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Singapore’s Industry Specific Tax Incentives in Singapore

Singapore's Industry Specific Tax Incentives Did you know that your Singaporean business might benefit from industry-specific and investment-related tax incentives? It’s true, thanks to the Singapore Income Tax Act and follow-on legislation. 3E Accounting will provide, for a fee, assistance to incorporate your company and claim the incentive. You can view information about Singapore’s tax system at Singapore income tax system and tax rates.

In today’s global economy, Singapore remains well poised for competition, in part due to a low, 17 percent headline corporate tax rate, industry-specific incentives and substantial tax exemptions for small- and medium-sized companies. If your business aligns with the Government of Singapore’s priorities for economic development, you can participate in the comprehensive package of incentives and concessions offered by the state.

Financial Services Industry Tax Incentives

Some key tax incentives include:

  • Trading Income: Foreigners find Singapore an attractive location to make investments because capital gains and income earned by financial service companies are often tax exempt. This applies to trading investments on behalf of non-resident clientele.
  • Fee Income: The profits earned by financial services companies receive concessionary tax rates for income from rendering investment services to billed clients
  • Withholding tax exemption for Over-The-Counter (OTC) financial derivatives payments: If you are a qualifying financial institution and make payments to non-Singaporean persons or establishments for positions in qualifying OTC derivatives, you receive a withholding tax exemption on these payments. This offer expires in March 2021.

Tax Incentives for Banks

Liberalization of the Withholding Tax Exemption Regime for Banks: If you are a bank and pay interest or other payments to non-residents with respect to their business or trade, you get a withholding tax exemption. This offer expires on 31 March 2021.This exemption applies to:

  • All banks that are approved under the MAS Act or licensed under the Banking Act,
  • Finance companies that have received licenses under the Finance Companies Act, and
  • Approved financial institutions dealing in securities in Singapore that lend money or securities in fulfilment of their regulated activity and are licensed under the Securities and Futures Act

Tax Incentives for Fund Management Industry

Fund management companies have made Singapore their Number One location in Asia. This stems in part from quick fund registration and attractive tax benefits.
Tax Exemptions for Offshore Funds
A qualifying offshore fund managed in Singapore doesn’t pay tax on certain income, including:

  • Gains
  • Profits
  • Interest
  • Dividends

Investments in stocks, securities, shares, bonds, future contracts, deposits and the like qualify for this exemption. A qualifying fund is one that:

  • Is not completely beneficially owned by Singapore investors, which includes Singapore-based permanent establishments owned by non-residents, Singapore resident individuals, or Singapore resident corporate entities, and
  • Is not present in Singapore, and
  • Is a company, trust or individual account.

A qualifying investor receives this same tax break if he or she is:

  • An individual
  • A verifiable non-resident non-individual investor that:
    • doesn’t enjoy a Singapore business activity or presence (other than being a fund manager), or
    • possesses a Singaporean Permanent Establishment but refrains from using operational funds earned in Singapore to make investments in the qualifying fund.
  • Certain designated Singapore government entities
  • A corporate investor who is a Singapore resident and owns not more than 30 percent of the qualifying fund ( or 50 percent when the fund has 10 or more investors)

Tax Exemptions for Onshore Funds
The 2006 Singapore Resident Fund Scheme extends the tax breaks enjoyed by offshore funds to onshore ones, provided that:

  • The fund vehicle is a company,
  • The fund is constituted and administered in Singapore, and
  • The MAS approves the fund.

This scheme has caused the fund management industry in Singapore to explode because it augments Singapore’s widespread treaty network that helps to decrease tax liability in treaty countries in which the fund invests.
Concessionary Tax Rate for Fund Managers
Because of the Financial Sector Incentive Scheme for Fund Managers, Singaporean fund managers pay tax at a concessionary 10 percent rate on fee income. Being Singapore, this is subject to MAS approval and certain conditions. The fund manager must hire no less than three investment advisory or fund management professionals who each earn more than S$3,500 in basic monthly income.

Tax Incentives for Global Trading Companies

An approved global trading company, under the Global Trader Scheme, receives concessionary 5 to 10 percent tax rates for five to 10 years on qualifying offshore trade incomes, as long as the company meets certain business spending and turnover objectives . You have to be a heavy hitter in your industry to achieve Global Trader status with a verified record of accomplishment with respect to transportation of qualifying products, international trade, and procurement. Under the GTP scheme, the following derivative instruments qualify:

  • Over-the- counter (OTC) and exchange-traded commodity derivatives for a GTP-approved commodity; and
  • OTC and exchange-traded freight derivatives.

The GTP scheme expires on 31 March 2021, so companies must receive approval as a GTP company or GTP Structured Commodity Finance company by this date. The GTP company benefits from the various enhancements for up to five years.

