Recent Tax Changes Proposed in Singapore’s Budget 2020

Recent Tax Changes Proposed in Singapore’s Budget 2020
-By Audrey Ong

Deputy Prime Minister and Minister for Finance, Mr. Heng Swee Keat introduced tax
changes in his Budget Statement for the Financial Year 2020.
Income tax in Singapore is calculated on the preceding year. For example, income of a
company with a financial year ending on 30 June 2019, will be taxed in the Year of
Assessment (YA) 2020.
The following is an overview of Singapore’s recent tax changes proposed in Budget 2020:
1. YA 2020 Corporate Income Tax Rate and Rebate
Singapore’s Corporate Income Tax Rate (CIT) of 17% remains unchanged as it is viewed as
competitive next to Hong Kong’s 16.5%. Hong Kong has an effective tax rate of 8.25% on its
1 st HKD 2 million (S$366,000) profits with Singapore scoring a close 9.2%.

A 25% CIT Rebate capped at $15,000 is granted for the YA 2020. A company having a
chargeable income (CI) of S$455,441 and a partial income tax exemption on its first 200,000
of CI will reap a maximum of CIT Rebate of S$15,000.

YA 2O20Effective Tax Rate*
CI 
S$%
200,0006.2
366,0009.2
455,4419.9
550,00011.1
1,000,00013.8

 

 *After partial tax exemption of S$102,500 on the 1 st S$200,000 of CI and tax rebate.
2. Carry-Back Relief Scheme
For YA 2020, the Carry-Back Relief (CBR) Scheme has been enhanced to allow for
qualifying deductions to be carried back up to the preceding 3 YAs (Up from the usual 1
YA). In other words, qualifying deductions may be carried back for YA 2017 to YA 2019
and capped at $100,000, subject to terms and conditions.
An election can be made on the enhanced or current CBR scheme for YA 2020 current year
CA/losses. When one elects the enhanced CBR scheme, the order of set off is strictly against
YA 2017 profits, followed by YA 2018 then YA 2019. Compared to YA 2017’s high CIT
rebate of 50% versus the YA 2019’s 20%, it may be worthwhile to simply carry back to YA
2019 profits instead of YA 2017, depending on the CI for each YA.
Unless your CI is above S$446,618 in YA 2017, a S$100,000 carry back of YA 2020 QD to
YA 2017 will not yield the maximum SS17,000 in tax refund.

YACIT REBATESCI for Max Rebate*
%Maximum S$S$
201750 25,000 446,618
201840 15,000 373,088
201920 10,000 446,618

 

 

*After Partial Tax Exemption of S$152,500 on the 1 st S$300,000 of CI.
3. Merger & Acquisition Scheme
The Merger & Acquisition (M&A) scheme, a strategy for growth and internationalisation),
has been proposed to be extended to cover qualifying acquisitions (QA) made on or
before 31 December 2025.
The M&A scheme provides the following benefits:
 An allowance (to be written down over 5 years) equal to 25% of the value of a QA,
subject to a S$40 million cap on all QA (i.e. a maximum allowance of S$10 million)
per YA.
 Stamp duty (SD) relief on the instruments for the acquisition of ordinary shares under
an M&A deal, capped at S$80,000 of SD per financial year.
 200% tax deduction on transaction costs such as legal or valuation fees, incurred on
qualifying share purchases, up to S$100,000 per YA.
Since 2012, conditions requiring the ultimate holding company of an acquiring company to
be incorporated and a tax resident of Singapore (i.e. SG UHS condition) have been waived on
a case-by-case basis.
The M&A scheme is extended to QA made on or before 31 December 2025, with the
following changes:
 Removing the SD relief for instruments executed on or after 1 April 2020.
 Waiver is no longer granted to the acquiring company on the SG UHC condition for
qualifying M&A made on or after 1 April 2020.
The proposed extension echoes the Government’s sentiment to encourage and propel local
small and medium enterprises (SME) to grow overseas. The removal of SD relief should not
impact local companies looking to grow via overseas acquisitions. This resonates with the
Government’s move towards encouraging internationalisation of local SMEs. For SMEs
acquiring local companies, the stamp duty will be 0.2% the purchase price or open market
value of the share transfer, whichever is higher.
The SG UHC condition that will no longer be waived will limit this scheme to benefit local
companies, in line with the Government’s intent.

