General Changes

Introduction of the Minimum Effective Tax Rate (”METR”) Regime

Proposed In response to the global minimum effective tax rate under the Pillar 2 Global Anti-Base Erosion (“GloBE”) rules of the BEPS 2.0 project, and based on consultation with industry stakeholders, the Ministry of Finance (“MOF”) is exploring a top-up tax called the minimum effective tax rate, or “METR”.

The METR will top up a multinational enterprise (“MNE”) group’s effective tax rate in Singapore to 15%. The METR will apply to MNE groups operating in Singapore that have annual revenues of at least €750 million, as reflected in the consolidated financial statements of the ultimate parent entity. The METR, if introduced eventually, will be aligned with the Pillar 2 GloBE rules as far as possible.

The Inland Revenue Authority of Singapore (“IRAS”) will study the METR further and consult industry stakeholders on the design of the METR.

To read more on Pillar 2 GloBE rules, download OECD’s summary document:

pillar-two-model-rules(summary).pdf

Insurance

Change the Basis of Preparation of Tax Computations for Insurers from Financial Statements (“FS”) to MAS Statutory Returns

Current Insurers generally rely on FS prepared in accordance with the accounting standards as the basis for preparing their tax computations. The insurance returns filed with the Monetary Authority of Singapore (”MAS”) for regulatory purposes (“MAS Statutory Returns”) are also currently used to allow insurers to apply tax rules applicable to insurers.

Proposed With the adoption of the new Financial Reporting Standard (“FRS”) 117 for the preparation of FS, the MAS Statutory Returns instead of FS will be used as the basis for preparing tax computations for insurers. Related consequential adjustments to existing tax treatments will also be introduced.

This change is in view of the following:

1. Insurers will not be able to prepare their tax computations using the FS prepared in accordance with FRS 117 as the FS will not provide sufficient information necessary to apply the existing tax rules such as those under section 26 of the Income Tax Act (”ITA”).
2. Using MAS Statutory Returns as the basis for preparation of tax computations will allow the existing tax rules and tax incentives (if applicable) to continue to apply without adding substantial tax compliance burden on insurers.

This change will take effect from Year of Assessment (“YA”) 2024 (or YA 2025 for insurers whose financial year end is not 31 December). IRAS will provide further details of the changes by 30 September 2022.

Changes to Existing Tax Incentives and Concessions

All Businesses

Withholding Tax (“WHT”) Exemption for Container Lease Payments made to Non-Tax-Resident Lessors under Operating Lease (”OL”) Agreements

Current WHT exemption is allowed on container lease payments made to non-tax-resident lessors (excluding payments derived from any operation carried on by the non-tax-resident through its permanent establishment in Singapore) under OL agreements for the use of qualifying containers for the carriage of goods by sea.

This exemption is scheduled to lapse after 31 December 2022.

Proposed To continue supporting the local demand for containers, container lease payments made to non-tax-resident lessors under OL agreements entered into on or before 31 December 2027 will be exempted from WHT.

Approved Royalties Incentive (”ARI”)

Current Under the ARI scheme, tax exemption or a concessionary WHT rate may be granted on approved royalties, technical assistance fees, or contributions to research and development costs made to a non-tax-resident for providing cutting-edge technology and know-how to a company for the purpose of its substantive activities in Singapore. Approval for ARI is currently granted on an agreement-based approach.

The ARI is scheduled to lapse after 31 December 2023.

Proposed To continue encouraging companies to leverage new technologies and know-how to develop the capabilities of the local workforce and capture new growth opportunities, the ARI will be extended till 31 December 2028.

The ARI will also be simplified to cover classes of royalty agreements based on an activity-set-based approach. The Economic Development Board will provide further details of the changes by 30 June 2022.

Approved Foreign Loan (”AFL”) Scheme

Current The AFL scheme was introduced to encourage companies to invest in productive equipment for the purpose of conducting substantive activities in Singapore. Under the scheme, tax exemption or a concessionary WHT rate may be granted on interest payments made to a non-tax-resident for loans to a company to purchase productive equipment.

The AFL scheme is scheduled to lapse after 31 December 2023.

Proposed To continue encouraging companies to invest in productive equipment for the purpose of conducting substantive activities in Singapore, the AFL scheme will be extended till 31 December 2028.

Extending the Tax Framework for Facilitating Corporate Amalgamations under Section 34C of the ITA to Licensed Insurer

Current The tax framework under Section 34C of the ITA treats qualifying corporate amalgamations as a continuation of the existing businesses of the amalgamating companies by the amalgamated company for tax purposes. The tax framework minimises the tax consequences arising from a qualifying corporate amalgamation.

A qualifying corporate amalgamation under section 34C of the ITA comprises amalgamation of companies:

1. Where the notice of amalgamation under Section 215F of the Companies Act 1967 (“CA”) or a certificate of approval under Section 14A of the Banking Act 1970 is issued on or after 22 January 2009; or
2. That is court-directed under the CA or any other amalgamation of companies, provided the amalgamation has a similar effect as that of a statutory voluntary amalgamation under section 215B to 215G of the CA. Such amalgamation of companies is subject to the approval of the Minister for Finance, or such person as he may appoint.

Proposed The tax framework for facilitating corporate amalgamations will be extended to cover amalgamation of Singapore-incorporated companies involving a scheme of transfer under section 117 of the Insurance Act 1966 (“IA”), where the court order for the confirmation of the scheme referred to under section 118 of the IA is made on or after 1 November 2021.

