Budget Speech
ANNEX E: Tax Measures to Help the Manufacturing
and Services Sectors
Intellectual Property (IP)
Unilateral Tax Credit Scheme for Royalty Income
The current unilateral tax credit scheme eliminates
double taxation on certain income received from non-treaty countries,
but does not cover royalty income. Royalties remitted from a non-treaty
country would not receive any tax credit for the foreign tax and
would be subject to Singapore tax, resulting in it effectively being
taxed twice.
To encourage firms to hold their IP rights in Singapore,
the unilateral tax credit scheme will be extended to royalties remitted
from all non-treaty countries from YA 2004.
Automatic Writing-Down Allowance for IP Acquisition
Companies can currently apply to EDB or IDA for writing-down
allowances over a five-year period for capital expenditure incurred
in acquiring one of seven classes of IP:
(a) Patents;
(b) Copyrights and Related Rights;
(c) Trade Marks;
(d) Registered Designs;
(e) Geographical Indications;
(f) Layout Designs of Integrated Circuits; and
(g) Protection of Confidential Information
To increase Singapore's attractiveness as an international
IP holding location, writing-down allowances will be granted automatically
for capital expenditure incurred in the acquisition of IP on or
after 1 November 2003. This is provided the legal and economic ownership
of the IP lies with the Singapore company. This concession will
last for an initial period of five years.
Tax Deduction for Patenting Costs
To encourage more companies to patent their inventions
and make Singapore an attractive base for R&D and IP management
activities, EDB administers a Patent Application Fund Plus (PAFP)
grant scheme, which helps individual inventors and Singapore-based
SMEs defray part of the cost of patenting an invention. This scheme
will be complemented with a tax deduction for the cost of patenting
an invention, provided the invention has not received any PAFP grant
and that the legal and economic ownership of the resulting IP lies
with the Singapore company. This incentive will apply to patenting
costs incurred on or after 1 June 2003, and will last for an initial
period of 10 years.
The Economic Development Board (EDB) will release
more details by May 2003.
Exemption of Foreign Income Used for R&D
In order to increase the level of R&D activity
conducted in Singapore or controlled from Singapore, companies in
Singapore must have a sustained pool of funds to support such activities.
The current stockpile of funds comes in the form of the company's
income sourced in Singapore, or debt or equity injections into the
company.
To increase the stockpile of funds for R&D activities,
a new R&D incentive will be introduced from 1 June 2003. Companies
under this incentive will be granted tax exemption on foreign source
royalties and interest income that are used for R&D purposes
only. The incentive will last for an initial period of five years.
EDB will release more details by May 2003.
Withholding Tax Exemption for Provision of Information
and Digitised Goods
The numbers of online information and content providers
and the sale of digitised goods are growing with advances in electronic
communications. Currently, payments made to a non-resident person
for the provision of information and digitised goods are subject
to withholding tax.
To facilitate the flow of information and digitised
goods, payments made by end-users to non-resident persons will be
exempted from withholding tax. This will take effect immediately
for an initial period of 10 years.
The IRAS will release more details by March 2003.
Integrated Industrial Capital Allowance
At present, capital allowance deductions are only
granted on equipment that is used in a company's own trade or business.
There is a rapidly growing trend for corporate groups to concentrate
marketing or other high value-added activities in a single centralised
company, and have their regional subsidiaries perform other activities.
To accommodate this business model, an Integrated
Industrial Capital Allowance incentive will be introduced from 1
March 2003. Under this incentive, companies will be allowed to claim
capital allowance deductions on equipment which they own wholly,
but are used by their subsidiaries outside Singapore.
This incentive is part of a package of measures under
an "Integrated Industrial Initiative". Companies can apply
to EDB for this incentive, which will last for an initial period
of 10 years.
EDB will release the details of the Integrated Industrial
Capital Allowance incentive by March 2003.
Upfront Land Premium for Leased Land
Currently, tax deductions are granted for the upfront
land premium paid by a lessee in respect of a designated lease for
the construction or use of a building on JTC or HDB industrial land,
provided the lease tenure is not more than 30 years long. This restriction
was imposed at a time when it was unlikely for lessees to have upfront
premium scheme terms exceeding 30 years for an industrial land.
To encourage companies to undertake investments in
Singapore for longer periods of time, the current 30-year lease
tenure restriction will be lengthened to a 60-year limit with effect
from YA 2004.
Private Wealth Management
The development of world-class trustee and custodian
services in Singapore is integral to Singapore's development as
a wealth management centre. To support this thrust, the following
changes will be implemented.
Income Tax Exemption for Foreign Trusts
Tax exemption is currently only granted on the income
of foreign trusts administered by Approved Trustee Companies (ATCs).
To encourage trust companies that are not ATCs to take on more global
trust business from Singapore and provide assurance to trust clients
that tax exemption will not cease the moment a trustee company falls
out of the ATC scheme, income tax exemption will be extended to
foreign trusts administered by all trust companies in Singapore,
and not just those administered by ATCs. This measure will come
into effect from YA 2004.
Exclusion List for Investments and Income
The existing lists of designated investments and
specified income under the ATC scheme will be replaced with an exclusion
list instead. This approach will ensure that new financial products
will be covered under the scheme, in view of the frequency with
which new financial products are introduced.
