Tax Incentives For Specific Industries In Singapore

This article provides business-owners and entrepreneurs with a broad overview of the range of investment related and industry-specific tax incentives provided to companies under the Singapore Income Tax Act and subsidiary legislation. To learn more about the Singaporean taxation system, please see our article on Singapore income tax and tax rates.

Singapore has built itself into an enormously economically competitive country thanks to a low headline corporate income tax rate of 17 per cent additionally reduced by industry-specific incentives and generous tax exemptions. Businesses conducting activities reflecting the planned economic development of the country as laid out the Government of Singapore can benefit from a comprehensive package of tax incentives and concessions.

Below is a breakdown by industry of what tax incentives are offered:

Financial services industry

A number of tax incentives are available for businesses operating in the financial services industry. Key incentives include:

  • Income and capital gains resulting from the trading of investments by financial services companies for and on behalf of non-resident clients are frequently deemed to be exempt from taxation in the hands of both the non-resident client and the company. This incentive is offered to make Singapore a more attractive country for foreign entrepreneurs and investors in which to base their investments.
  • Profits earned by companies resulting from income earned billing clients for previously rendered investment services may be eligible for concessionary tax rates.
  • Subject to certain qualifications, financial institutions may benefit from a withholding tax exemption on payments made on qualifying over-the-counter (OTC) financial derivatives. These payments must be made to a person who qualifies neither as a permanent establishment in Singapore nor as Singapore residents. This exemption will expire in March of 2021.

Banks

From April 1 2011, a withholding tax exemption will be granted on interest payments and other qualifying payments to non-resident persons in relation to their business or trade. This exemption will apply to all payments liable to be made between 1 April 2011 and 31 March 2021 on contracts taking effect prior to April 1 2011, and all payments liable to be made on contracts taking effect on or after 1 April 2011 until 31 March 2021.

In line with Budget 2012, the withholding tax exemption will henceforth be extended to permanent establishments in Singapore with respect to payments made between 17 February 2012 and 31 March 2021 for contracts already in force by the commencement date. This exemption will also apply to payments arising from contracts effective after 17 February 2012.

This exemption applies to:

  • Banks approved under the MAS Act or licensed under the Banking Act
  • Finance Companies licensed under the Finance Companies Act
  • Approved financial institutions engaging in lending as part of the regulated activity of dealing in securities who have been licensed under the Securities and Futures Act.

Fund management industry

To further Singapore’s growing reputation as one of the most popular locations in Asia for the establishment of fund management companies, the Government of Singapore has elected to offer attractive tax benefits and a relatively short time to register a fund within the country.

Offshore funds

Subject to certain qualifying conditions, offshore funds that are managed by fund managers based in Singapore are exempt from domestic taxation on certain forms of specific income – dividends, gains, profits and interest – resulting from designated investments. These investments include but are not limited to shares, securities, stocks, bonds, futures contracts and deposits.

To qualify, a fund must:

  • Not be 100 per cent beneficially owned by Singapore investors considered to be Singapore-based permanent establishments of non-residents, or individuals or corporate entities resident in Singapore,
  • Not have a presence within Singaporean territory
  • Only take the form of individual accounts, trusts or companies.

Qualifying investors additionally enjoy exemption from taxation on income produced from qualifying funds. To be defined as a qualifying investor, they must be:

  • An individual investor
  • Certain specified entities under the Government of Singapore
  • A corporate investor who is a resident of Singapore that does not own more than 30 per cent (if the fund has fewer than 10 investors) or 50 per cent (if the fund has 10 or more than 10 investors) of the qualifying fund
  • A bona fide non-individual non-resident investor that either:
    • Does not possess a Singapore presence or business activity beyond their capacity as a fund manager, or
    • Has a permanent establishment within Singapore, but does not utilise funds from the operation of this establishment to invest in the qualifying fund.

Onshore funds

In 2006, the Singapore Resident Fund Scheme was introduced by the Government of Singapore which extended the above scheme to include funds constituted in Singapore. To qualify under the Scheme, funds in Singapore must meet the following conditions:

  • The fund vehicle may only be a company
  • The fund must both be constituted within Singapore and have its administration conducted in Singapore, and
  • The fund must be approved by the Monetary Authority of Singapore (MAS)

This scheme was introduced in an attempt to boost Singapore’s profile as a location for the fund management industry. The scheme offered the additional advantages of the country’s extensive network of treaties to the industry, helping to reduce tax liabilities in treaty countries that funds have invested in.