The extension of the framework is subject to conditions, which include the following:

1. The amalgamated company takes over all property, rights, privileges, liabilities, and obligations, etc. of the amalgamating company on the date of amalgamation; and
2. The amalgamating company becomes dormant (i.e., ceases to conduct any business or any other activities, and does not derive any income) on the date of amalgamation and remains so until it is dissolved or wound up; and
3. The amalgamating company is dissolved or wound up before the filing due date of the income tax return for the YA related to the basis period in which the scheme of transfer was effected.

The tax treatments under the tax framework will apply with modifications where appropriate.

Aviation

Aircraft Leasing Scheme (“ALS”)

Current Under the ALS, approved aircraft lessors and aircraft investment managers can enjoy the following tax benefits:

1. Approved aircraft lessors enjoy a concessionary tax rate of 8% on income derived from the leasing of aircraft or aircraft engines and qualifying ancillary activities under Section 43N of the ITA;
2. Approved aircraft managers enjoy a concessionary tax rate of 10% on income derived from managing the approved aircraft lessor and qualifying activities under section 43O of the ITA; and
3. Automatic WHT exemption is granted on qualifying payments made by approved aircraft lessors to non-tax-residents (excluding a permanent establishment in Singapore) in respect of qualifying loans and finance leases entered into on or before 31 December 2022 to finance the purchase of aircraft or aircraft engines, subject to conditions.

The ALS is scheduled to lapse after 31 December 2022.

Proposed The ALS will be extended till 31 December 2027. To read more on the ALS scheme click here.

Maritime

WHT Exemption for Ship and Container Lease Payments under Finance Lease (“FL”) Agreements for Maritime Sector Incentive (“MSI”) Recipients

Current WHT exemption is allowed on ship and container lease payments made to non-tax-resident lessors (excluding payments derived from any operation carried on by the non-tax-resident through its permanent establishment in Singapore) under FL agreements for specified MSI recipients.

This exemption is scheduled to lapse after 31 December 2023.

Proposed

Ship and container lease payments made by specified MSI recipients to non-tax-resident lessors under FL agreements entered into on or before 31 December 2028 will be exempted from WHT.

Financial Sector

Tax Incentive Scheme for Funds Managed by Singapore-Based Fund Manager (“Qualifying Funds”)

Current Qualifying Funds, comprising basic tier funds (Sections 13D and 13O schemes) and enhanced tier funds (Section 13U scheme), are granted tax exemption on specified income (“SI”) derived from designated investments (“DI”), subject to conditions.

The DI currently includes physical commodities that are subject to the following conditions:

• The trading of the physical commodity must be incidental to the trading of the derivative commodity (“incidental condition”); and
• The trade volume of such physical commodity is capped at 15% of the total trade volume of those physical commodities and related commodity derivatives (“the cap”).

Proposed The conditions imposed on the investments in physical Investment Precious Metals (“IPMs”) under the DI list will be refined as follows and these refinements will be effective on and after 19 February 2022:

1. The incidental condition will be removed, i.e. investments in physical IPMs need not be incidental to the trading of derivative IPMs; and
2. The cap will be revised to 5% of the total investment portfolio for the taxpayer’s incentive award under sections 13D/13O/13U of the ITA.

The Monetary Authority of Singapore (“MAS”) will provide further details of the changes by 31 May 2022.

WHT Exemption for the Financial Sector

Current Interest payments made by a tax resident or permanent establishment in Singapore to non-tax-residents are subject to WHT at a rate of 15% in general.

WHT exemption for the following payments are scheduled to lapse after 31 December 2022:

1. Payments made under cross currency swap transactions by Singapore swap counterparties to issuers of Singapore dollar debt securities;
2. Interest payments on margin deposits made under all derivatives contracts by approved exchanges, approved clearing houses, members of approved exchanges and members of approved clearing houses;
3. Specified payments made under securities lending or repurchase agreements by specified institutions;
4. Payments made under interest rate or currency swap transactions by MAS; and
5. Payments made under interest rate or currency swap transactions by financial institutions.

Proposed The WHT exemption for payments 1) to 4) will be extended till 31 December 2026. This will cover payments made under a contract or agreement that takes effect on or before 31 December 2026.

The WHT exemption for payment 5) will be allowed to lapse after 31 December 2022. Such payments can be covered under the existing WHT exemption for payments on over-the-counter financial derivatives.

MAS will provide any consequential details by 31 May 2022.

Tax Incentives for Project and Infrastructure Finance

Current    The package of tax incentive schemes for Project and Infrastructure Finance includes:

1. Exemption of qualifying income from Qualifying Project Debt Securities (“QPDS”);
2. Exemption of qualifying foreign-sourced income from qualifying offshore infrastructure projects/assets received by approved entities listed on the Singapore Exchange (“SGX”); and
3. Concessionary tax rate of 10% on qualifying income derived by an approved Infrastructure Trustee-Manager/Fund Management Company from managing qualifying SGX-listed Business Trusts/Infrastructure funds in relation to qualifying infrastructure projects/assets (“ITMFM scheme”).

The schemes are scheduled to lapse after 31 December 2022.

Proposed

The existing tax incentive schemes for Project and Infrastructure Finance under 1) and 2) will be extended till 31 December 2025 and the ITMFM scheme in 3) will be allowed to lapse after 31 December 2022. Existing ITMFM scheme recipients will continue to enjoy the tax benefits for the remaining tenure of their existing awards.

MAS will provide any consequential details by 31 May 2022.

Expiry and Withdrawal of Tax Incentives

Integrated Investment Allowance (“IIA”) Scheme

The IIA scheme grants a qualifying company an additional allowance on fixed capital expenditure incurred for qualifying productive equipment placed overseas for approved projects. The IIA scheme will be allowed to lapse after 31 December 2022.

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