Tax Incentives for Shipping & Maritime Industry

A number of incentive schemes have been developed by the Maritime and Port Authority of Singapore (MPA). These schemes inspire shipping companies to further grow and build their businesses. Incentives are outlined by the Maritime Sector Incentive (MSI) for companies engaged in shipping support services, international shipping operations, and maritime (container or ship) leasing.
Maritime Sector Incentive (MSI) Scheme

  • Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award: A tax exemption on qualifying shipping income for either a 10-year renewable period — or for a five-year non-renewable period with the possibility of garnering the 10-year renewable award at the conclusion of the five-year period — is obtainable by international shipping companies that are dedicated to increasing their shipping operations within Singapore, have set up global networks, and boast a strong record of accomplishment.
  • Maritime Sector Incentive – Maritime Leasing (MSI-ML) Award: You have until 31 May 2016 to apply for the MSI-ML award, so you better hurry. You must have a strong record of accomplishment and be dedicated to increasing container financing and shipping operations in Singapore. If you’re a container- or ship-leasing company, fund, partnership or business trust, you can score up to five years of tax concessions on your qualifying leasing income. Even better, you get a concessionary 10 percent tax rate on your qualifying management income if you’re an approved manager of the company that owns the assets.
  • Maritime Sector Incentive – Shipping-Related Support Services (MSI-SSS) Award: If you are an approved MSI-SSS company, you can receive a concessionary 10 percent tax rate for five years on the incremental income you earn from providing the following sanctioned shipping-related support services:
    • Forward freight agreement (FFA) trading;
    • Ship agency;
    • Ship broking;
    • Ship management;
    • Freight logistics and forwarding services; and
    • Corporate services you provide to qualifying, approved related business parties that perform shipping-related activities
  • Withholding tax exemptions:
    • Subject to conditions, entities that fall under MSI’s International Shipping Operations category have, until 31 May 2016, an exemption from withholding tax on qualifying payments involving qualifying foreign loans used to finance the construction or purchase of ships without having to apply for said exemption. You are a qualifying entity if you are a:
      – MSI-Shipping Enterprise (Singapore Registry of Ships) (MSI-SRS);
      – MSI-Approved International Shipping Enterprise (MSI-AIS) companies; and
      – MSI-Maritime Leasing (Ship) [MSI-ML(Ship)] entities.
    • Subject to conditions of the MSI-Maritime Leasing (Container) award, you have until 31 May 2016 to qualify for an automatic exemption of withholding taxes for qualifying payments connected to qualifying foreign loans in which you use the money to buy qualifying inter-modal equipment and containers. The entities that qualify for this exemption include MSI-ACIE and MSI-ACIE (Local ASPV).

Other Incentives

  • It’s easy for businesses that support the maritime industry to be GST compliant. The GST zero-rating includes recreational and pleasure ships whose sole purpose is international travel. This also applies to all goods (including merchandise and stores) provisioned for on board use or installation on a qualifying ship, regardless of the ship’s ports of call. GST zero rating also includes ship transport of passengers or goods to/from international waters, regardless of the ship’s ports of call.
  • Once approved, existing international shipping companies with good records of accomplishment and global networks don’t pay tax for 10 years on income from their ship’s operation outside of Singapore.
  • You don’t have to withhold tax if you make payments to non-residents to use ships for voyages, bareboat operations and time charters.
  • You can get a withholding tax exemption under the Block Transfer Scheme (BTS) for the payable loan interest on borrowings from a lender outside Singapore to a shipping enterprise in order to obtain a Singapore-flagged ship registered with the Singapore Registry of Ships (SRS) between 1 Jan 2009 and 31 Dec 2013.
  • If your are a qualifying ship lessor or operator, your gains are tax exempt if they stem from:
    • Ridding yourself of vessels owned or operated under the MSI-AIS award or vessels registered with the Singapore Registry of Ships (SRS);
    • Selling vessels which are then leased back to shipping companies;
    • The sale of all shares in a Special Purpose Company (SPC) that has title to a vessel under the MSI-AIS award or a vessel registered with SRS;
    • Disposing of vessels being constructed and new building contracts; and
    • Gains from disposing of foreign vessels.

Tax incentives for Tourism Industry

  • Tax deduction for Inbound Tourism Promotion: If you are an approved company that satisfies particular eligibility criteria, you can deduct from your taxable income two times the amount of qualifying expenditure you make to participate in overseas missions or fairs.
  • Tax deduction for Participation in Local Trade Exhibitions: If you are an approved company that satisfies particular eligibility criteria, you can deduct from your taxable income two times the amount of qualifying expenditure you make to participate in international trade-oriented exhibitions that take place in Singapore.

