YEAR 2009 : RECENT TAX DEVELOPMENTS

EXECUTIVE SUMMARY

 Minister for Finance Tharman Shanmugaratnam presented his Budget on 22.1.2009. Specific details on the tax changes may be announced later. A Bill to amend the Income Tax Act (“the Act”) will be passed during the year. Subsidiary legislation including statutory regulations may also be enacted. The 2009 Budget has a number of temporary tax measures to help taxpayers in the current global financial crisis. You should therefore take note of the limited time period if you are able to benefit from these tax reliefs.
      

• Corporate tax rate reduced to 17% wef YA 2010, from 18% (YA 2009). Wef 1.1.2009 withholding tax on payments to non-residents will be 17% (except for DTA concessions, royalties, interest and rent of movable properties). If you have withheld tax at 18% please consult us on regrossing for the new tax rate.
  
  Personal tax rates/bands remain unchanged with top marginal rate of 20% for chargeable income above $320,000. See Appendix A for the Personal Tax Rates YA 2009/10. Non-resident individuals will continue to be taxed at 20% based on the top marginal personal tax rate. For YA 2009, resident taxpayers will get a one-off rebate of 20% on the tax payable, subject to a $2,000 cap.
  
  
• For individuals a significant tax change is the abolition of the tax on the net annual value of all residential properties, wef YA 2010. This will come as a relief to the growing number of high net-worth individuals in Singapore.
  
  
• Wef 22.1.2009 resident companies and resident partners of partnerships in Singapore will be exempted from tax on their remittances of ALL foreign-sourced income earned and/or accrued outside Singapore on or before 21.1.2009 provided they remit their foreign-sourced income into Singapore during the period 22.1.2009 to 21.1.2010 (both dates inclusive).The Government will also lift temporarily all the conditions that are currently imposed for foreign-sourced income to be exempted from tax when remitted into Singapore. You will not be eligible for this tax relief if you are not tax resident in Singapore.
  
  These conditions were : (a) only foreign-sourced dividends, foreign-sourced branch profits and foreign-sourced service income are tax-exempt. Now all foreign-sourced income are tax exempt (for the temporary period). (b) the qualifying foreign-sourced income must have been subject to tax in their foreign jurisdiction. This condition is temporarily lifted. (c) At the time the qualifying foreign-sourced income is received in Singapore, the headline tax rate of the foreign jurisdiction from which the income is received, must be at least 15%. This condition is temporarily lifted. IRAS will issue more details by April 2009.
  
  This significant temporary tax concession is intended to help the cashflow needs of businesses which may have kept non-qualifying foreign-sourced income outside Singapore to avoid Singapore tax. IRAS will need to confirm that the remitted foreign-sourced income will remain tax-exempt after the expiry date of 21.1.2010 and need not be remitted again out of Singapore.
  
  To summarise on the tax exemption of foreign-sourced income remitted into Singapore : (1) The temporary tax measure for companies set out above; (2) s.13(7A) tax exemption on any income arising from sources outside Singapore and received in Singapore for resident/non-resident individuals; and (3) following the 2008 budget, a new s.13W (wef YA 2009) provides for tax exemption on all foreign-sourced income received in Singapore (and specified Singapore-sourced investment income) by an eligible family-owned investment holding company. Conditions apply.
  
  Taxpayers are reminded of the technical definition of “income received in Singapore from outside Singapore”, set out in s.10(25) of the Act.
  
  
• Temporarily, for YA 2009 and YA 2010, businesses will be able to carry–back unutilised capital allowances and unutilised trade losses (collectively referred to as “qualifying deductions”) for up to 3 years of assessment immediately preceding the YA in which the capital allowances were granted or the trade losses were incurred. The limit on the total amount of current year qualifying deductions that can be carried back is now increased from S$100,000 to S$200,000.
  
  The losses carry-back relief is given only on due claim (taxpayers have to file a claim) and is available to any person (including companies) carrying on a trade, business, profession or vocation, including individuals who trade as sole proprietors or partners of a partnership. All existing conditions to qualify, including the shareholding test for companies and the “same business” continuity test as provided in s.37E of the Act, remain unchanged. There are detailed rules and conditions, particularly on the order of set-offs. IRAS has already issued a tax circular (23.1.2009) on the enhanced losses carry-back relief.
  
  Taxpayers should compute estimated tax computations for YA 2009 and YA 2010, after each financial year-end, as IRAS is prepared to accept a claim for losses carry-back reliefs based on an estimate of the qualifying deductions for YAs 2009 and 2010. This will accelerate tax refunds. Taxpayers must still submit the finalized accounts and tax computations when they file their tax returns to support their losses carry-back relief claims.
  