Introduction of an enhanced tier to the fund management scheme

Subject to additional conditions, funds with a minimum size of S$50 million at the point of application can now benefit from the introduction of an enhanced tier to the existing industry incentives with effect from 1 April 2009 to 31 March 2014. This enhanced tier will impose no restrictions on the residency status of both the investors and the fund vehicles, and will also apply to funds constituted in the form of Limited Partnerships. In addition, the investment limitation on corporate investors whereby they must not exceed either 30 or 50 per cent ownership of the fund (depending on if the total number of investors is lesser than or equal to/greater than 10) has been lifted for qualifying funds.

Concessionary tax rate on qualifying income

Subject to certain conditions and with prior approval from the Monetary Authority of Singapore, fund managers in Singapore benefit from a concessionary tax rate of 10 per cent on all fee income under the Financial Sector Incentive Scheme for Fund Managers. To qualify, fund managers must employ a minimum of three investment or fund management advisory professionals with a basic income exceeding S$3,500 per month.

Global trading companies

A concessionary tax rate between 5 and 10 per cent for a period between 5 and 10 years will be granted to qualifying global trading companies, with the specifics determined by the company’s business standing and annual turnover. Global Trader status under the Global Trader Programme (GTP) is reserved for businesses that well-established in their respective fields and carrying a proven track record of proficiency in international procurement, trade and transportation of qualifying products.

The scheme includes the following derivative instruments:

  • Over-the-counter (OTC) and exchange-traded commodity derivatives. Derivatives must be in an approved commodity as defined by the GTP company’s list of approved commodities.
  • OTC and exchange-traded freight derivatives.

Interest-rate swaps, forex derivatives and other similar derivative instruments are not covered by the GTP. In line with Budget 2011, the GTP list of qualifying derivative instruments will be expanded and limits removed. All derivative instruments will now be included under the GTP. This enhancement applies to income derived by a GTP company from Year of Assessment 2012 engaging in qualifying trades made in the new qualifying derivative instruments. A sunset clause set for 31 March 2021 has been introduced for the scheme, meaning companies may apply to be approved as a GTP company or GTP (Structured Commodity Finance) company on or prior to 31 March 2021. The benefits attached to a successful application will be awarded for a tenure of up to five years.

Maritime and shipping industry

To encourage domestic and overseas shipping companies to grow and enhance their business in Singapore, the Maritime and Port Authority of Singapore (MPA) now offer a number of incentives under the Maritime Sector Incentive (MSI) scheme. The MSI scheme outlines a number of tax concessions and incentives for business involved in shipping support services, international shipping and freight and maritime (container or ship) leasing.

Specifics of the Maritime Sector Incentive Scheme

  • International shipping companies looking to expand into Singapore and with trustworthy, well-established global networks and a strong reputation for quality may apply to be recognised under the Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award. This award allows qualifying companies to benefit from a tax exemption on qualifying shipping come for up to 10-years. Companies may be granted either a 10-year renewable period, of a 5-year non-renewable period with the option to graduate to the 10-year-renewable period upon completion of the original term.
  • Corporate entities demonstrating a commitment to expand existing container financing and shipping operations within Singapore may apply for the Maritime Sector Incentive – Maritime Leasing (MSI-ML) Award. This award grants tax concessions for a period up to five years on qualifying leasing income to container leasing companies, partnerships, funds or business trusts. In addition, approved managers of the entity owning the assets may benefit from a 10 per cent concessionary tax rate on qualifying management income.
  • Approved shipping support service entities may enjoy a 10 per cent concessionary tax rate for a period of five years under the Maritime Sector Incentive – Shipping-Related Support Services (MSI-SSS) Award on certain forms of incremental income. This income must be derived from the provision of certain shipping-related support services:
    • Ship agency
    • Ship management
    • Ship broking
    • Forward freight agreement (FFA) trading
    • Logistics and freight forwarding services; and
    • Corporate services provided to qualifying approved related parties engaged in shipping-related activities
  • Withholding tax exemptions
    • Subject to certain conditions, corporate entities classed under the International Shipping Operations category of the MSI scheme may enjoy automatic withhold tax exemption on certain payments. These payments must be made in respect of qualifying foreign loans incurred to finance the purchasing or construction of either Singapore-flagged or foreign flagged vessels. Successful application under the scheme means companies no longer have to apply for case-by-case exemptions between the period of 1 June 2011 and 31 May 2016. Qualifying entities include:
      • MSI-Maritime Leasing (Ship) entities
      • MSI-Shipping Enterprise (Singapore Registry of Ships); and
      • MSI-Approved International Shipping Enterprise Companies
    • In addition, and subject to conditions, qualifying corporate entities may also enjoy withholding tax exemption on certain payments made in respect of qualifying foreign loans incurred to finance the purchase of inter-modal equipment and qualifying shipping and freight containers between 17 Feb 2012 and 31 May 2016. This exemption applies to qualifying entities awarded the either of the two following statuses under the MSI-Maritime Leasing (Container) award:
      • MSI-Approved Container Investment Enterprise (MSI-ACIE); and
      • MSI-ACIE (Local ASPV)