4. S13Z Safe Harbour Rules: Non-Taxation of Gains on Disposal of Shares
Singapore does not have a capital gains tax. Nevertheless, gain on sale of shares may be
considered revenue in nature and brought to tax unless IRAS is satisfied that the gain is
capital in nature. To ascertain if the gain is revenue or capital in nature, IRAS normally looks
to the ‘badges of trade’ test such as motive of the seller, length of period of ownership of the
shares disposed, frequency of similar transactions, reasons for the disposal and means of
financing the acquisition of the shares.
Section 13Z tax exemption scheme was introduced in Budget 2012 to lend certainty to non-
taxation on gains from disposal of ordinary shares by companies, if the divesting company:
 Holds a minimum shareholding of 20% in the investee company, and
 Maintained a shareholding of at least 20% for a minimum 24-month period before the
disposal.
The investee companies can be incorporated in Singapore or elsewhere, listed or non-listed.
The scheme, which was due to lapse after 31 May 2022, does not apply to:
 The disposal of unlisted shares in an investee company that is in the business of
trading or holding Singapore immovable properties (other than the business of
property development) or
 A divesting company that is an insurance company.
A proposal has been made for the scheme to be extended to disposals made on or before 31
December 2027.
The investee companies can be incorporated in Singapore or elsewhere, listed or non-listed.
However, with effect from 1 June 2022, the scheme will not apply to the disposal of unlisted
shares in an investee company that is in the business of trading, holding or developing
immovable properties located in Singapore or abroad. All other conditions and exclusions
remain unchanged.
While it is understandable that Singapore real properties are not in the equation, it is not clear
why overseas immovable properties are excluded moving forward. Real estate holding
companies with foreign properties may already be subject to overseas taxes, not to mention
Singapore income taxes now as well, unless the badges of trade tests are satisfied, and the
gain is seen as capital.
Insurance companies will continue to face uncertainty over the tax treatment of share
disposals unless the disposal is seen as being made on capital assets.

5. Double Tax Deduction for Internationalisation Scheme
Under the current Double Tax Deduction for Internationalisation Scheme (DTDi) scheme,
businesses are given a 200% tax deduction on qualifying expenses (e.g. airfare, accommodation, meals of up to 2 employees per trip) incurred for market expansion and
investment development activities capped at S$150,000 each YA on the following activities:
 Overseas business development trips or missions
 Overseas investment study trips or missions
 Overseas trade fairs
 Local trade fairs that have been approved by ESG/STB
The DTDi scheme which was to have lapsed on 31 March 2020 has been enhanced and is
now extended to 31 December 2025.
The expanded scope (i.e. new eligible expenses) takes effect for expenses incurred on or
after 1 April 2020. Businesses will need to apply to Enterprise Singapore directly for these
enhancements.
Overseas Business Development (New activity)
This is aimed at helping companies overcome challenges in the early stages of
internationalisation.
 New eligible expenses include third party consultancy cost (for overseas markets) to:
Identify suitable talent; or
 Identify potential business partners, licensee/franchisee agents and distributors or JV
partners; or
 Secure and manage customers in–markets.
Overseas Market Development Trips/Missions (Expanded scope)
 The enhancements provide greater support to sustain a business’ internationalisation
efforts.
 Fees paid to secure speaking spots at overseas business/trade conferences to pitch
products/ services to attendees.
 Logistics costs of transporting materials/samples used during the business missions
 Third party consultancy costs to arrange business networking events to promote
products/services.