YEAR 2008 : RECENT TAX DEVELOPMENTS

Corporate tax rate remains at 18% (wef YA 2008). Personal tax rates/bands remain the same with top marginal rate of 20% for chargeable income above $320,000. See Appendix A for the Personal Tax Rates YA 2008. Non-resident individuals will continue to be taxed at 20% based on the top marginal personal tax rate. For YA 2008 resident taxpayers will get a one-time rebate of 20% on the tax payable subject to a cap of $2,000.

For individuals the most significant tax change is the complete abolition of Estate Duty for deaths occuring on and after 15.2.2008. This will come as a relief to the growing number of high net-worth individuals in Singapore and will remove one obstacle to attracting high net-worth individuals worldwide who are keen to use Singapore as a safe haven for their accumulated wealth.

Wef YA 2009 more companies will benefit from the start-up tax exemption scheme (introduced in 2006) giving 100% tax exemption on the first $100,000 chargeable income and 50% tax exemption on the next $200,000 (for the first 3 YAs since incorporation). The condition that all the shareholders must be individuals (not exceeding 20) is replaced by the condition that at least one shareholder must be an individual holding at least 10% of total issued ordinary shares throughout the basis period of the YA.

This tax change will benefit investment holding companies (investment funds, venture capitalist, etc) which invest in companies that qualify for start-up tax exemption. Companies who are still in their first 3 Years of Assessment since incorporation, but did not qualify earlier due to the individual shareholders (100%) rule, will now enjoy the start-up tax exemption scheme for YA 2009 and YA 2010 so long as they meet the 10% individual shareholding rule.

Wef 2009 an exciting new tax incentive to grant tax exemption to qualifying family-owned investment holding companies "to the extent that the tax exemption mirrors the tax exemption on qualifying locally-sourced investment income and foreign-sourced income granted to individuals" is introduced, valid for 5 years from 1.4.2008 to 31.3.2013.

This new incentive will extend the tax exemption that individuals presently enjoy for qualifying Singapore-sourced investment income and for ALL foreign-sourced income, to the corporate vehicle known as a family-owned investment holding company or FIHC. The corporate vehicle must be "family-owned".

The income of all investment holding companies is subject to tax at the corporate rate. This new FIHC tax incentive allows
individuals to park their investments into a corporate vehicle and yet still enjoy tax exemption. A corporate vehicle allows family members to participate and facilitates control, management and ownership changes. How "family-owned" is defined will be important and we look forward to the details that MAS will release by May 2008.

Wef YA 2009 unilateral tax credits will be extended to Singapore residents on ALL types of foreign-sourced income remitted into Singapore from non-DTA countries. Currently unilateral tax credits are limited to royalties, dividends, employment income, foreign sourced service income and foreign branch profits. With this tax change, interest income received from invesments abroard and other trading income will be given unilateral tax credit relief. This will benefit companies doing businesses and making investments in non-DTA countries, such as USA.

Wef YA 2009, the current Company Employee Equity-based Remuneration Scheme (CEEBR) (s.13L of the Income Tax Act), and the Entrepreneurial Employee Equity-based Remuneration Scheme (EEEBR), (s.13J), will now be repackaged under the Employee Remuneration Incentive Scheme (ERIS) which will have 3 tiers of incentives.

The first tier is the ERIS (All Corporations) Scheme, replacing the CEEBR. The qualifying condition is relaxed to require that stock options or share awards are offered to at least 25% of its employees instead of the current 50% rule. This will take effect for stock options and share awards granted after 15.2.2008. IRAS will release details of the revised scheme by April 2008.

The EEEBR will be renamed as ERIS (SMEs) with the same qualifying conditions as the current EEEBR. This is the second tier.

The third tier, a new incentive tier for start-ups, is introduced such that stock options and share awards issued in the period 16.2.2008 to 15.2.2013 by qualifying start-up companies in its first 3 years since incorporation will now enjoy a new tax incentive know as ERIS (Start-Ups). Under the ERIS (Start-Ups) tax incentive, qualifying employees of qualifying start-up companies will enjoy personal income tax exemption on 75% of their qualifying gains from ESOP (stock options) or ESOW (share awards) Plans over 10 years. The tax exemption is subject to a limit of $10 million qualifying gains.

The start-up company must : (i) have at least one individual shareholder holding at least 10% of the company; (ii) be a
Singapore incorporated company carrying on business in Singapore and (iii) have gross assets with a market value of less than $100 million at the time the stock options or the share awards are granted. The ERIS (Start-Ups) Tax Incentive has to be evaluated by reference to the details that IRAS will release by March 2008.

Employees can enjoy tax incentives on their qualifying gains under only 1 of the 3 tiers and must satisfy the qualifying conditions applicable for that tier. The taxation of gains from stock options is highly rule-based and the detailed rules have to be carefully examined and carefully evaluated. Tax appeals on the taxation of gains from stock options form a fair portion of the cases that taxpayers bring to the Income Tax Board of Review. You should therefore seek professional advice at an early stage.

Qualifying expenditure on fixtures and fittings incurred during the period 16.2.2008 to 15.2.2013 will now be granted a "special allowance" to be written off over 3 years, subject to a cap of $150,000 every 3 years for each business entity. Expenses on structural works and expansion of space will not qualify. Currently, renovation fixtures such as fixed panels, doors and partitions do not enjoy capital allowances unless industrial building allowances apply. This grant is a "special allowance", not a capital allowance. Conditions apply.

The Double Tax Deduction relief for relocation and recruitment expenses incurred in hiring top global talent (including overseas Singaporeans) is now extended for another 5 years to 2013. Conditions apply.

Wef YA 2009 the Not Ordinarily Resident (NOR) Scheme is enhanced: (i) The 10% minimum effective tax rate condition is replaced by the condition that the taxpayer's Singapore employment income must be at least $160,000. (ii) Time apportionment of chargeable income will now include perquisites and leave pay. (iii) To continue to enjoy the tax exemption on employer's contributions to non-mandatory overseas pension funds, NORs must be non-Singapore citizen or non-Singapore permanent resident; must earn minimum Singapore employment income of $160,000 and employer must not claim tax deduction on the contributions. Taxpayers need to study the new rules carefully. IRAS will issue circular by May 2008.

Wef YA 2009 the tax deduction limit for medical expenses incurred by employers is enhanced: (i) Employers providing inpatient medical insurance benefits through portable medical shield plans will qualify for the 2% rate. Conditions apply; (ii) Employers making ad-hoc contributions to employees' Medisave account will enjoy tax deduction at the 2% rate for these contributions. Conditions apply. MOM will release details by March 2008.

Wef YA 2009 employers can contribute to their employees' SRS accounts and claim full tax deduction, subject to the current limits of $11,475 per year for Singapore citizens and permanent residents and $26,775 for others, for each employee. SRS members can now contribute beyond the prevailing statutory retirement age (currently 62) up to the point of their first penalty-free withdrawal rate. Also individuals without any earned employment income in the previous year can now contribute to the SRS in the current year.

Wef YA 2009 employers can now make Minimum Sum cash top-ups for their employees and enjoy full tax deduction. Employees are taxable on the employer's top-ups; however they can claim tax reliefs. Total reliefs for employer top-ups and self top-ups is capped at $7,000 per YA, so the excess amounts will be taxable.