Other incentives

  • From 1 July 2010, GST compliance for businesses supporting the maritime industry will be eased. Under the expanded system, recreational and pleasure ships wholly used for international travel will now benefit from GST zero-rating, and will additionally apply to all goods (including merchandises and stores) supplied for the installation or use on board of the qualifying vessel, regardless of whether the ship calls on a port outside Singaporean territory. This zero-rating also extends to the transport of passengers or goods via ship both to and from international waters, regardless of whether the ship calls on a foreign port.
  • Pre-established international shipping companies recognised as having a good track record and a strong global network will, on approval, be exempt from tax on income generated by the operation of their ships outside Singaporean territory for 10 years.
  • From 17 February 2012, payers making time charter, voyage and bareboat payments to non-residents for the use of ships will no longer be required to withhold tax.
  • Where a company has taken out a loan from a lender outside of Singapore for the purchasing of a Singapore-flagged ship, that company will be eligible for a withholding tax exemption on interest payments payable on the loan under the Block Transfer Scheme. This scheme will apply to vessels registered with the Singapore Registry of Ships (SRS) between 1 January 2009 and 31 December 2013.
  • Ship lessors and ship operators meeting certain qualifying criteria may avail themselves of tax exemptions on gains derived from the following:
    • oDisposal of Singapore Registry of Ships-registered vessels, and vessels owned or operated under the Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award.
    • The sale of vessels which would be subsequently leased back to shipping companies
    • The sale of 100 per cent shareholding in Special Purpose Companies (SPCs) owning a vessel under the MSI-AIS award or registered with the SRS.
    • The disposal of new building contracts and vessels under construction; and
    • The disposal of foreign-registered and flagged vessels

Tourism industry

  • Inbound Tourism Promotion: Subject to their satisfying certain criteria of eligibility, approved companies may deduct 200 per cent of the qualifying expenditure from their taxable income of participating in overseas mission or fairs.
  • Participation in Local Trade Exhibitions: Subject to their satisfying certain criteria of eligibility, approved companies may deduce 200 per cent of the qualifying expenditure incurred from their participation in international trade-oriented exhibitions held in Singapore

Event organisers

Singapore companies bringing mega events to Singapore are eligible for a concessionary tax rate of 10 per cent on the income derived from the mega event.

e-Commerce industry

In the pursuit of further developing Singapore as a hub for e-commerce operations, established e-commerce companies may be eligible for a reduced tax rate of 10 per cent over a period of five years. This tax rate will apply to income derived from e-commerce transactions performed with parties outside of Singapore.

Approved ventures

Income derived from the making of approved investments by approved venture companies is eligible for a reduced tax rate of between 0 and 10 per cent. The precise tax rate and period of time offered to the company will be determined by authorities during the application process.

Insurance companies

Insurance companies operating in Singapore can benefit from several tax incentives offered by the Government of Singapore:

  • Under the Captive Insurance Tax Incentive Scheme, insurers may benefit from a tax exemption on qualifying forms of income. This income must be derived from the carrying on of offshore insurance business, and is offered for a period of 10 years. The scheme is valid until 31 March 2018.
  • Insurers may enjoy exemption from taxation on certain forms of qualifying income under the Marine Hull and Liability Insurance Tax Incentive Scheme. Only income generated by the carrying on of marine hull and liability insurance business qualifies. This scheme is offered to the business for a term of 10 years and will sunset on 31 March 2016.
  • Insurers generating income from the provision of qualifying offshore specialised insurance services may be eligible for a tax exemption for a period of five years on said income under the Specialized Insurance Tax Incentive Scheme. Specialised insurance business lines is defined as Political, Energy, Terrorism and Agriculture Insurance as well as Aerospace and Aviation Risks. This scheme is valid until August of 2016.

