ISCA Budget 2014 Update and its Tax Implications: Impact ...download.isca.org.sg/event/TAX2014.pdf1...

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ISCA Budget 2014 Update and its

Tax Implications:

Impact on Corporate Firms and Individuals

5 March 2014, Wednesday

8.30 a.m. – 12.30 p.m.

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Prof. Sum Yee Loong Honorary Tax Advisor, ISCA

Professor of Accounting (Practice), SMU

ISCA 2014 Budget

Analysis and Recent

Tax Developments

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GROWTH & HARMONY GROWTH & HARMONY

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Corporate Tax

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Corporate Tax Rate

- Remains @ 17%

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Corporate Tax Comparisons

0

10

20

30

40

50

12.516.5 17

2023 25

3035

Ireland

Ireland Hong Kong S’pore Thailand UK China India US

Taiwan Malaysia Australia

Indonesia Philippines

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30% Tax Rebate

- YA 2013 – YA 2015

- Max $30,000 per YA

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C.I. $

Rate* %

300,000 5.8

500,000 8.3

740,735 9.5

1,000,000 11.4

* After partial exemption of $152,500 & rebate

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PIC

Introduced in 2010 Budget and enhanced in 2011, 2012, 2013 & 2014 - 400% of up to $400k of qualifying expenditures on:- - R&D - Acquisition & Licensing of IP - Registration of IP - Investments in design - Investments in automation - Training for employees

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Cash Conversion

- Up to $60,000

(on first $100,000 expenditure)

- Effective conversion rate of 15%

- From YA 2013

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NO

$

Profit 700,000

PIC (400,000)

C.I. 300,000

PTE (152,500)

147,500

Tax @ 17% 25,075

Cash conversion -

25,075

Cash Conversion

YES

$

700,000

-

700,000

(152,500)

547,500

93,075

(60,000)

33,075

$8,000

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Reconciliation

$400,000 @ 17% 68,000

Cash payout (60,000)

8,000 .

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NO

$

Profit 500,000

PIC (400,000)

C.I. 100,000

PTE (52,500)

47,500

Tax @ 17% 8,075

Cash conversion -

8,075

Cash Conversion

YES

$

500,000

-

500,000

(152,500)

347,500

59,075

(60,000)

(925)

($9,000)

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Reconciliation

$200,000 @ 17% 34,000

$200,000 @ 8.5% 17,000

51,000

Cash payout (60,000)

(9,000)

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NO

$

Profit 700,000

PIC (400,000)

C.I. 300,000

PTE (152,500)

147,500

Tax @ 17% Rebate

25,075 (7522)

Cash conversion -

17,553

Cash Conversion YES

$

700,000

-

700,000

(152,500)

547,500

93,075 (27,922)

(60,000)

5,153

($12,400)

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Reconciliation

$400,000 @ 11.9% 47,600

Cash payout (60,000)

(12,400)

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NO

$

Profit 500,000

PIC (400,000)

C.I. 100,000

PTE (52,500)

47,500

Tax @ 17% Rebate

8,075 (2,422)

Cash conversion -

5,653

Cash Conversion YES

$

500,000

-

500,000

(152,500)

347,500

59,075 (17,722)

(60,000)

(18,647)

$24,300

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Reconciliation

$200,000 @ 11.9% 23,800

$200,000 @ 5.95% 11,900

35,700

Cash payout (60,000)

(24,300)

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PIC

Introduced in 2010 budget for 2011 - 2015

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PIC

Extended 3 years to YA 2018

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PIC

PIC for training extended to centralised

hiring arrangements

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PIC

- Tax deferral not extended

- Ends in YA 2015

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PIC + for SMEs

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SME

- T/O ≯ $100mil, or

- Employees ≯ 200

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PIC + Scheme

From YA 2015 - 2018

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PIC + Scheme

$600k per qualifying activity per year

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PIC + Scheme

Combined cap (YA 2013 – 2015)

- $1.4 mil ($400k + $400k + $600k)

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PIC + Scheme

Combined cap (YA 2016 – 2018)

- $1.8 mil

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R&D

Additional 50% deduction (S14DA)

- Extended 10 years to YA 2025

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R&D

Double deduction (S14E)

- Extended 5 years to YA 2020

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Intellectual Property Rights

Writing Down Allowance (WDA) for IPR

- Extended 5 years to YA 2020

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Intellectual Property Rights

Accelerated WDA for Media and Digital

Entertainment

- Extended 3 years to YA 2018

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Intellectual Property Rights

Registration of IP (S14A)

- Extended 5 years to YA 2020

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Land Intensification Allowance

LIA

- Extended 5 years to 30 June 2020

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Withholding Tax

Currently withholding tax applies to

payments to non-residents of:

- interest;

- royalties;

- technical fees;

- management fees; and

- rental of movable assets.

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Withholding Tax

With immediate effect

- No withholding required if paid to

Singapore branches.

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Listed Infrastructure

Registered Business Trust

Exemptions under S13(12) to be

expanded to cover dividends and

interests from qualifying offshore

infrastructure projects

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Financial Institutions

Distributions paid on Tier 1 capital (other

than shares) deductible

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Fund Management

Tax exemption for funds

- Extended 5 years to 31 March 2019

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Personal Tax

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Personal Tax

YA 2014

- No change in tax rates

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Comparative personal effective tax rates

Year of Assessment 2014

Employee married with 2 children

Gross annual remuneration of $200,000

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Tax Rate

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Dependent Relief

YA 2014 YA2015 onwards

Parent/grandparent

- Not staying in same 4,500 / 8,000 5,500 / 10,000

household

- Staying in same 7,000 / 11,000 9,000 / 14,000

household

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Handicapped Spouse, Sibling, Child

Reliefs

YA 2014 YA2015 onwards

Handicapped spouse 3,500 5,500

Handicapped sibling 3,500 5,500

Handicapped child 5,500 7,500

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Transfers of Qualifying Deductions and

Rental Deficits between Spouses

Transfers of :-

• C.A.

