Lawrence Wong, Singapore minister for finance, presented the budget speech on 18 February 2022. This budget revolves around five tenets: investing in new capabilities, investing in our people, advancing our green transmission, renewing and strengthening our social compact, and building a fairer and more resilient tax system.
Singapore is exploring a top-up tax called the Minimum Effective Tax Rate
Income tax changes
In response to the global minimum effective tax rate under the Pillar 2 Global Anti-Base Erosion (GloBE) rules of the BEPS 2.0 project, Singapore is exploring a top-up tax called the Minimum Effective Tax Rate (METR).
The METR will top up a multinational enterprise (MNE) group’s effective tax rate in Singapore to 15%. The METR will apply to MNE groups operating in Singapore that have annual revenues of at least S$750m, as reflected in the consolidated financial statements of the ultimate parent entity.
The METR, if introduced eventually, will be aligned with the Pillar 2 GloBE rules as far as possible.
Withholding tax (WHT) on payments made to non-tax-resident
Approved Royalties Incentive (ARI)
WHT exemption or concessionary WHT rate may be granted/levied on approved royalties, technical assistance fees, or contributions to R&D costs for providing cutting-edge technology and know-how to a company for the purpose of substantive activities in Singapore, on an agreement-based approach.
To encourage companies to leverage new technologies and know-how to develop the capabilities of local workforce and capture new growth opportunities, and to help Singapore’s transformation into a knowledge-based economy, ARI is:
- scheduled to lapse after 31 December 2023, but to be extended until 31 December 2028
- simplified to cover classes of royalty agreements based on activity-set-based approach.
The Economic Development Board will provide more details by 30 June 2022.
Non-resident mediators and arbitrators
WHT exemption is granted on income derived from work carried out in Singapore (subject to conditions).
To support the use of Singapore’s international commercial arbitration and mediation services and to align to the marginal personal income tax rate:
- it is scheduled to lapse after 31 March 2022, but to be extended until 31 March 2023
- from 1 April 2023 until 31 December 2027, WHT exemption is removed. Instead, gross income is taxed at 10%, or net income at 24% (if elected).
WHT exemption on ship and container lease payments under finance lease (FL) agreements for specified Maritime Sector Incentive (MSI) recipients (subject to conditions)
To continue developing Singapore as an international maritime centre, the exemption which is scheduled to lapse after 31 December 2023 will be extended for such agreements entered into on or before 31 December 2028.
WHT exemption on container lease payments under operating lease (OL) agreements for the use of qualifying containers for the carriage of goods by sea (subject to conditions)
To continue supporting the local demand for containers, the exemption which is scheduled to lapse after 31 December 2022 will be extended for such agreements entered into on or before 31 December 2027.
Aircraft Leasing Scheme (ALS)
WHT exemption is granted on qualifying payments made by approved aircraft lessors (excluding PE in Singapore) in respect of qualifying loans and finance leases to finance the purchase of aircraft or aircraft engines, subject to conditions.
To continue encouraging the growth of the aircraft leasing sector in Singapore, the exemption which is scheduled to lapse after 31 December 2022 will be extended to such payments for agreements entered into on or before 31 December 2027.
Financial sector
WHT exemption is granted to specified parties on payments made under interest rate, currency swap or cross currency swap transactions; interest payments made on certain margin deposits; and specified payments made under securities lending or repurchase agreement.
- For payments that can be covered under the existing WHT exemption for payments on over-the-counter financial derivatives, it is scheduled to lapse after 31 December 2022.
- For the rest, it is scheduled to lapse after 31 December 2022, but to be extended until 31 December 2026.
The Monetary Authority of Singapore will provide more details by 31 May 2022.
Approved Foreign Loan (AFL) Scheme
WHT exemption or concessionary WHT rate may be granted/levied on interest payments made to non-tax resident for loans to a company to purchase productive equipment.
To encourage companies to invest in productive equipment for the purpose of conducting substantive activities in Singapore, AFL, which is scheduled to lapse after 31 December 2023, will be extended until 31 December 2028.
Other income tax changes affecting businesses
Project and infrastructural finance
- Exemption of qualifying income from qualifying project debt securities.
- Exemption of qualifying foreign-sourced income from qualifying offshore infrastructure projects/assets received by approved entities listed on the Singapore Exchange (SGX).
- Concessionary tax rate of 10% on qualifying income derived by an approved infrastructure trustee manager/fund management company from managing qualifying SGX-listed business trusts/infrastructure funds in relation to qualifying infrastructure projects/assets.
To support the development of Singapore as an infrastructure development hub, (1), (2) and (3) are scheduled to lapse after 31 December 2022, but only (1) and (2) will be extended to 31 December 2025.
Tax Incentive Scheme for Qualifying Funds (funds managed by Singapore-based fund manager)
Exemption is granted on specified income (SI) of qualifying funds derived from designated investments (DI), subject to conditions.
The DI currently includes physical commodities that are subject to the following conditions:
- The trading of the physical commodity must be incidental to the trading of the derivative commodity (incidental condition).
- The trade volume of such physical commodity is capped at 15% of the total trade volume of those physical commodities and related commodity derivatives (Cap).
To continue growing Singapore’s asset management industry, effective on and after 19 February 2022, conditions on investments in physical Investment Precious Metals (IPMs) under the DI list are refined as follows:
- removal of incidental condition
- cap is reduced to 5%.
Aircraft Leasing Scheme (ALS)
- Approved aircraft lessor: qualifying income is taxed at 8% (43N, Income Tax Act (ITA)).
- Approved aircraft managers: qualifying income is taxed at 10% (43O, ITA).
To continue encouraging the growth of the aircraft leasing sector in Singapore, ALS scheduled to lapse after 31 December 2022 will be extended until 31 December 2027.
Integrated Investment Allowance Scheme
Additional allowance is granted to a qualifying company on fixed CAPEX incurred for qualifying productive equipment placed overseas for approved projects.
As the programme appears not attractive and potential foreign tax issues may be involved, it will be allowed to lapse as planned on 31 December 2022.
Personal income tax changes
From YA2024 onwards, personal income tax rates for chargeable income will be revised as follows:
For tax residents where their chargeable income is:
- ≤ $500K: no change
- $500K ~ $1,000K: 23%
- > $1,000K: 24%.
- For non-tax residents, top marginal tax rates increase from 22% to 24% (other than employment income and certain taxable income at reduced WHT rate).
The proposed top marginal tax rates still remain low compared to other jurisdictions in the region. Those with high earning power are expected to contribute more to society.
The proposed top marginal tax rates still remain low compared to other jurisdictions in the region
Other tax changes
The current rate of Goods and Services Tax (GST) is 7% since 1 July 2007. It will be increased in two stages:
- from 1 January 2023: 8%
- from 1 January 2024: 9%
To support data-driven policymaking, operations and integrated service delivery, the Inland Revenue Authority of Singapore will be allowed to disclose to specified parties for their performance of official duties:
- taxpayers’ information with their consent
- a prescribed list of identifiable information on companies without the need for taxpayers’ consent.
Everyone is expected to chip in and contribute to a vibrant economy
These proposed tax changes together with other expansionary fiscal measures in place seek to maintain Singapore’s competitive and resilient ecosystem as a hub for business and innovation. Everyone is expected to chip in and contribute to a vibrant economy, but those with greater means are expected to contribute a larger share.
More information
Read our article Singapore Budget’s long-term focus in which ACCA members discuss the latest raft of measures.
