses incurred in recruiting and relocating overseas talents and their families to Singapore, further deduction is allowed if prescribed expenses are incurred during the period from 1 October 1998 to 30 September 2013. As the objective of the scheme has now been assessed to be no longer relevant to merit a tax incentive, the scheme will be allowed to expire on 30 September 2013.

Effective: 30 September 2013

Expiration of Offshore Insurance Business Scheme for Islamic Insurance and Reinsurance
Currently, Section 43C of the ITA and the regulations issued thereunder provide that qualifying income derived from offshore Islamic insurance (takaful) and reinsurance (retakaful) businesses will enjoy a 5% concessionary tax rate. This scheme was introduced in 2008 with the objective of creating a conducive environment for Islamic Finance. The sunset date of this scheme is 31 March 2013. As the objective of the scheme no longer merits a tax incentive, the scheme will be allowed to expire on 31 March 2013. Existing approved insurers will continue to enjoy the 5% concessionary tax rate for the remaining tenure of their awards. New applicants which conduct offshore Islamic insurance and reinsurance businesses after 31 March 2013 may apply to the MAS to enjoy the 10% concessionary tax rate on qualifying income under the Offshore Insurance Business Scheme.

Effective: 31 March 2013

Singapore Budget Commentary 2013 15

Expiration of the Tax Incentive Scheme for Family-Owned Investment Holding Companies
To create positive spinoffs to the financial sector, the Family-Owned Investment Holding Companies Incentive Scheme (the FIHC Scheme) was introduced in the 2008 Budget. The FIHC Scheme grants tax exemption on qualifying locally-sourced investment income and foreign-sourced income to eligible family-owned investment holding companies which mirrors the tax exemption granted to individuals on the same income. This incentive will expire on 31 March 2013. As the objective of the FIHC Scheme no longer merits a tax incentive, the Minister has proposed that the scheme be allowed to expire on 31 March 2013.

Effective: 31 March 2013

Withdrawal of Overseas Enterprise Incentive (OEI) Scheme
The Overseas Enterprise Incentive was introduced in 1993 under the EEIA. An approved company under the OEI scheme is granted tax exemption on qualifying income from approved overseas investments or projects for a maximum period of 10 years. With broad-based changes to the tax regime for foreign-sourced income in past years, the scheme has now been assessed to be no longer relevant. As such, the Minister has proposed that the scheme be withdrawn from 25 February 2013.

Effective: Immediate

Withdrawal of the Approved Cyber Trader (ACT) Scheme
The ACT scheme, which is administered by IE Singapore, was first introduced in the 1998 Budget and took effect from YA 1999. The ACT status is granted for a period of up to 5 years and provides for the following concessions: (a) a 10% concessionary tax rate on incremental income from qualifying electronic commerce transactions derived by an approved company; investment allowance of up to 50% of the cost of qualifying new fixed investments; and a full or partial exemption of withholding tax on qualifying payments made by approved companies.

(b) (c)

The Minister has proposed that the ACT scheme be withdrawn from 25 February 2013 as the objective of the scheme no longer merits a tax incentive.

Effective: Immediate

16

Enhancement of tax incentives for insurance and reinsurance brokers
Currently, Section 43ZC of the ITA and the regulations issued thereunder provide that the following income derived by an approved insurance broker on or after 1 April 2008 shall be taxed at a concessionary rate of 10% for a period of up to 10 years: (a) the provision of direct insurance broking or reinsurance broking to any insured person or person seeking insurance coverage: (i) (ii) who is not resident in Singapore and who does not have any PE in Singapore; or who is not resident in Singapore and who carries on any operation in Singapore through a PE in Singapore where the funds used by that person to finance the premiums, brokerage fees and any other fees paid or payable to the approved insurance broker are not obtained, directly or indirectly, from the operation; and

(b)

the provision of risk advisory services and other advisory services relating to the insurance sector to any person: (i) (ii) who is not resident in Singapore and who does not have any PE in Singapore; or who is not resident in Singapore and who carries on any operation in Singapore through a PE in Singapore where the funds used by that person to finance the service fees paid or payable to the approved insurance broker are not obtained, directly or indirectly, from the operation.

The sunset date for this scheme is 31 March 2013. The scheme will be extended for a further 5-year period until 31 March 2018. In addition, a new 5%-tier award for the offshore specialty insurance broking business will be introduced with effect from 1 April 2013. Fees and commissions derived by insurance and reinsurance brokers from the provision of qualifying speciality insurance broking and advisory services shall be taxed at a concessionary rate of 5%. The MAS will release further details by the end of April 2013.

Effective: 1 April 2013

Singapore Budget Commentary 2013 17

Personal tax
Personal tax rates
The Minister has not proposed any changes in the personal tax rates for YA 2013. The personal tax rate table for YA 2013 is enclosed in Appendix D.

Personal tax rebate
The Minister has proposed to give a one-off personal income tax rebate for resident individual taxpayers for YA 2013. The tax rebates granted are as follows: (a) (b) 30% rebate, capped at $1,500, for resident individual taxpayers aged below 60 years as at 31 December 2012; 50% rebate, capped at $1,500, for resident individual taxpayers aged 60 years and above as at 31 December 2012.

Effective: YA 2013

Rationalising the taxation of accommodation benefits
Currently, the taxable value of housing accommodation, hotel accommodation and furniture and fittings benefits provided by an employer to an employee is computed on concessionary bases as follows: (a) Where an employer provides housing accommodation to an employee (and the tenancy agreement is concluded by the employer with the landlord), the taxable value of housing accommodation is the lower of 10% of employment income, or the annual value of the premises, less rent paid by the employee; Where furnished housing accommodation is provided, the taxable value of furniture and fittings is computed based on the prescribed rates provided by the IRAS for each item of furniture and fittings; and The taxable value of hotel accommodation is computed based on a prescribed IRAS formula and is a function of the number of days of the hotel stay, the number of family members staying in the hotel, the latter’s relationship to the employee, and 2% of the basic salary of the employee for the duration of the employee’s stay at the hotel.

(b)

(c)

To simplify tax compliance and make the tax system more equitable, the Minister has proposed to tax the accommodation benefits provided to employees according to market value as follows: (a) The taxable value of housing accommodation provided will be the annual value of the premises, less rent paid by the employee; The taxable value of furniture and fittings will be computed based on a percentage of the annual value of the housing accommodation; and The taxable value of hotel accommodation will be the actual cost of the hotel stay benefit provided to the employee.

(b)

(c)

The IRAS will release further details of the changes by October 2013.

Effective: YA 2015

18

Phasing out the Equity Remuneration Incentive Scheme (ERIS)
In the 2008 Budget, the Minister re-packaged the Employee Stock Option Plans (ESOPs) and Employee Stock Ownership Plans (ESOWs) under a new umbrella incentive scheme called the ERIS. As part of the rationalisation of tax treatment of remuneration, the Minister has proposed that the ERIS incentives will not be renewed at the expiration of the effective period proposed in the 2008 Budget. The 3 different tiers of incentives under ERIS to be phased out are as follows: ERIS (Start-Ups) ERIS (Start-Ups) scheme was introduced in the 2008 Budget to encourage start-up companies to use equity remuneration in their early years of incorporation to retain key talent. ERIS (Start-Ups) applied to stock options and share awards granted within the first 3 years of incorporation by qualifying companies, during the period from 16 February 2008 to 15 February 2013. Under the ERIS (Start-Ups) incentive, a qualifying employee of a qualifying start-up company can enjoy personal income tax exemption on 75% of up to $10 million of qualifying stock option/share gains arising over a period of 10 years. For discounted options (i.e. where the exercise price is lower than the fair market value of the underlying shares at the time of grant), the 75% tax exemption will only be applicable to the stock option/share gains less the amount of discount enjoyed. To qualify for ERIS (Start-Ups), the start-up company must meet the following conditions: (a) (b) (c) Have at least one individual shareholder holding at least 10% of the company; Be a Singapore incorporated company carrying on business in Singapore; and Have a market value of its gross assets of less than $100 million at the time of grant of stock options or share awards.

The ERIS (Start-Ups) incentive expired on 15 February 2013 and will not be renewed. For stock options or shares granted on or before 15 February 2013 which qualify for the ERIS (Start-Ups), the employee will continue to enjoy the partial tax exemptions under the ERIS (Start-Ups), as long as the gains are derived on or before 31 December 2023.

Effective: 15 February 2013

Singapore Budget Commentary 2013 19

ERIS (All Corporations) Under the ERIS (All Corporations), where a qualifying employee is granted stock options or shares by a qualifying company under its ESOP/ESOW plan or a Group ESOP/ESOW plan operated by the parent company of the qualifying company, he can enjoy the following personal income tax exemption on the aggregate amount of gains derived from such stock options or shares of up to $1 million over a period of 10 years from the year that he first enjoys the tax exemption: (a) (b) 100% of the first $2,000 annually; and 25% of the remaining annual gains.

