[Tax Incentives for Businesses] Budget 2019 in 3 Minutes

Tax Incentives

All of Budget 2019’s tax changes for businesses explained in this nifty guide.

Through attractive start-up grants and tax exemptions and incentives, Singapore has edged forward as a choice investment destination for investors and entrepreneurs. On 18 February 2019, the Government unveiled plans to further enhance the progressivity and resilience of Singapore’s tax system. While some tax schemes were allowed to lapse, some were extended to help more businesses grow and scale. Stay up-to-date on the latest tax incentives and changes in this all-in-one guide.

  • Intellectual Property and Innovation

    To ensure Singapore’s business competitiveness, the Government will be extending and strengthening several tax incentives. For instance, the writing down allowances for approved (IPRs) Intellectual Property Rights will be extended until December 2024. This maintains the city-state’s attractiveness as an innovation hub and aids the deepening of Singapore’s IP capabilities.

  • Productivity

    To help more companies automate, drive productivity and scale up, the 100 percent Investment Allowance under Enterprise Singapore’s Automation Support Package will also be extended for an additional two years until 31 March 2021. First introduced in 2016, this scheme encourages companies to embark on large-scale automation projects by providing grants, tax concessions and loans to help companies defray costs.

  • Real Estate Investment Trusts

    To continue promoting the listing of Singapore-listed Real Estate Investment Trusts (REITs) in Singapore and to strengthen Singapore’s position as a REITs hub in Asia, tax transparency treatments for S-REITs will soon be extended to ETFs (Exchange Traded Funds) invested in these REITs.

The existing tax concessions for S-REITs and S-REITS ETFs, including a tax exemption on S-REIT distributions received by individuals, will be extended till 31 December 2025.

Also, GST remission (i.e., the claiming of GST incurred on expenses at a fixed recovery rate) will be extended to S-REITs and RBTs (Registered Business Trusts) in target industries such as infrastructure, ship leasing, and aircraft leasing.

  • Asset Management

    Currently, funds managed by Singapore-based fund managers are granted tax concessions such as a tax exemption on some sources of income. To continue growing Singapore’s asset management industry, these tax concessions will be extended to 31 December 2024. GST remission for selected funds will also be extended till 31 December 2024.

  • Unit Trusts

    Unit trusts participating in the Designated Unit Trust (DUT) scheme are currently not taxed for some of its income at the trustee level. Instead, the pay is instead taxed in the hands of investors. With effect from 31 March 2019, the DUT scheme will lapse.

    Furthermore, before Budget 2019, most of the gains of trustees under the Approved Unit Trust (AUT) scheme were taxed upon distribution to unitholders. The AUT scheme has lapsed with effect from 18 February 2019. The Monetary Authority of Singapore (MAS) will be providing further details of the changes by May 2019. In the meantime, funds in the form of unit trusts may apply for other tax incentives instead.

  • Property Tax

    With effect from 18 February 2019, the Property Tax (Tourist Projects) Order has lapsed. The Property Tax (Tourist Projects) Order was introduced on 1 January 1987 to promote tourism by allowing approved tourist projects to compute their Annual Value based on 6% of the preceding year’s gross receipts for five years. However, as the tax incentive did not apply to hotels, the removal of this concession should not affect the hotel industry.

Read more to learn about other newly-launched schemes your company can benefit from in Singapore.

At Corporate Services Singapore, we help entrepreneurs build their dream companies. Whether you are looking for assistance on company incorporation or taxation, give us a call at 6602 8286 or email us at info@corporateservicessingapore.com to get started today.

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Budget 2019: Summary of Tax Changes

S/NName of Tax ChangeExisting Tax TreatmentNew Tax Treatment
1Extend the Writing Down Allowance (“WDA”) for the acquisition of qualifying Intellectual Property Rights (“IPRs”) under section 19B of the Income Tax Act (“ITA”)Under section 19B of the ITA, companies, and partnerships are granted WDA on capital expenditure incurred in acquiring qualifying IPRs for use in its trade or business. The expenditure can be written down over five, 10 or 15 years. The qualifying IPRs are patents, trademarks, registered designs, copyrights, geographical indications, lay-out designs of integrated circuits, trade secrets or information that has commercial value, and grant of protection of plant varieties. The WDA is available for capital expenditure incurred in respect of qualifying IPRs acquired on or before the last day of the basis period for YA2020.In recognition that IPRs are important creators of value in a knowledge-based economy, the WDA under section 19B will be extended to cover capital expenditure incurred in respect of qualifying IPRs acquired on or before the last day of the basis period for YA 2025.
2Extend the 100% Investment Allowance (“IA”) under the Automation Support PackageIn Budget 2016, an Automation Support Package was introduced for three years to support companies to automate, drive productivity and scale up. The package includes 100% IA support on the amount of approved capital expenditure, net of grants, on projects approved by Enterprise Singapore from 1 April 2016 to 31 March 2019. The authorized capital expenditure is capped at $10 million per project.To maintain support to companies in their automation, productivity, and scale-up efforts, the 100% IA measure under the Automation Support Package will be extended by two years, for projects approved by Enterprise Singapore from1 April 2019 to 31 March 2021. The approved capital expenditure will remain capped at $10 million per project.
3Extend the income tax concessions for Singapore-listed Real Estate Investment Trusts (“S-REITs”)A) S-REITs are granted tax transparency if their trustees distribute at least 90% of their taxable income to unitholders in the same year in which the income is derived by the trustee. B) S-REITs are granted the following income tax concessions: a) Tax exemption on S-REITs distributions received by individuals, excluding individuals who derive any distribution: i) through a partnership in Singapore; or ii) from the carrying on of a trade, business or profession; b) Concessionary income tax rate of 10% for S-REITs distributions received by non-resident non-individual investors; and c) