The Singapore Finance Minister Heng Swee Keat presented his Budget for Financial Year 2018 to the Parliament. In the statement, Heng announced several tax changes for regional economic promotion. The corporate tax rate is unchanged, but incentives will be granted with various enhanced deductions. In addition, the Goods and Services Tax (GST) is to extend to digital economy as well.
Favourable Deductions for business
Several deductions are enhanced or extended, including:
- Enhancing and extending Corporate Income Tax ("CIT") rebate: a) For YA2018, the CIT rebate will be enhanced to 40% of the tax payable, subject to a cap of $15,000. This is an increase from the previously announced rebate of 20% of tax payable, subject to a cap of $10,000; and b) The CIT rebate will be extended for another year to YA2019, at a rate of 20% of the tax payable, capped at $10,000;
- Enhancing the tax deduction for qualifying expenditure on qualifying research and development (“R&D”) projects performed in Singapore: increase the tax deduction for staff costs and consumables incurred on qualifying R&D projects performed in Singapore from 150% to 250%
- Enhancing the tax deduction for costs on protecting intellectual property (“IP”) since YA2019 to YA 2025: a) Extend the scheme till YA2025; and b) Enhance the tax deduction from 100% to 200% for the first $100,000 of qualifying IP registration costs incurred for each YA;
- Enhancing the tax deduction for costs on IP in-licensing since YA2019 to YA 2025: enhance the tax deduction from 100% to 200% for the first $100,000 of qualifying IP in-licensing costs incurred for each YA. Qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded research performers or other businesses, but exclude related party licensing payments, or payments for IP where any allowance was previously made to that person;
- Enhancing the Double Tax Deduction for Internationalisation (“DTDi”) scheme since FA2019: the $100,000 expenditure cap for claims without prior approval from IE Singapore or STB will be raised to $150,000 per YA. Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding $150,000, or on expenses incurred on other qualifying activities;
- Adjustment to the Start-Up Tax Exemption ("SUTE") scheme since FA 2020: a) 75% exemption on the first $100,000 of normal chargeable income; and b) 50% exemption on the next $100,000 of normal chargeable income;
- Adjustment to the Partial Tax Exemption (“PTE”) scheme since FA 2020: a) 75% exemption on the first $10,000 of normal chargeable income; and b) 50% exemption on the next $190,000 of normal chargeable income;
- Extending the Business and IPC Partnership Scheme (“BIPS”): To continue supporting employee volunteerism through businesses, BIPS will be extended until 31 December 2021;
- Extending the 250% Tax Deduction for Qualifying Donations: the 250% tax deduction for qualifying donations will be extended for donations made on or before 31 December 2021.
Digital Economy Tax
To ensure a fair and resilient tax system in digital economy context, the GST on imported services will be levied since 1 January 2020 on both B2B and B2C transactions.
B2B imported services will be taxed via a reverse charge mechanism. Only businesses that: (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply the reverse charge. The majority of businesses make taxable supplies and thus would not be affected by this reverse charge mechanism. The reverse charge mechanism requires the local business customer to account for GST to IRAS on the services it imports. The local business customer can in turn claim the GST accounted for as its input tax, subject to the GST input tax recovery rules.
The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST.