The objective of this article is to give a summary of the different industry-specific tax advantages and investment-related tax incentives made available under the Singapore Income Tax Act and its subsidiary legislations.

With a low headline corporate tax rate of 17%, significant tax exemptions for small and medium-sized businesses, and industry-specific tax advantages, Singapore is well-positioned to sustain its economic competitiveness in the current international context.

Businesses whose operations align with the way the government intends to guide economic development are eligible for a wide range of incentives and tax benefits from the Singaporean government.

Tax Incentives for the Financial Services Sector

Key tax incentives include the following:

• Trading Income. Financial services companies that trade investments for and on behalf of their non-resident clients frequently enjoy tax exemptions for both the financial services company and the non-resident client. This incentive has the result of making Singapore a desirable site for international investors to base their assets.

• Income Fee. Profits made by financial services companies in relation to income made from charging clients for investment services provided are subject to concessionary tax rates.

• Over-the-Counter (OTC) financial derivatives payments are exempt from withholding taxes: All payments made on eligible OTC financial derivatives to individuals who are neither Singapore residents nor permanent establishments in Singapore are free from withholding tax for qualifying financial institutions. The exemption from withholding tax is scheduled to end in March 2021.

Tax Incentives for Banks

Banks’ Withholding Tax Exemption Regime Liberalization: Beginning on April 1, 2011, all non-resident individuals will be eligible for a withholding tax exemption on any interest and other qualifying payments they make to them in connection with their trade or business.

For contracts that go into effect before April 1, 2011, the withholding tax exemption will apply. For contracts that go into effect on or after April 1, 2011, the withholding tax exemption will apply to payments that must be made between April 1, 2011, and March 31, 2021.

According to Budget 2012, Singaporean permanent establishments would now be eligible for the withholding tax exemption, which wasn’t previously available to them.

For payments to be made between 17 February 2012 and 31 March 2021 (for contracts in effect before to 17 February 2012); and any payments resulting from contracts effective on or after 17 February 2012 until 31 March 2021. This exception is valid for:

• All banks that hold a license under the Banking Act or MAS Act,

• Financial institutions authorized by the Finance Companies Act, and

• Lending is a regulated activity for approved financial institutions in Singapore that are registered under the Securities and Futures Act. They deal in securities.

Tax Incentives for the Investment Management Industry

The most sought-after site in Asia for fund management firms is now Singapore. The significant tax benefits and the speedy registration of funds in the city-state are the main drivers of the growth.

Exemptions from Taxes for Offshore Funds

If an overseas fund is a qualifying fund and is managed by a fund manager based in Singapore, it is exempt from Singapore tax on certain income from selected investments. Profits, gains, dividends, and interest from chosen assets are referred to as specified income. Traditional investments such as stocks, shares, securities, bonds, deposits, futures contracts, etc. are included in designated investments.

A fund that qualifies is one that:

• not entirely beneficially owned by Singapore investors, including Singapore residents, Singapore residents who own businesses, and non-residents who have permanent establishments in Singapore.

• Has no presence in Singapore, and

• Only take the shape of corporations, trusts, or personal accounts.

Tax exemptions are also available to qualified investors on income from qualified funds. An acceptable investor is:

• An individual investor

• a legitimate non-resident investor who is not an individual who:
  • does not operate a business in Singapore (other than as a fund manager), or
  • has a Permanent Establishment in Singapore but does not invest in the qualifying fund with money from its Singapore operations.

• Certain specific government agencies in Singapore

• a corporate investor who resides in Singapore and holds no more than 30% or 50% (if there are 10 or more investors in the fund) of the qualifying fund.

Tax Exemptions for Onshore Funds

The Singapore government established the Singapore Resident Fund Scheme in 2006, which expanded the previously described tax exemption program for offshore funds to funds established in Singapore, subject to the following requirements:

• The only permitted type of fund vehicle is a business,

• The fund must be established in Singapore, where it will also be administered, and

• The MAS must authorize the fund.

