Tax highlights from the Singapore 2024 Budget

On 16 February, the Singapore 2024 Budget was presented by Deputy Prime Minister and Finance Minister Lawrence Wong. The Budget outlines Singapore’s revenue and expenditure for the upcoming fiscal year, setting forth the Government's financial priorities and policy directions. The relevant tax highlights of the 2024 Budget for multinational companies and investment funds with operations in Singapore are set out below.

CORPORATE INCOME TAX (CIT) REBATE FOR YEAR OF ASSESSMENT (YA) 2024

The Budget provides for a 50% CIT rebate for all companies (capped at SGD40,000) to help them manage the rising costs. Typically, such rebates are applied directly to the income tax payable by companies for the specified YA, effectively lowering the amount of tax that companies need to pay. The Budget also provides a minimum cash grant of SGD2,000 for companies with at least one local employee, aimed at companies that cannot enjoy the full benefit of the tax rebate because they have low or no chargeable income.

ENHANCEMENT OF TAX DEDUCTION FOR RENOVATION OR REFURBISHMENT (R&R) EXPENDITURE

Additionally, the Budget proposes an expansion of the scope of qualifying expenditure for tax deduction for R&R expenditure from YA 2025. This adjustment is intended to encourage businesses to invest in enhancing their premises, thereby improving operational capabilities and contributing to the overall productivity of the economy.

PILLAR TWO OF THE BASE EROSION AND PROFIT SHIFTING (BEPS) 2.0 INITIATIVE

In line with earlier announcements, Singapore will implement the Income Inclusion Rule (IIR) and a Domestic Top-up Tax (DTT) from Pillar Two of the BEPS 2.0 framework from 2025. This is in line with our expectations. Other countries have already implemented the Pillar Two rules which pushes Singapore to move ahead with implementation, in order to avoid losing revenue to those countries that have already implemented the Undertaxed Profits Rule (UTPR).

The Finance Minister clarified that the implementation of the UTPR will be considered at a later stage, as the Government wants to prioritize the implementation of the IRR and DTT to ensure a smooth rollout for the affected companies. Interestingly, the Minister also announced that any additional revenue obtained from implementing Pillar Two will need to be reinvested in Singapore to maintain competitiveness in a post-BEPS world.

REFUNDABLE INVESTMENT CREDIT (RIC) SCHEME

The highlight of the Budget is the introduction of the Refundable Investment Credit (RIC) scheme. This scheme is designed to incentivize businesses undertaking sizeable investments in high-value and substantive economic activities, by offering refundable investment credits with cash features. These high-value and substantive economic activities are:

• investing in new productive capacity,
• expanding or establishing digital and professional services as well as supply chain management,
• expanding or establishing headquarter activities or Centres of Excellence,
• setting-up or expansion of activities by commodity firms,
• carrying out R&D and innovation activities, and
• implementing solutions with decarbonization objective,

The credits can be offset against the CIT payable. Unused credits are refundable to the company in cash within four years from when the company satisfies the conditions for receiving the credits. The RIC will be awarded based on the support rates predetermined for the company’s different qualifying expenditure categories (such as capital expenditure, manpower and training costs, professional fees and intangible asset costs), during a period of up to ten years.

Companies can receive up to 50% of support on each qualifying expenditure category. However, the total quantum of RIC that a company is eligible for will be determined by the Singapore Economic Development Board (EDB) and EnterpriseSG.

The RIC scheme is consistent with the Global Anti-Base Erosion (GloBE) Rules for Qualified Refundable Tax Credits (QRTCs) under the OECD's BEPS framework. As QRTCs are treated as income for GloBE purposes, as opposed to a reduction in adjusted covered taxes, generally they would not decrease the effective tax rate as much as a non-refundable tax credit. This means that QRTCs would result in a lower top-up tax. This introduction is in line with developments that we have seen in other countries, such as the US and several European countries.

Extension and revision of the fund tax incentive schemes

Other relevant news includes the revision and extension of the tax incentive schemes for funds managed by Singapore-based fund managers (Qualifying Funds) under Section 13D, 13O and 13U of the Singapore Income Tax Act 1947 (ITA). The fund tax incentives for Qualifying Funds, along with the withholding tax exemption on interest and other qualifying payments made to non-resident persons and the Goods and Services Tax (GST) remission scheme for qualifying expenses, will be extended until 31 December 2029.

The revision of the tax incentive for Qualifying Funds will take effect from 1 January 2025. Section 13O of the ITA will be enhanced to include Singapore Limited Partnerships, which currently can only apply for Section 13U of the ITA. This revision will provide more flexibility when choosing the appropriate legal structure for investment funds that do not meet the qualifying conditions under Section 13U of the ITA, notably the minimum fund size requirement of SGD50,000,000 net asset value.

Additionally, the 2024 Budget has announced that the economic criteria (i.e., the minimum spending and fund size) for the Qualifying Funds will be revised. However, no further information has been provided. While the increase of the minimum spending requirement was anticipated, the revision of the minimum fund size is a surprise. Currently, Section 13O of the ITA is extensively used, and the incorporation of a minimum fund size for this fund tax incentive scheme could jeopardize Singapore’s flexible toolbox for funds. Furthermore, clarification is required as to whether the new minimum spending requirement will be applicable to Qualifying Funds that have been approved or submitted their tax incentive application before 31 December 2024.

OTHER TAX CHANGES

The Budget also introduces additional concessionary tax rate (CTR) tiers of 10% for the Aircraft Leasing Scheme and the Finance and Treasury Centre Incentive, and 15% for the Development and Expansion Incentive, Intellectual Property Development Incentive, and Global Trader Programme to stimulate growth and innovation across these key sectors. To qualify for CTRs under various tax incentives, businesses must adhere to specific economic commitments throughout the incentive period, mainly focused on headcount and business spend. As the difference between the CTR of 15% and the prevailing corporate tax rate of 17% is small, these incentives may become less attractive to businesses. Clarification from the EBD or EnterpriseSG is needed with regards to whether these new CTR tiers will require lower economic commitments compared to the existing CTR tiers which offer lower rates. However, the additions and changes to the incentive toolbox show that Singapore is committed to retaining this regime in the post-BEPS era.

The 2024 Budget has also announced the introduction of an alternative basis of tax for selected Maritime Section Incentive (MSI) sub-schemes, where qualifying income is taxed with reference to the net tonnage from YA 2024.

CONCLUSION

The 2024 Budget demonstrates Singapore’s commitment to remaining competitive in a post-BEPS world. However, we will need to wait until Q3 2024 to obtain more details on the above tax changes from the EBD, EnterpriseSG and the Monetary Authority of Singapore (MAS). Additionally, it is important for Singapore to remain competitive in the asset management space due to the increased competition from other regional hubs.

To learn more, please contact Barbara Voskamp, Anne Klaassen or Victor Sanlorien Cobo.