Singapore Budget Highlights 2016

Business Advisors to Growing Businesses

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12 April 2016


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Business Advisors to Growing Businesses3

A Recapitulation and summary of 2016 Budget….

Addressing near-term concerns

• Enhanced corporate income tax rebate

• Extended Special Employment Credit

• Introduce SME Working Capital Loan Scheme

• Foreign worker levy changes

Industry Transformation

Programme

• Launch Business Grants Portal

• Introduce Automation Support Package

• Provide financing and tax incentives for scale-ups

• Support for internationalisation

• Develop National Trade Platform

• Leveraging new technologies

Supporting our people through change

• Enhance SkillsFuture programme

• Introduce “Adapt and Grow” initiative

• Set up TechSkills Accelerator



Addressing near-term concerns Industry

Transformation Programme



Addressing near-term concerns - Corporate income tax rebate

• 30% rebate capped at $20,000 per YA for YA 2016 and YA 2017

Current position

• 50% rebate capped at $20,000 per YA for YA 2016 and YA 2017

Proposed changes

• Effective tax rate for first $300,000 of chargeable income down to 4.18% from 5.85%• Helps SMEs to reap a greater amount of the $20,000 rebate. Chargeable income at

$387,794 (instead of $544,656) will secure full benefit• Defer capital allowances claim and/or not surrender losses to group companies in order to

maximise tax rebate claim• Corporate tax rate of 17% is 5% lower than top marginal income tax rate of 22%. Should

self-employed individuals corporatise? A big caveat though-must have commercial reasonsand justifications for doing so

Impact on businesses


Addressing near-term concerns - Special Employment Credit

• Provide wage offsets for hiring older Singaporean workers

Current position

• Extended for 3 years (2017 to 2019) and tiered to provide greater support for hiring older age band workers

Proposed changes

• Some form of relief for hiring older workers and persons with disabilities • Wage offset rates:

▪ Aged 65 and above 8%▪ Aged 60 to 64 5%▪ Aged 55 to 59 3%

• Highest offset is for hiring workers aged 65 and above, earning no more than$3,000 per month. This is in addition to 3% wage offset for re-employing them

• A 16% wage offset for hiring persons with disabilities, regardless of age, butcapped at $240 per month



Addressing near-term concerns – SME Working Capital Loan Scheme

• None

Current position

• Up to $300,000 funding per SME may be secured from participating financialinstitutions with the Government co-sharing 50% of default risk

Proposed changes

• The aim is to entice and encourage financial institutions to lend to SMEs fortheir viable projects for growth and expansion and for which they have cash flowconcerns

• With the Government’s commitment to co-share 50% default risk, it will lowerfinancial institutions’ own risk in lending to these SMEs

• The scheme is available for three years starting from 2016



Addressing near-term concerns - Foreign worker levy changes

• Foreign worker levies are here to stay

Current position

• The Government took into consideration current economic climate and theincreased or decreased levels of foreign worker employment in different sectorsand adjusted levy rates accordingly

Proposed changes

• Various changes to cushion business cost increases:▪ Marine and Process sectors - Levy increases for Work Permit holders will be

deferred for a year from 1 July 2016▪ Manufacturing sector - Levies for all tiers and skill levels will remain unchanged

at 1 July 2014 rates until 30 June 2017▪ Services and Construction sectors - Previously announced rate changes from

1 July 2016 will proceed ▪ S Pass Holders in all sectors - Previously announced rate changes from

1 July 2016 will proceed




Addressing near-term concerns Industry

Transformation Programme



Industry Transformation Programme – Automation Support Package

Support under Capability Development Grant Investment Allowance

Enhance financing support Internationalisation

Automation Support Package



• None

Current position

• Capability Development Grant (“CDG”)Expanded to support automation projects at up to 50% of qualifying costs; capped at $1 million

• Investment Allowance (“IA”)Qualifying projects may be eligible for 100% IA on approved capital expenditure; capped at $10 million per project

• Enhanced financing support▪ The Government’s risk-share for loans granted under SPRING’s Local Enterprise

Finance Scheme equipment loan is increased to 70% (from 50%)▪ Scheme expanded to cover equipment loan for non-SMEs but with 50%

Government risk-share • Internationalisation

IE Singapore will work with SPRING to help businesses to access overseas markets

Proposed changes



• The Government is phasing out broad-based support (e.g. PIC scheme) andintroduced Automation Support Package, for an initial 3-year period, whichcontains more targeted and sector-focused measures