Tax Incentive for Event Organizers

Singapore companies that organize event and that can bring mega events to Singapore get a 10 percent concessionary tax rate on the income so derived.

Tax Incentives For e-Commerce Industry

If your well-established e-commerce company makes money via e-commerce transactions with non-Singaporean parties, you pay a lower tax rate of 10 percent for five years, because this helps Singapore develop as a hub for e-commerce.

Tax Incentives for Approved Ventures

For a period decided by government bureaucrats, any money you make from approved investments in approved venture companies is taxed at rates ranging for 0 to 10 percent.

Tax Incentives for Insurance Companies

  • Captive Insurance Tax Incentive Scheme: Until 31 March 2018, you can scheme to pay no taxes for up to 10 years on income from the operation of an offshore insurance business.
  • Marine Hull and Liability Insurance Tax Incentive Scheme: Until 31 March 2016, you can scheme to pay no taxes for up to 10 years on income from the operation of a marine hull and liability insurance business.
  • Specialized Insurance Tax Incentive Scheme: Until August 2016, insurers can scheme to avoid taxes for five years on qualifying income earned from the operation of an offshore specialized insurance business that insures against risks in the following business lines:
    • Terrorism
    • Political,
    • Energy,
    • Agriculture
    • Aviation and Aerospace

Tax Incentives for Headquarters Activities

The Government of Singapore has established two particular schemes to encourage companies to utilize Singapore for their regional or global headquarters.

  • Regional Headquarters Award: Instead of being hit by Singapore’s regular 17 percent tax rate, you can qualify under the (RHQ) Award for a concessionary tax rate of 15 percent for five (3+2) years on incremental qualifying income from outside of Singapore. Put another way, if your company meets the minimum requirements by Year 3 of the incentive period, it will get the 15 percent concessionary tax rate on qualifying income for another two years. You must have your Asia-Pacific headquarters in Singapore.
  • International Headquarters Award: This tax incentive scheme is good for all entities that run a company in Singapore to perform their headquarter activities. More precisely, companies that agree to go beyond the minimum requirements of the Regional Headquarters Award can grab an even smaller concessionary tax rate — on incremental income earned from qualifying activities — ranging from 5 to 15 percent.

Tax Incentive for Processing Services Company

For a five to 10 year period, your qualifying processing service company need pay no more than 5 percent concessionary tax on income earned by supplying prescribed services to financial institutions.

Tax Incentive for Legal Firms

Until 31 March 2015, approved law firms in Singapore get a 10 percent concessionary tax rate for five years on incremental income from qualifying international legal services. This includes all legal services with respect to goods and land beyond Singapore, and intangible legal services performed for clients overseas. On top of all that, approved law firms can grab a 50 percent tax exemption on incremental qualifying income garnered from hearing international arbitration cases in Singapore.

Tax Incentive for R&D, Innovation, and Product Development Activities

  • Development and Expansion Incentive (DEI): By offering a lower tax in the range of 5 to 10 percent on incremental income derived from qualifying activities, the DEI induces Singapore-based companies to migrate to business activities that add high value, increase their operations within Singapore, and obtain advanced equipment and machinery
  • Investment Allowance: The 2012 Integrated Investment Allowance Scheme permits companies, subject to meeting certain conditions, to claim capital allowance on equipment and plant for overseas uses related to their business or trade. The scheme adds an allowance if approved projects expend fixed capital for productive equipment placed overseas.
  • Pioneer Incentive Scheme: You can avoid all corporate taxes for up to 15 years if your company is in the services or manufacturing sector and operates to boost overall industry standards.
  • Productivity and Innovation Credit (PIC) Scheme: Commenced in 2010, the PIC tax-benefit scheme spurs companies to perform productive and innovative activities. Under the scheme, businesses feast on up to a 400 percent deduction or receive allowances on expenditures of up to $400,000 in each of the following qualifying innovative activities:
    • Research & Development
    • Intellectual property registration
    • Intellectual property acquisition
    • Design activities
    • Automation through technology or software;
    • Training of employees

    Businesses can combine the $400,000 expenditure annual limit for YA 2013 to YA 2015 into a new maximum of $1,200,000 spanning the three years. If your business has a lower taxable income, you can decide to turn into cash up to S$300,000 of the credited tax deductions and allowances, up to a maximum of S$21,000 annually. Businesses can also decide to convert as much as S$100,000 of their expenditures into a tax-free cash payment at a 30 percent conversion rate. From YA 2013 to YA 2015, this rate increases from 30 to 60 percent on qualifying expenditures of up to S$100,000. PIC benefits extend to R&D performed overseas.