The tax exemption on the gain does not extend to the discount between the fair market value of the shares at the grant date and the price payable to purchase the shares. To qualify for the ERIS (All Corporations), the stock options granted under the ESOP/ESOW plan must satisfy several conditions, one of which is that the qualifying company must offer the ESOP/ESOW to at least 50% of the total number of its employees as at 31 December for that year of offer. In the 2008 Budget the Minister adjusted the requirement so that companies were only required to offer the ESOP/ESOW to at least 25% of its total number of employees during any year of offer of stock options and shares granted on or after 15 February 2008. The ERIS (All Corporations) incentive will expire on 31 December 2013. For stock options or shares granted on or before 31 December 2013 which qualify for the ERIS (All Corporations), the employee will continue to enjoy the partial tax exemptions under the ERIS (All Corporations), as long as the gains are derived on or before 31 December 2023 (10 years from 31 December 2013).

Effective: 31 December 2013

ERIS (SMEs) Under the ERIS (SMEs) scheme, a qualifying employee of a Singapore incorporated company with a gross asset value of $100 million or less can enjoy personal income tax exemption on 50% of up to $10 million of qualifying stock option/share gains arising over a period of 10 years, if certain conditions are met. For discounted options (i.e. where the exercise price is lower than the fair market value of the underlying shares at the time of grant), the 50% tax exemption will only be applicable to the stock option/share gains less the amount of discount enjoyed. The ERIS (SMEs) incentive will expire on 31 December 2013. For stock options or shares granted on or before 31 December 2013 which qualify for the ERIS (SMEs), the employee will continue to enjoy the partial tax exemptions under the ERIS (SMEs), as long as the gains are derived on or before 31 December 2023 (10 years from 31 December 2013).

Effective: 31 December 2013

20

Changes to CPF contribution rates for lower-income workers
The CPF contribution rates for low-wage workers were reduced in 2007 to enhance their employability. The Minister has proposed that employer contribution rates will be restored fully (to the same level as workers of the same age who earn $1,500 or more) from 1 January 2014. The employee contribution rates will also be brought to the normal levels for these workers as follows: (a) For employees with monthly income from $750 to $1,500, the employee CPF contribution rates will be increased immediately to the full employee CPF contribution rates of workers who earn $1,500 or more; and For employees with monthly income between $500 and $750, the employee CPF contribution rates will be gradually increased from 0% to the full employee CPF contribution rates of workers who earn $1,500 or more.

(b)

The Medisave contribution rates for Self-Employed Persons (SEPs) earning Net Trade Income (NTI) of between $6,000 and $18,000 per annum will also be increased from 1 January 2014. The changes in rates are as follows: (a) For NTI above $6,000 to $12,000 per annum, the SEPs will be contributing half of the full Medisave contribution rates relevant to their age group (an increase from the current one-third). This will result in an increased range of contribution rates from 3.50% to 4.75% (from the current 2.33% to 3.17%) For NTI above $12,000 to $18,000 per annum, the contribution rates will be gradually increased with income from half of the full rate to the full contribution rate. The increased range of contribution rates will be as follows: (i) (ii) (iii) (iv) From 3.50% to 7% for SEPs below 35 years old (from the current 2.33% to 3.17%); From 4% to 8% for SEPs from 35 years old to below 45 years old (from the current 2.67% to 8%); From 4.5% to 9% for SEPs from 45 years old to below 50 years old (from the current 3% to 9%); and From 4.75% to 9.5% for SEPs from 50 years old and above (from the current 3.17% to 9.5%).

(b)

Effective: 31 December 2013

Singapore Budget Commentary 2013 21

Others
Increase in excise taxes for tobacco products
With effect from 25 February 2013, excise duties will be increased for 17 line items of tobacco products. The specific changes are as follows: HS Code Product description Excise Duty Rate before 25 February 2013 $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $347 per kg $239 per kg $239 per kg $347 per kg $239 per kg New Excise Duty Rate With effect from 25 February 2013 $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $352 per kg $299 per kg $299 per kg $352 per kg $299 per kg

24011010 24011020 24011040 24011050 24011090 24012010 24012020 24012030 24012040 24012050 24012090 24013010 24013090 24022010 24031911 24031920 24039950