• The aims are to build deep capabilities, develop people, deploy technology,develop scale and internationalise

• 100% IA is generous as currently the IA rate is up to 50% of qualifyingexpenditure. IA is in addition to normal capital allowances relief. Hence for every$100 of qualifying expenditure, tax benefit is $34; which means actual cost tobusinesses is $66

• Clarifications awaited from MTI. What constitutes automation projects, qualifyingprojects for IA, whether can claim both CDG and IA for the same project andwhether wider group of companies, apart from SMEs, could benefit



Industry Transformation Programme – M&A scheme

Tax benefits Current position Proposed changes

M&A tax allowance

• 25% on consideration of upto $20m (i.e. tax allowancecap of $5m) for qualifyingdeals per YA

• 25% on consideration of up to$40m (i.e. tax allowance cap of$10m) for qualifying deals perYA

Stamp duty relief on transfers of unlisted shares

• 0.2% on consideration of upto $20m (i.e. cap of $40,000stamp duty) per financialyear

• 0.2% on consideration of up to$40m (i.e. cap of $80,000stamp duty) per financial year


Industry Transformation Programme – M&A scheme

• Businesses are encouraged to expand and grow via strategic acquisitions

• The tax allowance benefit claimable over a 5-year period is doubled from $5m to $10m for M&A deals executed post 31 March 2016

If maximum $10m benefit is claimed, it means a reduction of $1.7m in tax payable on profits over a period of 5 years

• Last year’s enhancement to the scheme benefitted smaller-scale acquisitions(i.e. 25% tax allowance rate on $20m consideration and acquiring 20% to50% shareholding stake also qualifies). The increase in acquisition value to$40m will benefit the larger-sized deals

• Qualifying transaction costs of up to $100,000 continue to qualify for doubletax deduction



Industry Transformation Programme – Support for internationalisation

• Automatic double tax deduction allowed on qualifying internationalisationexpenses of up to $100,000 incurred by 31 March 2016 for trade fairs,overseas business development and overseas investment study trips

• For qualifying expenditure exceeding $100,000 or other qualifying activities,applications may be made to IE Singapore or Singapore Tourism Board forapproval on a case-by-case basis

Current position

• The Double Tax Deduction for Internationalisation scheme is extended for afurther 4 years; from 1 April 2016 to 31 March 2020

• The existing automatic double tax deduction (i.e. without the need to seekpre-approval) for qualifying expenses up to $100,000 continues

Proposed changes


Industry Transformation Programme – Support for internationalisation

• The extension of this Double Tax Deduction scheme:

▪ will support companies’ internationalisation efforts▪ is timely as companies are now more keen to explore opportunities

and seek out new markets overseas in order to expand their existing business base in Singapore

• The continuance of the automatic double tax deduction for qualifyingexpenditure incurred up to $100,000 will ease and lessen taxpayers’administrative burden in making such claims



Intellectual Property Rights (“IPR”)


IPR - Writing-down period extended

• Provide flexibility to claim writing down allowance (“WDA”) over 5, 10 or 15 years

• The election which is irrevocable must be made at the time of submitting the tax returnfor the YA in which qualifying cost is first incurred

Proposed changes

• A longer writing down period may achieve the following for businesses:

▪ Maximise WDA benefit claims post-tax incentive period for tax incentivised companies▪ Maximise foreign tax credit relief claims if applicable▪ Minimise the risk of forfeiture of unabsorbed WDA in situations where there is a

substantial share ownership change

• It remains to be seen whether taxpayers are given an option or flexibility to defer WDAclaims



IPR - Anti-avoidance mechanism introduced for IPR transfers

• New section of Income Tax Act introduced to empower IRAS tosubstitute IPR transfer value for open market value (“OMV”) andrestrict WDA claim based on the substituted value if acquisitionprice is considered to be higher than OMV

• If disposal price of IPR is lower than OMV, OMV will besubstituted for purposes of computing balancing charge

Proposed changes


IPR - Anti-avoidance mechanism introduced for IPR transfers

• Currently businesses are expected to submit to IRAS a third partyindependent valuation report to support WDA claim if IPR acquisition price isequal to or in excess of $0.5m for related party transactions and $2m forunrelated party transactions

• The cost of acquiring IPR is set to rise in future if professional valuation iscalled for, regardless of the transaction value, to substantiate that the IPRpricing is indeed at OMV and avoid the risk of being challenged by IRASunder this anti-avoidance measure

