Tax Incentive Schemes for Eligible Funds
Under Singapore’s current tax laws, funds which are managed by fund managers based in Singapore had been able to benefit from certain tax incentive schemes. The tax incentives for eligible funds are mentioned in Sections 13CA, 13R, and 13X of the Income Tax Act. However, the last day of eligibility for these schemes had originally been scheduled to have occurred on March 31, 2019. In light of this fact, the MOF has proposed that the date until which such tax incentive schemes will be in effect will be December 31, 2024 – an extension of almost six years. This decision was made to increase the growth rate of the country’s asset management industry, which had already been growing at a tremendous rate in recent years. In this way, the government expects to bolster economic growth by increasing the success of the asset management industry. The MOF also proposed changes to the parameters of the schemes. These changes are intended to maintain the general relevance of the schemes as well as make the completion of compliance-related tasks simpler.
Introduction of the Expense Ratio
Another of the proposed changes to the Income Tax Act is the introduction of the expense ratio. The expense ratio refers to a tax deduction which will be targeted at Singapore’s taxpayers who are defined as self-employed commission agents. Examples of self-employed commission agents include real estate agents, insurance salespeople, and others in similar lines of work. To be eligible for the deduction related to the expense ratio, a taxpayer must earn a gross annual commission income of S$50,000 or less. This tax deduction will either be based on what the Singaporean government refers to as a “prescribed deemed expense ratio” or the expenses which these agents incurred in the process of generating their commission income. The prescribed deemed expense ratio is 25% of an agent’s gross commission income. This scheme will come into effect starting from YA 2020. It will apply to income which has been earned in 2019.
Extension of the Writing Down Allowance
The current laws in Singapore state that a partnership or company may receive an allowance to be spent on intellectual property rights to be used for business purposes. This allowance is known as the Writing Down Allowance. Examples of approved intellectual property rights which many be acquired include trade secrets, copyrights, registered designs, patents, commercially-valuable information, and trademarks. Expenses incurred on any of the preceding are allowed to be written down over a five-, 10-, or 15-year period.
Originally, according to Section 19B of the Income Tax Act, the Writing Down Allowance had been available for expenditures on eligible intellectual property rights until the end of the basis period for YA 2020. However, a change proposed by the MOF would see this date postponed to the end of the basis period for YA 2025. This change would be made because the Singaporean government understands that intellectual property rights do much to drive economic growth, especially in a country such as Singapore in which much economic value is generated through knowledge. Furthermore, the extension of the Writing Down Allowance would also do much to encourage investors to invest in intellectual property rights in Singapore. It would also boost the country’s reputation as a global intellectual property hub.
Extension of S-REIT Income Tax Concessions
Existing tax laws in Singapore state that real estate investment trusts which are based in Singapore (S-REITs) may receive the privilege of tax transparency if their trustees have distributed a minimum of 90% of the S-REIT’s taxable income in the same year in which the trustees derived this taxable income. S-REITs also benefit from several other income tax concessions such as tax exemptions on income sourced from abroad, an income tax rate of just 10% which is imposed on their distributions which have been received by investors which are neither residents nor individuals, and tax exemptions on certain distributions which are received by individuals. Originally, these concessions were scheduled to no longer be in force after March 31, 2020. However, the Singaporean government has proposed that the final day of eligibility for these concessions should be postponed to December 31, 2025. The primary reasons for this move are to improve the status of REITs in Singapore as well as to enhance the country’s status as one of the Asia-Pacific region’s leading locations in which REITs may operate. All other criteria related to these concessions are expected to remain as they currently are.
Any government decisions related to important legislation such as the Income Tax Act can never be taken lightly. This is especially true in this case because the MOF’s proposed changes are both numerous and highly impactful. Every taxpayer, business owner, or anyone applying for Certificate of Residence or Tax Reclaim Form acceptance must be aware of these proposed changes, especially if they do end up coming into effect. Nevertheless, regardless of whatever the final decision taken may be, everyone affected should understand that the government and MOF have the best interests of the country and its economy at heart.