• Losses

• Donations

• Rental deficits

- Phased out from YA 2016

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Section 40 Relief

S40 Relief

- Phased out from YA 2016

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CPF

Employers – 1% increase

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CPF

Contributions by

Employees’ Age Employers Employees

50 – 55 years old 1% 0.5%

55 – 65 years old 0.5% 0%

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Excise Duties

Cigarettes - 10% increase

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Excise Duties

Alcohol - 25% increase

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Streamlining of Stamp Duty

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Leases of Immoveable Properties

Period Stamp Duty Rate

Up to 4 years

0.4% of total rent for period

> 4 years 0.4% of 4 times of average

annual rent for period

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Land Premiums and Purchase of Property

Purchase Price or

Market Value

Buyer’s Stamp Duty Rate

First $180,000

1%

Next $180,000

2%

Excess over $360,000

3%

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Stocks and Shares

Transaction Stamp Duty Rate

Transfer of

Shares

0.2% of higher of purchase

price or market price

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Recent Tax Developments

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Rights-based Approach

S12(7) deems, inter alia, payment for:

- use of technical, industrial or

commercial knowledge

- to be sourced in Singapore

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Rights-based Approach

W/H tax waiver applied to payment for:

- Shrink-wrap s/w;

- downloadable s/w;

- site-licence; and

- digitised information.

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Rights-based Approach

Is payment for:

- transfer of copyright rights; or

- copyrighted article; or

- digitised goods?

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Rights-based Approach

Transfer of copyright right:

- able to exploit copyright

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Full Tax Exemption

FTE does not apply to:

- Property Developers; and

- Investment Holding Companies.

(w.e.f. 26.02.2013)

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Bonuses and Directors’ Fees

Contractual bonus:

- if contractual;

- with conditions?

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Bonuses and Directors’ Fees

Sign-on bonus:

- with conditions?

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Bonuses and Directors’ Fees

Directors’ Fees

- approved in arrears;

- approved in advance.

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Accommodation Benefit-in-kind

Assessable Lower of:

- 10% emolument; or

- A.V.

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Accommodation Benefit-in-kind

wef YA 2015:

- Full A.V. assessable

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Accommodation Benefit-in-kind

F & F:

- fully furnished:

- 50% of A.V. assessable;

- partially furnished:

- 40% of A.V. assessable.

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Accommodation Benefit-in-kind

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$

Salary 240,000

Bonus 60,000

Total Rental p.m.

12,000

Property Rental p.m.

9,000

F&F Rental p.m. 3,000

F&F (scale rate) 300 p.m.

A.V. 108,000

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$

Salary 240,000

Bonus 60,000

300,000

F&F 3,600

Emolument 303,600

Acc BIK (10%) 30,360

Total emolument 333,960

YA 2014

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$

Salary 240,000

Bonus 60,000

300,000

F&F 54,000

Emolument 354,000

Acc BIK (10%) 108,000

Total emolument 462,000

YA 2015

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$

Salary 240,000

Bonus 60,000

300,000

F&F 3,600

Emolument 303,600

Acc BIK (10%) 30,360

Total emolument 333,960

YA 2014

$

240,000

60,000

300,000

54,000

354,000

108,000

462,000

YA 2015

$128,040

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Hotel Benefit-in-kind

Assessable:

- $250 pm; plus

- 2% of basic pay for the period

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Hotel Benefit-in-kind

wef YA 2015:

- Full cost assessable

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Financial Action Task Force (FATF)

-Recommended that Tax Crimes

be designated as money laundering

“PREDICATE OFFENCES”

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Corruption, Drug Trafficking and Other

Serious Crimes (Confiscation of

Benefits) Act (CDSA) :

- Now criminalises laundering of

proceeds from serious tax offences

(wef 1.7.13)

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Implications of Amendments

- Confiscation of Criminal Proceeds;

- Mandatory Reporting of Suspicious

Transactions.

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Tax Offences regarded as Money

Laundering Predicate Offences:

- Tax Evasion (S96);

- Serious Fraudulent Tax Evasion (S96A)

- Tax Evasion (S62 GSTA);

- Overclaiming Refunds (S63 GSTA)

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Predicate offence

- Any offence whose proceeds may

become the subject of any money

laundering offence.

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Predicate Offences for Money Laundering:

- Drug Trafficking;

- People smuggling;

- Sexual servitude;

- Illegal Logging and fishing;

- Fraud and Organised Crime;

- Corruption;

- Corporate Crimes;

- Tax Evasion

SYL_SMU-Oct13

81

“Indications” of Evasion of Income Tax:

- Declared Income does not correlate to:

- Assets owned and living standards;

- Other companies within same industry.

- Unusually high expenses;

- High turnover with low margins or loss;

- High creditor balances;

- Qualified accounts;

- Bank balances higher than turnover;

- Use of personal bank accounts for business.

SYL_SMU-Oct13

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“Indications” of Evasion of GST:

- Perpetual refunds;

- Inconsistencies between GST returns and

Income Tax Return;

- Unusual high volume or unusually high

value of transactions;

- Discrepancies with third party confirmations.

SYL_SMU-Oct13

83

Thank You