The fact that this system provides an extra benefit of Singapore’s broad treaty network, which helps to decrease tax obligation in treaty countries that the fund invests in, has benefited the fund management sector in Singapore.

Enhanced Tier Fund Management Scheme

For funds having a minimum size of S$50 million at the time of application, among other requirements, an upgraded tier has been added to the current fund management incentives with effect from 1 April 2009 to 31 March 2014.

The residency status of the fund vehicles and investors will not be subject to restrictions under the upgraded tier. Funds organized as Limited Partnerships are likewise eligible for the increased tier.

Additionally, for funds that fall under this upgraded tier, the 30% or 50% investment cap imposed on resident non-individual investors has been lifted.

Tax Rate for Fund Managers that is Concessional

Fund managers in Singapore are liable to a 10% tax on fee revenue under the Financial Sector Incentive Scheme for Fund Managers, with specific restrictions and MAS approval. Fund managers who employ at least three investment advising or fund management specialists are covered by this program. The professionals must earn a minimum monthly salary of S$3,500 or more.

Tax Incentives for International Trading Companies

According to the company’s revenue and outlays on operations, a global trading corporation that has been certified is given 5%–10% concessionary tax rates on qualifying offshore trade revenues for 5–10 years.

Only established leaders in their respective industries with a track record of successful international trade, product sourcing, and transportation are normally granted Global Trader designation. Under the GTP program, the following derivative instruments are eligible:

• Commodities on the recognized commodities list maintained by the authorised GTP business, both exchange-traded and over-the-counter (OTC); and

• exchange-traded and over-the-counter freight derivatives

The GTP does not include derivative instruments like interest-rate swaps and FX derivatives. The 2011 Budget states that all derivative instruments will be included to the current list of GTP-qualifying derivative instruments. This improvement will be applicable to revenue received by a GTP company from the Year of Assessment 2012 from qualifying transactions in the new qualifying derivative instruments.

For the GTP system, a sunset clause will be introduced. 31 March 2021. On or before March 31, 2021, businesses might be approved as GTP companies or GTP (Structured Commodity Finance) companies. During the up to five-year award period, the GTP company may benefit from the numerous upgrades.

Tax Incentives for Maritime and shipping Industry

A variety of incentive programs have been created by Singapore’s Maritime and Port Authority (MPA) to motivate shipping businesses to expand and improve their operations. Companies involved in international shipping operations, marine (ship or container) leasing, and shipping support services are eligible for subsidies under the Maritime Sector Incentive (MSI).

Maritime Sector Incentive (MSI) scheme

• Maritime Sector Incentive – Approved International Shipping Enterprise (MSI-AIS) Award: A tax exemption on qualifying shipping income is available for either a 10-year renewable period or a 5-year non-renewable period, with the option to graduate to the 10-year renewable award at the end of the 5-year period, for international shipping companies with established global networks, a proven track record, and a commitment to growing their shipping operations in Singapore.

• Maritime Sector Incentive – Maritime Leasing (MSI-ML) Award: On or before May 31, 2016, organizations with a proven track record and a dedication to growing their shipping and container financing activities in Singapore may choose to submit an application for the MSI-ML award. Ship or container leasing firms, funds, business trusts, or partnerships may apply for tax concessions on their eligible leasing income for up to five years under the MSI-ML award. Additionally, a qualified manager of the asset-owning corporation may benefit from a 10% tax rate discount on their management income.

• Maritime Sector Incentive – Shipping-Related Support Services (MSI-SSS) Award: For a period of five years, an authorized MSI-SSS company may benefit from a 10% concessionary tax rate on the additional income resulting from the delivery of the following qualified recognized shipping-related support services:
  • Ship broking;
  • Forward freight agreement (FFA) trading;
  • Ship management;
  • Ship agency;
  • Freight forwarding and logistics services; and
  • Corporate services provided to qualified, authorised connected parties conducting shipping-related business.