Tobacco, unmanufactured, not stemmed or stripped, Virginia type, flue-cured Tobacco, unmanufactured, not stemmed or stripped, Virginia type, not flue-cured Tobacco, unmanufactured, not stemmed or stripped, Burley type Other tobacco, unmanufactured, not stemmed or stripped, flue-cured Other tobacco, unmanufactured, not stemmed or stripped, not flue-cured Tobacco, unmanufactured, partly or wholly stemmed or stripped, Virginia type, flue-cured Tobacco, unmanufactured, partly or wholly stemmed or stripped, Virginia type, not flue-cured Tobacco, unmanufactured, partly or wholly stemmed or stripped, Oriental type Tobacco, unmanufactured partly or wholly stemmed or stripped, Burley type Other tobacco, unmanufactured, partly or wholly stemmed or stripped, flue-cured Other tobacco, unmanufactured partly or wholly stemmed or stripped, not flue-cured Tobacco stems Other tobacco refuse Beedies cigarettes Ang Hoon packed for retail sale Other manufactured tobacco for the manufacture of cigarettes Chewing & sucking tobacco excluding snuff

Excise duties for other tobacco products remain unchanged.

Effective: Immediate

22

Progressive property tax rates for residential properties
Currently, the annual property tax rate is 10% on the annual value for all properties. However, owner-occupied residential property tax rates are as follows: Annual Value First $6,000 Next $59,000 Amount exceeding $65,000 Progressive Tax Rate (%) 0 4 6

To achieve greater social equity, the Minister has proposed to widen the 0% property tax band and raise property tax rates for high-end residential properties. In addition, new marginal property tax rates have been proposed for investment properties that are not owner-occupied. The proposed owner-occupied residential property tax rates are as follows: Annual Value First $8,000 Next $47,000 Next $5,000 Next $10,000 Next $15,000 Next $15,000 Next $15,000 Next $15,000 Amount exceeding $130,000 Progressive Tax Rate (%) from 1 January 2014 0 4 5 6 7 9 11 13 15 Progressive Tax Rate (%) from 1 January 2015 0 4 6 6 8 10 12 14 16

The proposed non-owner-occupied residential property tax rates are as follows: Annual Value First $30,000 Next $15,000 Next $15,000 Next $15,000 Next $15,000 Amount exceeding $90,000 Progressive Tax Rate (%) from 1 January 2014 10 11 13 15 17 19 Progressive Tax Rate (%) from 1 January 2015 10 12 14 16 18 20

Non-residential properties will continue to be subject to tax at the rate of 10% of annual value.

Effective: 1 January 2014 and 1 January 2015

Singapore Budget Commentary 2013 23

Removal of property tax refund concession for vacant properties
Currently, the following categories of vacant properties are eligible for the property tax refund concession or remission: (a) Properties (whether residential or not) that are vacant, despite reasonable efforts by the owners to find a tenant, can get full property tax refund for the duration that they are vacant; Properties (whether residential or not) undergoing repairs to render them fit for occupation can get full property tax refund for the duration that they are vacant; and Residential properties that are intended for owner-occupation but undergoing building works can get a remission of property tax for a maximum period of 2 years. The property must be owner-occupied for at least 1 year after the completion of the building works.

(b)

(c)

However, the following categories of vacant properties are not eligible for the property tax refund concession or remission: (i) Residential properties that are demolished and reconstructed are taxed at 10%. However, if they are intended for owner-occupation, the owners can apply to the IRAS to be taxed at the owner-occupier residential property tax rates for a maximum period of 2 years. The property must be owner-occupied for at least 1 year after the completion of the construction works; and Vacant land that is undergoing new development is taxed at the prevailing property tax rate of 10% during the period of development.

(ii)

To be more in line with property tax as a tax on property ownership and for consistency in the tax treatment of unoccupied buildings, the Minister has proposed to remove the property tax refund concession or remission and streamline the tax treatment of vacant properties as follows: (i) Residential properties that are unoccupied despite reasonable efforts by the owners to find a tenant will be taxed at the same property tax rates as non-owner-occupied residential properties; Non-residential properties that are undergoing repairs for the purpose of rendering them fit for occupation or are vacant despite reasonable efforts by the owners to find a tenant will be taxed at the prevailing property tax rate of 10% for non-residential properties; Residential properties undergoing repairs or building works that are intended for owner-occupation can be taxed at the owner-occupier tax rates for residential properties for the duration of the repairs or building works (up to a maximum of 2 years) upon application to the IRAS, subject to the condition that the property must be owner-occupied for at least 1 year after the completion of the repairs or building works; and Vacant land undergoing residential development intended for owner-occupation can be taxed at the owner-occupier tax rates for residential properties for the duration of the residential development (up to a maximum of 2 years) upon application to the IRAS, subject to the condition that the property must be owner-occupied for at least 1 year after the completion of the residential development. All other vacant land will continue to be taxed at 10% during the development period.

(ii)

(iii)

(iv)

Effective: 1 January 2014

24

Road tax rebate
Currently, the road tax for goods vehicles (including goods-cum-passenger vehicles), buses and taxis ranges from $340 to $2,976 per vehicle per year. To relieve business costs, the Minister has proposed a 30% rebate on road tax for goods vehicles (including goods-cumpassenger vehicles), buses and taxis for 1 year. With the road tax rebates, there may be cases of overpayment of road tax beyond the effective date of 1 July 2013 based on the prevailing road tax rates. The Land Transport Authority has announced that the excess road tax paid would automatically be used to offset the road tax payable at the next renewal. If the vehicle is transferred before its next road tax renewal, any excess road tax paid will be used to offset the transfer fee payable, and any remaining excess road tax paid will be transferred along with the vehicle to the next registered owner.

Effective: 1 July 2013

Reducing concessionary foreign domestic worker (FDW) levy
Currently, an employer who has hired a FDW is required to pay either 1 of the following 2 FDW levies at the end of each month: (a) (b) Normal FDW levy of $265; or Concessionary FDW levy of $170.

An employer can apply for the concessionary FDW levy of $170 if he/she has Singaporean dependants such as children, elderly parents and family members with disabilities living with him/her. To reduce costs for these families, effective from 1 March 2013, the concessionary FDW levy will be reduced from $170 to $120 per month. The normal FDW levy will remain unchanged at $265 per month.

Effective: 1 March 2013

Singapore Budget Commentary 2013 25

New tiered Additional Registration Fee structure for vehicles
Currently, all cars are subject to an Additional Registration Fee (ARF) at a flat rate of 100% of their Open Market Value (OMV). As part of the Government’s objective to ensure a fair and more inclusive society, a new tiered ARF structure has been introduced for passenger cars and taxis, including private passenger cars, goods-cum-passenger vehicles, imported used cars and vintage normal (transferable) vehicles.

New tiered ARF structure The new tiered ARF structure is as follows: Vehicle OMV On the first $20,000 of the OMV On the next $30,000 of the OMV OMV exceeding $50,000 ARF rate 100% of OMV 140% of OMV 180% of OMV

Notwithstanding the introduction of the new tiered ARF structure, the Preferential Additional Registration Fee (PARF rebate) will remain unchanged.

Effective: 26 February 2013 or first COE bidding exercise in March 2013

Wage Credit Scheme (WCS)
To support businesses in raising workers’ wages and to incentivise employers to share productivity gains with their employees, the Government will co-fund wage increases given in 2013 to 2015. Under the scheme, the Government will co-fund 40% of wage increases given to Singaporean employees earning a gross monthly wage of up to and including $4,000. Gross monthly wage is defined as the total wages (including basic salary and additional wages like overtime pay and bonuses but excluding employer CPF contributions) paid by the employer to the employee in the calendar year, divided by the number of months in which CPF contributions were made. To qualify for co-funding in 2013, the employee must be employed for at least 3 months in 2012 and the employer must have paid the employee’s CPF contributions for at least 3 months in 2013. Government-related entities and entities not registered in Singapore are excluded from the WCS. The Government will co-fund any increase in wages given to any eligible Singaporean employee between 2013 and 2015, over his or her wage level in the preceding year. Co-funding will apply for the year of increase and for the rest of the 2013-2015 period.

26

As illustration: (a) If the monthly wage increase in 2013 is $200, the Government will co-fund $80 of the increase in 2013, 2014 and 2015. If the monthly wage increases by another $200 in 2014, the Government will co-fund an additional $80 in 2014 and 2015. If a further increase of $200 is given in 2015, the Government will co-fund another $80 in 2015. This means that, at the end of 3 years, the employee will receive a total of $14,400 more in wages, of which the Government would have co-funded $5,760.