  
• All active employers (except government organizations) will receive a 12% cash grant on the first S$2,500 for each month’s wages for each employee on their CPF payroll. Employees not on CPF (employment pass/work permits holders) will not be included. This Jobs Credit scheme is temporary, for 2009 only. The scheme will be reviewed later to see if some form of extension past 2009 is justifiable. Employers do not need to apply for the Jobs Credit. The first payment will be made by IRAS by 31.3.2009.
  
• Temporarily, for YA 2010 and 2011, business can now claim accelerated capital allowances on plant and machinery within 2 years (instead of the current 3 years), with 75% of the capital allowances claimable in the 1st year.
  
  
• A new tax framework, aimed at minimizing the tax consequences of company amalgamations, will be introduced. In such situations, the amalgamated company, or a new company, takes over all assets and liabilities of the amalgamating companies which may then cease to exist.
  
  Under existing tax rules, unfavourable tax consequences often result from the amalgamations, such as (a) losing the eligibility to utilise carry forward tax losses and unused capital allowances; (b) losing existing tax incentives and concessions or having to re-apply to reinstate these incentives; (c) incurring stamp duty on asset transfers; and (d) incurring GST on asset transfers.
  
  The Companies Act was amended to facilitate amalgamations, share buy-backs, share capital reduction, and other re-organisations and it is timely that the Income Tax Act provides reliefs to complement these measures. We have made applications for share capital reductions, for exemption of stamp duty on amalgamation of companies, and to carry forward unutilized tax losses and unutilized capital allowances in a management buy-out where there is a 100% change in the shareholdings.
  
  
• Temporarily, for YA 2010 and 2011, businesses that incur qualifying renovation expenses can now deduct these expenses in 1 year instead of the current 3 years. Tax deductible amount is still capped at S$150,000 for every 3 years. • Wef YA 2010, the start-up tax exemption scheme (first S$100,000 chargeable income fully tax exempt; next S$200,000 50% tax exempt) will be extended to companies limited by guarantee; subject to the same existing conditions as those imposed on companies limited by shares.
  
  
• Incentives for the Financial Sector : Wef 1.4.2009 to 31.3.2014 (both dates inclusive) funds with a minimum fund size of S$50 million will enjoy an Enhanced Tier where there will be no restrictions on the residency status of the fund vehicles as well as that of investors. Conditions apply.
  
  The Financial Sector Incentive-Headquarter Services (FSI-HQ) Scheme which enjoy a 10% concessionary tax rate, will be enhanced for the period 22.1.2009 to 31.12.2013. The enhancements are to further encourage financial institutions to manage and control their regional or global operations from Singapore. Details of these enhancements and the conditions are available from MAS.
  
  Wef 27.2.2009 the Commodity Derivatives Traders (CDT) Scheme will be enhanced to capitalize on the success of the CDT Scheme and to encourage the development of the exchange-traded market. Details of these enhancements and the conditions are available from MAS.
  
  Wef 22.1.2009 the specified income list and the designated investments list will be expanded to include new products. The expansion of these lists will enable our tax incentives to keep up with industry development and changes. Details and the conditions attached are available from MAS.
  
  
• Capital expenditure incurred by a company or partnership in acquiring all genres of IP rights can automatically (without prior approval) be tax-deducted through capital allowances over 5 years. IP rights for Media and Digital Entertainment content acquired during the period 22.1.2009 to 31.10.2013 (both dates inclusive) will enjoy accelerated capital allowances over 2 years instead of 5 years, on a prior approval basis from EDB, and subject to conditions.
  
  
• The withholding tax exemption on interest payable on a loan taken by a shipping enterprise from a lender outside Singapore to acquire a Singapore-flagged ship has been extended for another 5 years to 31.12.2013. Conditions apply.
  
  
• For calendar year 2009 there will be a property tax rebate of 40% for owner-occupied residential properties; and commercial and industrial properties. Property tax on land approved for development will be deferred for up to 2 years. Conditions apply.
  
  
• GST CHANGES : Wef 22.1.2009 to 31.3.2014 (both dates inclusive) qualifying funds that are managed by a prescribed fund manager in Singapore will be allowed to claim back their input GST on prescribed expenses. Conditions apply. Wef 1.4.2009, zero-rating of GST for the aerospace industry is now extended to include more qualifying products and services. These changes will ease GST compliance for the Maintenance, Repair and Overhaul (MRO) industry.
  
  Wef 1.4.2009 GST and customs duty will be suspended on goods temporarily removed from Zero-GST or licensed warehouses for sale at auctions and exhibitions, on condition all goods (sold/unsold) are subsequently returned to the warehouses. Singapore Customs will release details by March 2009.
  
  GST and customs duty will be exempted for a specified quantity of wine for use at approved wine exhibitions and conference events, wef 1.4.2009. GST is a complex tax to manage because it is transactions-based. There are many GST tax circulars aimed at clarifying the incidence of GST based on the various industry sectors. Taxpayers are also able to obtain GST rulings and advance rulings so that industry practices are aligned to the GST regulations. We have obtained GST rulings on specified transactions.

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