• Withholding tax exemptions:
  • During the period from 1 June 2011 to 31 May 2016, entities under the International Shipping Operations category of MSI will automatically receive a withholding tax exemption on qualifying payments made in relation to qualifying foreign loans taken to finance the purchase or construction of both Singapore-flagged and foreign-flagged ships, subject to certain conditions. The following organizations are eligible for this exemption:
    • 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.
    • During the period from 17 February 2012 to 31 May 2016, qualifying firms will automatically enjoy a withholding tax exemption on qualifying payments made in relation to qualifying foreign loans received to fund the purchase of qualifying containers and intermodal equipment. The organizations that are granted the following status under the MSI-Maritime Leasing (Container) award are among those that are eligible for this exemption:
      • MSI-ACIE; and
      • MSI-ACIE (Local ASPV)

Other Incentives

• GST compliance is made easier for companies who provide help to the nautical industry: The GST zero-rating will be extended to encompass leisure and recreational ships that are exclusively used for international travel beginning on July 1, 2010. In addition, regardless of whether the ship docks in a port outside of Singapore, it will apply to any products (including stores and merchandises) supplied for use on board or installation on a qualifying ship. No matter whether the ship calls at a port outside of Singapore, zero rating of GST also applies to the shipping of commodities or people to or from international waters.

• Once certified, reputable, established international shipping businesses with extensive networks and a solid track record are exempt from tax on earnings from the use of their ships outside of Singapore for ten years.

• Payers will no longer be required to withhold tax from payments made to non-residents for the use of ships for bareboat, journey, and time charter starting on February 17, 2012.

• A shipping company may be eligible for a withholding tax exemption under the Block Transfer Scheme (BTS) in respect of interest paid on a loan obtained from a lender outside of Singapore in order to purchase a ship flying the Singapore flag. Ships registered with the Singapore Registry of Ships (SRS) on any day between January 1, 2009, and December 31, 2013, are exempt from withholding taxes.

• Tax exemptions are available to qualified ship operators and ship lessors on gains from:
  • disposal of ships listed on the Singapore Registry of Ships (SRS) and ships possessed or used in accordance with the MSI-AIS award;
  • the selling of ships that will ultimately be leased back to maritime firms;
  • the sale of all of the stock in a Special Purpose Company (SPC) that owns a ship with SRS registration or a ship with an MSI-AIS award;
  • disposal of construction-related vessels and new construction contracts; and
  • Gains from selling off foreign ships.

Tax Incentives for Tourism Industry

• Tax deduction for Inbound Tourism Promotion: Companies that have been approved may deduct twice as much as their qualifying expenses for attending international fairs or missions from their taxable income, provided they meet certain eligibility requirements.

• Tax deduction for Participation in Local Trade Exhibitions: Subject to meeting certain eligibility requirements, approved enterprises may deduct from their taxable income twice the amount of qualifying expenses they paid to attend international trade-oriented exhibits hosted in Singapore.

Tax Incentive for Event Organisers

Companies in Singapore who specialize in event planning are qualified to receive a 10% tax break on the revenue from large-scale events.

Tax Incentives for e-Commerce Industry

Well-established e-commerce businesses are qualified for a reduced tax rate of 10% for a term of five years on the income obtained from e-commerce transactions with parties outside Singapore in an effort to promote Singapore as an e-commerce hub.

Tax Incentives for Approved Ventures

For a time period that has been allowed by authorities, income from approved investments in approved venture businesses is eligible for a reduced tax rate of 0%–10%.

Tax Incentives for Insurance Companies

• Captive Insurance Tax Incentive Scheme: Under this scheme, insurers are eligible to receive a 10-year tax exemption on certain income from operating an offshore insurance business. The deadline for this program is March 31, 2018.

• Marine Hull and Liability Insurance Tax Incentive Scheme: This program allows insurers to defer paying taxes for up to 10 years on certain profits they get from operating their marine hull and liability insurance businesses. The program will be given a sunset clause that will last until March 31, 2016.