(b)

(c) (d)

There is no need to apply for the WCS. The wage credits will be automatically paid out to employers annually. The first payout will be in the second quarter of 2014 and the last payout will be in 2016. Once an employee’s gross monthly wage exceeds $4,000, the portion of wage increase that brings the gross monthly wage above $4,000 will not be eligible for co-funding under WCS.

Effective: Years 2013 to 2015

Renewal of COE for commercial vehicles
Currently, at the end of the 10-year validity period of the COE, vehicle owners may choose to de-register their vehicle or to revalidate their COEs for another 5 years or pay more for a 10-year COE renewal. The cost of revalidating the COE is based on the Prevailing Quota Premium. The Prevailing Quota Premium is the 3-month moving average of the Quota Premium for the respective vehicle category. If the COE is not revalidated, the vehicle will be de-registered at the expiry of the COE. A COE extended for 5 years cannot be further revalidated. This means that at the end of the 5-year extended period, the vehicle will be de-registered. To ease the cash flow and provide flexibility to commercial vehicle owners, the Minister has proposed to allow owners of commercial vehicles who choose to revalidate their COEs for 5 years in the first instance to renew their COEs further for another 5 years. More details will be provided by the Ministry of Transport.

Effective: To be announced

Singapore Budget Commentary 2013 27

Appendix A

Singapore corporate tax rates For the YAs 1959 to 2013
2013 2012 2011 2010 2008 2005 2003 2002 2001 2000 1999 1997 1994 1993 1991 1990 1987 1959 0.0%
+ π @

17.0% 17.0% 17.0% 17.0%

‡ Ω+ ‡ Ωπ ‡ Ω@ ‡Ω ‡Ω #* # #

18.0%

20.0%

22.0%

24.5%

25.5% 26.0% 23.4% ^

26.0% 27.0% 30.0% 31.0% 32.0% 33.0% 40.0% 10.0% 20.0% 30.0% 40.0%

A corporate income tax rebate at 30% of the tax payable up to a maximum rebate of $30,000 A one-off SME cash grant of 5% of revenue, capped at $5,000 A one-off corporate income tax rebate or SME cash grant computed at higher of: - 20% of YA 2011 corporate income tax payable, capped at $10,000 (corporate income tax rebate); or - 5% of revenue, capped at $5,000 (SME cash grant)

‡ # Ω * ^

75% of first $10,000 and 50% of next $290,000 of chargeable income are exempt from tax 75% of first $10,000 and 50% of next $90,000 of chargeable income are exempt from tax For qualifying new companies, the first $100,000 chargeable income and 50% of the next $200,000 chargeable income are exempt from tax for any of the first 3 consecutive YAs falling within the period from YA 2008 onwards For qualifying new companies, the first $100,000 chargeable income is exempt from tax for any of the first 3 consecutive YAs falling within the period from YA 2005 onwards Effective tax rate (net of 10% tax rebate)

28

Appendix B

Comparison of current corporate tax rates in selected countries
Hong Kong Singapore Taiwan Thailand UK Indonesia Malaysia China Japan India USA 0.0% 10.0% 20.0% 30.0%

16.5% 17.0% 17.0% 20.0% 24.0% ‡#

25.0% 25.0% 25.0% 25.5% ‡ 30.0% ^ 35.0% ‡ 40.0% ‡

‡ # ^

Lower rates of tax apply to income below certain levels To reduce to 23% from 1 April 2013 40% for foreign companies

Singapore Budget Commentary 2013 29

Appendix C

Comparative personal effective tax rates YA 2013
Employee married with 2 children Gross annual remuneration $200,000
35.00%

30.00% 26.48% 25.00% 22.59% 20.17% 16.92% 15.00% 11.04% 10.00% 8.69%

30.14% 28.86%

20.00%

5.00%

0.00% Singapore Hong Kong Japan USA Malaysia China India UK

Effective tax rate

30

Appendix D

Rates of income tax For resident individuals for YA 2013
Chargeable Income $ Tax Rate % Tax $

On the first On the next

20,000 10,000

0.00 2.00

0 200

On the first On the next

30,000 10,000 3.50

200 350

On the first On the next

40,000 40,000 7.00

550 2,800

On the first On the next

80,000 40,000 11.50

3,350 4,600

On the first On the next

120,000 40,000 15.00

7,950 6,000

On the first On the next

160,000 40,000 17.00

13,950 6,800

On the first On the next

200,000 120,000 18.00

20,750 21,600

On the first Excess over

320,000 320,000 20.00

42,350

For YA 2013, a one-off income tax rebate of 30% will be given for resident taxpayers below the age of 60 and 50% for resident taxpayers age 60 and above, subject to a cap of $1,500.