• Other support documentation should also be kept to substantiate how thenegotiated transacted price of IPR was arrived at and the relevant commercialfactors considered in arriving at premiums, if any, paid for the IPR

• The uncertainty on what quantum of costs could potentially qualify for WDAcould be a factor limiting the use of Singapore as the ideal location to holdIPR



Productivity and Innovation Credit (“PIC”) scheme


PIC scheme will lapse and cash payout rate lowered

• Cash payout rate on qualifying expenditure of up to $100,000 across six qualifyingactivities will be lowered from 60% to 40% with effect from 1 August 2016. From thesame date, mandatory e-filing of PIC cash payout applications will be implemented

• PIC scheme will expire after YA 2018

Proposed Changes

• The Government is phasing out broad-based support to make way for IndustryTransformation Programme which provides more targeted and sector-focusedmeasures

• With a reduction of $20,000 cash payout, businesses should re-assess whether it ismore beneficial to carry over "excess" enhanced qualifying expenditure as losses orto receive an immediate but reduced cash payout

• Determine if it is commercially viable to accelerate qualifying expenditure to FY 2017before the scheme lapses. Likewise as cash payout rate will be lowered effective from1 August 2016, companies may wish to bring forward their spending plans



PIC - 400% enhanced deduction or cash payout

Year of Assessment (“YA”) 2017 tax position Scenario 1 Scenario 2

Taxable profit (excluding PIC qualifying items) 100,000 100,000 538,924 538,924

PIC benefit - tax deduction at 400% (400,000) n/a (400,000) n/a

Chargeable income (before exemption) /(unutilised losses carried forward)

(300,000) 100,000 138,924 538,924

Less: Partial exemption

First $10,000 @ 75% (7,500) (7,500) (7,500)

Next $290,000 @ 50% (45,000) (64,462) (145,000)

Chargeable income (after exemption) 47,500 66,962 386,424

Tax payable [A] 8,075 11,384 65,692

Income tax rebate at 50%, capped at $20,000 [B] (4,038) (5,692) (20,000)

Net tax payable [A] – [B] 4,037 5,692 45,692

PIC benefit – cash payout at 40% [C] (40,000) n/a (40,000)

Net cash outflow/(inflow) [A] – [B] – [C] (35,963) 5,692 5,692

Example: Automation equipment costing $100,000 acquired (post 31 July 2016) in YA 2017


Certainty of non-taxation of gains on disposal of equity investments

• Gains derived from disposal of ordinary shares will not be taxed if the divesting company:

▪ holds a minimum of 20% in the investee company; and▪ has held such shares for at least 24 months prior to the date of disposal

• The scheme which is due to expire on 31 May 2017 has now been extended by a further 5 years to 31 May 2022

Current position and Proposed changes

• The upfront certainty provided is very much welcomed

• It will strengthen and enhance the attractiveness to investors to use Singaporeas an ideal holding company location



Global Trader Programme (Structured Commodity Finance) Scheme

• The Scheme is enhanced to include the following as qualifying activities:

▪ Consolidation, management and distribution of funds for designated investments▪ Mergers and acquisitions advisory services▪ Streaming financing

Proposed changes

• The Government has kept abreast of the more sophisticated service offerings of theglobal commodity trading sector

• The inclusion of these additional activities will enhance the attractiveness of theGTP (SCF) Scheme

• It serves also to encourage more of such structured commodity finance activities tobe conducted out of Singapore

• Other issues to consider include accounting treatment and classification andwhether tax treatment should be aligned to the accounting treatment



Maritime Sector Incentive (“MSI”)

Category Current position Proposed changes

Ship operators • MSI-Shipping Enterprise (SingaporeRegistry of Ships) (“MSI-SRS”) awrd

Tax exemption on qualifying income derivedfrom operating Singapore-flagged shipsand uplift of freight from Singapore byforeign-flagged ships

• MSI-Approved International ShippingEnterprise (“MSI-AIS”) award

Tax exemption on qualifying income derivedfrom operating foreign-flagged ships

• The MSI-SRS and MSI-AIS awards areenhanced to cover income derived fromoperation of ships used for explorationor exploitation of offshore energy oroffshore minerals or ancillary activitiesrelating thereto

• The MSI-ML (Ship) award is enhancedto cover income derived from leasing ofships used for exploration orexploitation of offshore energy oroffshore minerals or ancillary activitiesrelating thereto

