YEAR 2004 : RECENT TAX DEVELOPMENTS

EXECUTIVE SUMMARY

DPM Lee Hsien Loong presented his Budget on 27.2.2004. The Ministry of Finance(MOF), the Inland Revenue Authority of Singapore (IRAS), the Economic Development Board (EDB), International Enterprises Singapore (IES) and other agencies will issue more details on the tax changes. An Income Tax Amendment Bill will be tabled in Parliament and passed during the year. Subsidiary legislation including statutory regulations may also be enacted. On 1.6.2004 MOF put the draft Income Tax (Amendment) Bill 2004 (“draft Bill”) on its website for public consultation. This Executive Summary will include details extracted from the draft Bill.

• From YA 2005 corporate tax rate reduced to 20%. Dividends paid after 1.1.2004 will carry a S.44 tax credit of 20% (except for dividends paid under the one-tier system). Wef 1.1.2004 withholding tax for payments to non-residents will be 20% (except for DTA concessions, royalties, interest and rent of movable properties). If you have withheld tax at 22% or you have paid dividends from 1.1.2004 to 26.2.2004 please consult us on regrossing for the new tax rates. Personal tax rates bands remain as for YA 2004 with top marginal rate of 22%.
  
  
• Qualifying new companies will now be able to obtain FULL tax exemption on the first S$100,000 of the normal chargeable income (excluding Singapore dividends). Tax exemption will apply to each of the first 3 YAs falling within YA 2005 to 2009. Qualifying conditions are (a) Singapore incorporated company; (b) tax resident in Singapore; (c) no more than 20 shareholders, all of which must be individuals, throughout basis period. Other conditions apply. All companies will continue to enjoy partial tax exemption on the first S$100,000 chargeable income.

• In our 2003 Budget Report, we said that all foreign income, remitted to or received in Singapore on or after 1.6.2003, in the form of dividends, branch profits and services income will be tax exempt for both individuals and companies.

• The conditions are : (a) the specified foreign income has been subjected to tax (income tax must have been paid or is payable) in the foreign jurisdiction from which the income is received; (b) in the year the foreign income is remitted to or received in Singapore, the headline tax rate of the foreign jurisdiction, from which the income is received, is at least 15%; (c) the Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore. In addition the Comptroller has to be satisfied that the foreign service income (income derived from any professional, consultancy and other services rendered outside Singapore) is actually derived, under the Income Tax Act (“the Act”), from outside Singapore.
  
  

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