Headquarters activities

To encourage multinational corporations to consider Singapore as a candidate for their global or regional headquarters base, the Government of Singapore offers two specific tax incentive schemes:

  • Under the Regional Headquarters Award, qualifying companies with their Asia-Pacific headquarters in Singapore can benefit from a 15 per cent concessionary tax rate for a total of five (3 + 2) years on qualifying incremental income derived from abroad. Those companies able to satisfy the requirements of the award by the third year of the incentive period will benefit from the reduced tax rate for an additional two years on top of the initial period of three years.
  • Companies committed to exceeding the minimum requirements of the Regional Headquarters Award may be eligible for an even further reduced concessionary tax rate of between 5 and 15 per cent on incremental income derived from qualifying activities. This scheme is open to any entity setting up a company in Singapore to carry on headquarters activities.

Processing services companies

Processing services companies that meet certain qualifying criteria may be taxed at a 5 per cent concessionary rate for a period of 5 to 10 years on income derived from the provision of certain prescribed services to financial institutes.

Legal firms

Singaporean law firms meeting the criteria for approval may benefit from a concessionary tax rate of 10 per cent on incremental income derived from the provision of qualifying international legal services for a period of five years. This incentive is valid from 1 April 2010 to 31 March 2015, and includes all legal services connected to both goods and land outside of Singapore as well as intangible legal services provided to clients outside of Singapore.

Furthermore, approved law firms can avail themselves of a 50 per cent tax exemption on qualifying incremental income derived from the hearing of international arbitration cases in Singapore.

Innovation, research & development, and product development activities

  • The Development and Expansion Incentive is designed to encourage companies based in Singapore to procure advanced equipment and machinery, move toward high value-addition business activities and expand their domestic operations. This incentive offers a reduced tax rate between 5 and 10 per cent on incremental income derived from the carrying on of qualifying activities.
  • In addition to companies claiming capital allowance on equipment and plant used overseas in connection with their business or trade (subject to certain conditions), under Budget 2012 businesses may now benefit from the new Integrated Investment Allowance Scheme. From YA 2013, this scheme will provide an additional allowance on fixed capital expenditure incurred for the purchasing of productive equipment placed overseas for use on approved projects.
  • The creation of the Pioneer Incentive Scheme allows companies from the services and manufacturing sectors who are engaged in activities that raise the overall standards of industry to potentially benefit from full corporate income tax exemption on qualifying profits for a period of 15 years.
  • The Productivity and Innovation (PIC) Scheme was first introduced in 2010 to offer tax benefits to approved companies engaging in activities to further industry productivity and innovation. Under the PIC scheme, business may enjoy tax deductions of up to 400 per cent on qualifying expenses, or an allowance of up to S$400,000. Qualifying activities that the deductions can be claimed for include:
    • Research & development
    • Registration of intellectual property
    • Design activities
    • Technological or software-based automation
    • Employee training

Businesses will be permitted to combine the annual expenditure cap of S$400,000 into a new ceiling of S$1,200,000 for the period of YA 2013 to YA 2015. Businesses with low taxable income may also elect to convert up to S$300,000 of the allowances and deductions offered into cash grant with a maximum value of S$21,000 per year. Businesses may also choose to convert a maximum of S$100,000 of their expenditure in a tax-exempt cash payout at a conversion rate of 30 per cent, with the rate increased to 60 per cent from YA 2013 to YA 2015. Previously the PIC scheme was only open to companies engaging in research and development performed locally in Singapore, but this has since been broadened to work done overseas.

The PIC scheme has benefited many businesses since its introduction in YA 2011 and has been instrumental in kick-starting the productivity drive. As announced in Budget 2016, the PIC scheme will lapse after YA 2018. In addition, the cash payout rate will be reduced from 60% to 40% for qualifying expenditure incurred on or after 1 August 2016. These changes are in line with the Industry Transformation Programme to direct the Government’s assistance towards more targeted and sectoral-focused initiatives.

To facilitate businesses’ transition to the cash payout rate of 40%, IRAS will be updating our website by May 2016 to provide guidance on determining the dates that expenditure is incurred for PIC purposes.

The PIC Bonus, which was a dollar-for-dollar matching cash bonus and capped at $15,000 in total for YAs 2013 to 2015, given on top of the existing PIC benefits, expired in YA 2015.

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