Singapore Budget Commentary 2013 31

Appendix E

Personal reliefs for YA 2013
Earned income relief
Age Earned income relief Handicapped earned income relief Lower of actual earned income and Below 55 55 to 59 60 and above $1,000 $6,000 $8,000 $4,000 $10,000 $12,000

Spouse relief
With effect from the YA 2010, relief is granted to taxpayer who is supporting a non-working husband (renamed spouse relief) with an annual income not exceeding $4,000. With effect from the YA 2012, taxpayers can no longer claim spouse relief for maintaining their former spouses.

$2,000

32

Appendix E

Handicapped dependant spouse relief
With effect from the YA 2010, the income threshold condition in respect of the handicapped spouse is removed. With effect from the YA 2012, taxpayers can no longer claim handicapped spouse relief for maintaining their former spouses.

$3,500

Parent relief
Maximum of two parents* : Living in the same household Not living in the same household Parent relief $7,000 $4,500 Handicapped parent relief $11,000 $8,000

* Taxpayer’s or spouse’s parents, grandparents or great-grandparents who are living in Singapore and are 55 years old and above. In addition, the dependants must not have an annual income of more than $4,000. With effect from the YA 2010, the income threshold condition in respect of handicapped dependant is removed. Where more than one taxpayer is claiming same relief on the same dependant, the relief shall be apportioned.

Grandparent caregiver relief (GCR)
Applicable to working mothers (including widows and divorcees) whose child is being looked after by their parent / parent-in-law / grandparent / grandparentin-law or ex-spouse’s parent / grandparent living in Singapore. The child must be a Singapore citizen aged 12 years or below at any time during the year preceding the YA of claim.

$3,000

Singapore Budget Commentary 2013 33

Appendix E

Handicapped siblings relief
Each dependant must have lived with the taxpayer in the same household in 2012. If not, the taxpayer must have incurred at least $2,000 per annum in the maintenance of each dependant. With effect from the YA 2010, the income threshold condition is removed. Where more than one taxpayer is claiming same relief on the same dependant, the relief shall be apportioned.

$3,500

Child relief
Qualifying Child Relief (QCR) Per Child With effect from the YA 2010, • • Child’s annual income shall not exceed $4,000. Income threshold condition for handicapped child is removed. $4,000 Handicapped Child Relief (HCR) $5,500

34

Appendix E

Working mother’s child relief (WMCR)
Quantum of Relief 1 child st 15% of earned income 20% of earned income 25% of earned income

2nd child 3rd child and subsequent children WMCR is capped as follows: • • Maximum of $50,000 per child (QCR / HRC + WMCR); and Up to 100% of the mother’s earned income for all qualifying children.

QCR / HCR will be claimed first and WMCR will be limited to the remaining cap balance. Only applicable to working mothers (including widows and divorcees) with children who are Singapore citizens. With effect from the YA 2010, child’s annual income shall not exceed $4,000.

Parenthood tax rebate (PTR)
Quantum of Rebate 1st child 2 child nd $5,000 $10,000 $20,000 per child

3rd child and subsequent children Different qualifying criteria under PTR applies for child, depending on whether child is legitimate, illegitimate or adopted.

Special tax rebate (STR)
Previous claimants of STR whose STR balances have not been fully utilised as at 1 January 2005 can continue to draw on the STR balance until the balance is fully utilised.

Singapore Budget Commentary 2013 35

Appendix E

Further tax rebate (FTR)
Claimants of FTR whose FTR balances have not been fully utilised as at 1 January 2005 can continue to draw on the FTR balance until the balance is fully utilised or up to 9 years following the year of birth of the child.

Approved provident fund/ Life insurance relief
Compulsory contributions to CPF Employees Ordinary wages Additional wage ceiling Statutory CPF deductions Statutory contributions fully allowed Restricted to statutory contributions of $85,000 less total annual ordinary wages subject to CPF contributions in the year.

Voluntary contributions to CPF Maximum amount of voluntary contribution relief Employee or self employed $30,600

Voluntary contributions to Medisave account
With effect from the YA 2012, voluntary contributions made to a taxpayer’s Medisave account may be claimed as a deduction, subject to a cap of $30,600 less total mandatory contributions per YA.