MAS will announce further details by June 2003.
Alignment of Qualifying Conditions for Income
Tax Exemption and Zero-rating
International services are currently zero-rated for
GST purposes. Trustee services provided to a foreign trust are considered
as international services and are zero-rated if they meet a certain
set of conditions. However, the conditions on what constitutes a
foreign trust for GST purposes are different from that for income
tax purposes. For ease of compliance, the set of conditions for
zero-rating in respect of trustee services provided to foreign trusts
will be aligned to that in the Income Tax Regulations. The proposed
change will come into effect from 1 June 2003.
Extension of GST Relief to Trust Administration
Services
Currently, trustee services provided by a Singapore
trust company to a foreign trust are zero-rated. GST relief in respect
of trustee services will be extended to services provided by a Singapore
trust company to a foreign trust of which it is not the trustee.
This will increase the competitiveness of Singapore trust companies
serving as management and administration hubs for offshore trusts.
This change will come into effect from 1 June 2003.
Approved Marine Hull and Liability Insurer Scheme
The Approved Marine Hull and Liability Insurer Scheme
currently provides tax exemption for income derived by approved
marine hull and liability insurers from writing offshore marine
hull and liability insurance business for a period of 10 years.
The scheme is administered by MAS. To encourage the development
of marine insurance expertise in Singapore, the scheme will be extended
to cover income derived from writing onshore marine hull and liability
insurance business as well.
Therefore, with effect from YA 2004, approved marine
hull and liability insurers will enjoy tax exemption on the following:
(a) underwriting income derived from writing both
onshore and offshore marine hull and liability insurance business;
and
(b) dividends and interest from outside Singapore,
gains from sale of offshore investments and interest from ACU deposits.
Exemption will only be given if these are derived from investing
onshore and offshore marine hull and liability insurance business
income or shareholders' funds used to support onshore and offshore
marine hull and liability insurance business.
Approved Third Party Logistics (3PL) Company
Scheme
Third party logistics companies undertake vendor-managed
inventory operations where they import and hold goods belonging
to foreign principals, and deliver the goods to local customers
only upon instruction by the foreign principals. The presence of
3PLs in Singapore is in line with the ERC's vision of developing
Singapore into a leading global integrated logistics hub. Their
presence will also provide an important supporting role for local
manufacturers.
To support the business needs of 3PLs, qualifying
3PLs will be allowed to import goods belonging to them or foreign
principals without payment of GST. Under this new scheme, 3PLs can
also move goods to their customers who are under the Major Exporter
Scheme (MES), and other qualifying 3PLs under the same scheme, without
charging GST. GST will be charged only on goods that are released
into the local market for consumption. This will result in cost
savings in terms of interest and administrative costs for 3PLs,
since most of their imports are eventually re-exported.
To be eligible for the new scheme, the proportion
of exports and supplies to MES customers and other qualifying 3PLs
must exceed 50% of the total supplies made by the 3PLs. The scheme
will be effective from 1 January 2004.
The details of the scheme will be announced by the
IRAS in June 2003.
Improved Global Trader Programme
To strengthen our competitiveness vis-à-vis
the regional trading hubs, the Global Trader Programme (GTP) will
be enhanced and expanded as follows:
Tiered GTP Concessionary Tax Regime
The current 10% GTP concessionary tax rate will be
replaced by a tiered concessionary tax rate to make the scheme more
attractive. Under the enhanced GTP, an approved global trading company
would be granted concessionary tax rates of 5% and 10% on qualifying
offshore trading incomes, depending on the company's turnover and
business spending.
Medium-Sized Global Trading Companies
With globalisation and market liberalisation, companies
are likely to establish decentralised procurement and distribution
operations. To seize this opportunity to attract high-growth globalising
companies to use Singapore as a springboard for their trade between
Asia and the rest of the world, the GTP will be expanded to include
high-growth and medium-sized trading companies as 'qualifying global
trading companies' under the GTP scheme.
The changes will apply from 28 February 2003. IES,
which administers the scheme, will announce more details by April
2003.
Tax Holiday for the Singapore Commodity Exchange
The Singapore Commodity Exchange (SICOM) was granted
a five-year tax holiday when it was first established in 1994. In
1997, the tax holiday was extended for an additional five years
to support the growth of SICOM. This incentive has enabled the Exchange
to build up its reserves and improve on its trading infrastructure.
This has helped SICOM successfully develop into a global rubber
futures trading centre.
In order to meet the challenges of global competition
and the emergence of other exchanges in the region, SICOM must continue
to improve on its facilities and strengthen its financial reserves.
SICOM will be granted another five-year tax holiday with effect
from YA 2004.
Use of Submarine Cable Capacity
Submarine cable systems are a crucial element in
the international connectivity provided by the broadcasting and
telecommunications industries. Currently, payments made to a non-resident
for the use of submarine cable capacity are subject to a 15% withholding
tax. To encourage broadcasting and telecommunications operators
to provide international connectivity, payments for the use of capacity
on submarine cables operated by non-resident persons will be exempt
from withholding tax. The exemption will take immediate effect for
an initial period of five years.
To boost our local broadcasting and telecommunications
industries, payments for Indefeasible Rights of Use for submarine
cable systems will also be granted a writing-down allowance over
the period of use. This will take effect from YA 2004.
|