Ship lessors • MSI-Maritime Leasing (Ship) (“MSI-ML(Ship)”) award

Tax exemption on income derived fromleasing of ships used for qualifying activitiesto qualifying counterparties for use outsidethe port limits of Singapore

• The restriction on the qualifyingcounterparty’s requirement under MSI-ML (Ship) award will be removed

• The above three enhancements to MSIwill take effect from 25 March 2016


Maritime Sector Incentive

• The enhancements will further develop Singapore as an International MaritimeCentre

• Worldwide focus and commitments are to cut greenhouse gas emissions. With this,increasingly investment focus is on renewable energy. The weak oil and gas pricesalso prompted companies to diversify into new businesses such as seabed miningof non-oil and gas resources. Extending the tax exemption to cover income derivedfrom operation or leasing of ships used for exploration or exploitation of offshoreenergy or offshore minerals is apt

• Tax exemption is now accorded to income derived from leasing of ships to anylessees, including Singapore-based entities, as long as the ships are for use inqualifying activities outside the port limits of Singapore

• Maritime and Port Authority will further clarify what activities can be considered as“ancillary activity relating to exploration and exploitation of offshore energy andoffshore minerals” the income of which will be tax exempt also



Personal Income Tax


Personal income tax rates

Chargeable income $

Marginal tax rates (%)YA 2015 & YA 2016 YA 2017

160,000 to 200,000 17 18200,001 to 240,000 18 19241,000 to 280,000 18 19.5280,001 to 320,000 18 20Above 320,000 20 22

• YA 2017 personal income tax rate structure was announced in the 2015 Budget

• No further changes announced on either the tax rates or personal reliefs

• No personal income tax rebate accorded for YA 2016

Proposed changes


Introducing a cap of $80,000 on personal income tax reliefs

• No limit on total amount of personal income tax reliefs an individualcan claim as long as the conditions of the reliefs are fulfilled

Current Position

• From YA 2018, the total amount of personal income tax reliefs that anindividual can claim will be capped at $80,000 per year of assessment

Proposed Changes

• High-income working mothers claiming Working Mother’s Child Relieffor two or more qualifying children will be impacted

Who will be impacted


Introducing a cap of $80,000 on personal income tax reliefsExample: A working mother (below age 55) with 3 Singapore citizen children below age 16

YA 2017 * YA 2018 *Employment Income 143,000 143,000

Less: Reliefs

Earned income relief (1,000)

Qualifying child relief ($4,000 x 3) – husband claims 0

WMCR – Child 1 (15% of employment income) (21,450)



Parent relief (not staying together) – wife’s mother (annual income ≤ $4,000)

(5,500)

Foreign maid levy relief (based on concessionary amount of $60/month)

(1,440)

Central Provident Fund contributions (20,400)

NSman wife relief (750) (114,890) (80,000)

Chargeable income 28,110 63,000

Tax payable 162.20 2,160.00Effective tax rate 0.11% 1.51%

* Based on YA 2017 reliefs and tax rates

Capped!


Business and IPC Partnership Scheme (“BIPS”)

• To incentivise employee volunteerism through businesses, a pilot BIPS will be introducedfrom 1 July 2016 to 31 December 2018

• Businesses will enjoy an additional 150% tax deduction on qualifying expenditure incurredwhen they send their employees to volunteer and provide services to IPCs includingsecondments

• The yearly cap is $250,000 per business and $50,000 per PIC on qualifying costs

Proposed changes

• The 250% tax deduction is on basic wages (exclude employers’ CPF contributions, bonus,benefits-in-kind, allowances and other components of wage costs) and incidental expenses

• For qualifying expenses of say $1,000, the business will enjoy a tax deduction of $2,500 (at250%). Tax saved in respect thereof will be $425 (if its corporate income tax rate is 17%)

• With the imposition of a cap, employee volunteerism should not be confined to a single IPC.To make full use of the $250,000 yearly cap, employees’ volunteerism work can be spread to5 different IPCs



Mandatory e-filing for corporate income tax returns

YA 2018 Companies with turnover of more than $10 million in YA 2017

YA 2019 Companies with turnover of more than $1 million in YA 2018

YA 2020 All companies

• Currently businesses may file their annual corporate income tax returns viahard copy or through IRAS e-Services platform

• Mandatory e-filing of corporate income tax returns (including estimatedchargeable income, Form C and Form C-S) will be implemented in stages


ANY QUESTIONS?


THANK YOUCindy LimTax Partner, RSM Tax Pte LtdDID: +65 6594 7852Email: [email protected]