36

Appendix E

Life insurance premiums
Where compulsory CPF contributions are less than $5,000, taxpayer may claim qualifying life insurance premiums on his or his wife’s life as deduction; however, the total deduction (ie. CPF contributions and life insurance premium together) is subject to a maximum of $5,000.

CPF cash top-up
Quantum of Relief Top-up in cash to taxpayer’s parents’ or taxpayer’s grandparents’, non-working spouse’s or siblings’ retirement accounts or special accounts under CPF Minimum Sum Topping-Up Scheme regardless of the age of the recipients. • Non-working spouse or siblings must not have income of more than $4,000 with effect from the YA 2011. Recipients must be Singapore citizens or Singapore Permanent Residents. Where more than one person is entitled to such claim in respect of the same parent or grandparent, the relief shall be apportioned. $7,000 (Maximum) $7,000 (Maximum)

•

•

Top-up in cash by taxpayer or his employer to his retirement account or special account under the CPF Minimum Sum Topping-Up Scheme, regardless of the age of the recipients.

Supplementary retirement scheme
Employees and self employed Singapore Citizens or Permanent Residents Foreigners Maximum contributions per year $12,750 $29,750

Singapore Budget Commentary 2013 37

Appendix E

Course fees relief
Quantum of Relief Fees (registration fees, examination fees, tuition fees), for courses, seminars and conferences: • Relating to one’s current trade, business, profession, vocation or employment in 2012; Leading to an approved academic, professional or vocational qualification in 2012. $5,500 (Maximum) $5,500 (Maximum)

•

Fees for courses which are not directly related to one’s current trade, business, profession, vocation or employment only if such courses resulted in a career switch to a relevant trade, business, profession, vocation or employment within a period of 2 years of assessment. The claim can be made within 2 years from the YA in which the taxpayer completed the courses.

NSmen relief
Quantum of Relief Active NSmen Non-active NSmen Each parent of active NSmen who are Singapore citizens and entitled to NSmen relief Wives or widows of active NSmen who are Singapore citizens and entitled to NSmen relief NS key command and staff appointment holders (in addition to basic NSmen relief) $3,000 $1,500 $ 750 $ 750 $2,000

Foreign maid levy relief
Quantum of Relief For YA 2013 $6,360 (Maximum)

Claimable against the earned income of a married or divorced woman and widow with children in respect of whom child relief is available. (Twice the annual levy paid for 1 foreign maid.)

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Appendix F

Comparative standard VAT/GST rates - 2013
Hungary UK France Germany China* New Zealand India* Philippines Vietnam Korea Indonesia Australia Thailand* Singapore Taiwan Japan* Canada* 0.0% 5% 5% 5% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 7% 7% 10% 10% 10% 10% 12.5% 12% 15% 17% 20% 19.6% 19% 27%

* Note: China has a VAT Pilot Reform in a number of cities across the country, replacing Business Tax with a modified form of VAT (rates vary up to 17%). The Indian rate above is indicative only - India has a range of Indirect Taxes that vary state to state. Thailand has a specially reduced VAT rate of 7% in force at the time of writing, down from a standard 10% rate. Japan has a 5% consumption tax at the moment, which may double over the next 5 years. The Canadian rate is also indicative – many provinces have additional taxes and/ or a Harmonised Sales Tax in force.

Singapore Budget Commentary 2013 39

Contacts
For more information, please contact:-

Business Tax Services
Ajit Prabhu Chan Huang Chay Daniel Ho Lee Tiong Heng Linda Foo Low Hwee Chua Michael Pfaar Ong Siok Peng Rohit Shah Rony Mathieu Wuytjens See Jee Chang Steve Towers Steven Yap Wong Chee Ming (65) 6530 5522 (65) 6530 5536 (65) 6216 3189 (65) 6216 3262 (65) 6530 5562 (65) 6216 3290 (65) 6530 8038 (65) 6216 3257 (65) 6216 3205 (65) 6531 5026 (65) 6216 3181 (65) 6216 3227 (65) 6530 8018 (65) 6530 5595 [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail]

Transfer Pricing Services
See Jee Chang (65) 6216 3181 [e-mail]

Global Employer Services
Jill Lim Sabrina Sia (65) 6530 5519 (65) 6216 3186 [e-mail] [e-mail]

Indirect Tax Services
Richard Mackender Robert Tsang (65) 6216 3270 (65) 6530 5523 [e-mail] [e-mail]

Customs and Trade Services
Bob Fletcher (65) 6216 3338 [e-mail]

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