• Specialized Insurance Tax Incentive Scheme: Under this scheme, insurers are eligible for a five-year tax exemption on certain income that results from operating certain offshore specialist insurance businesses. Terrorism, political risks, energy risks, agricultural insurance risks, and aviation and aerospace risks are the specialized insurance business lines included in this program. The program is in effect until August 2016.

Tax Incentives for Headquarter Activities

To entice businesses to choose Singapore as their regional or global headquarters site, the Singaporean government has created two distinct programs.

• Regional Headquarters Award: Instead of paying the standard Singapore corporate tax rate of 17%, qualifying companies can take advantage of a concessionary tax rate of 15% for five (3+2) years on additional qualifying income from abroad. In other words, the applicant company will benefit from the 15% concessionary tax rate on qualified income for an extra two years if it meets all the minimal requirements by the third year of the incentive period. All businesses with their Asia-Pacific headquarters in Singapore are covered by this program.

• International Headquarters Award: All entities that have incorporated a business in Singapore in order to conduct their headquarters activities are eligible for this tax incentive program. More specifically, businesses that pledge to go above and beyond the minimal requirements of the Regional Headquarters Award may benefit from even lower concessionary tax rates on additional income from qualifying activities, ranging from 5% to 15%.

Tax Incentive for Processing Service Company

Companies that provide qualifying processing services are subject to a 5% tax rate reduction on income from the rendering of specified services to financial institutions. For a period of five to ten years, there is a tax break.

Tax Incentive for Law Firms

For five years, Singapore’s approved law firms would pay a 10% reduced tax rate on any additional income from qualifying overseas legal services. The promotion is available from April 1, 2010, to March 31, 2015. This would cover all legal services related to real estate and items outside of Singapore as well as intangible legal services offered to customers abroad.

A 50% tax deduction is also available to recognized law firms on additional qualifying income from cases of international arbitration heard in Singapore.

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

• Development and Expansion Incentive (DEI): By providing a reduced tax rate in the range of 5%–10% on supplemental income obtained from qualified activities, the DEI encourages Singapore-based businesses to engage in high value-added business activities, grow their operations in the nation, and purchase cutting-edge machinery and equipment.

• Investment Allowance: Companies may, if they meet certain requirements, claim capital allowance for machinery and equipment used abroad in the course of their trade or business. With effect from YA 2013, a new Integrated Investment Allowance Scheme that was introduced in Budget 2012 will offer an additional allowance on fixed capital expenditures spent for productive equipment put overseas on qualified projects.

• Pioneer Incentive Scheme: Businesses in the manufacturing or service sectors who take part in initiatives that improve industry standards as a whole may qualify for a complete 15-year corporate tax exemption on qualifying profits.

• Productivity and Innovation Credit (PIC) Scheme: The PIC scheme, a tax incentive program, was originally implemented in 2010 with the goal of enticing businesses to engage in creative and useful endeavours. Businesses participating in the program are eligible for up to 400% deductions or allowances on up to $400,000 in expenses related to each of the qualifying innovative activities listed below. Research and development, intellectual property registration and acquisition, design activities, automation using technology or software, and staff training are all qualifying activities. Take note that companies are permitted to combine the $400,000 annual expenditure cap for the years 2013 through 2015 into a new cap of $1,200,000 for the three years. Businesses with low taxable income have the option to convert up to S$300,000 of their tax deductions and allowances into a cash grant, up to S$21,000 per year. Businesses have the opportunity to convert up to S$100,000 of their expenses at a conversion rate of 30% into a non-taxable cash pay-out. From YA 2013 to YA 2015, the cash pay-out rate will rise from 30% to 60% for qualified expenses up to S$100,000. Prior to now, R&D activities conducted in Singapore were the only ones eligible for PIC benefits. But starting in YA 2011, foreign R&D will also qualify for PIC advantages.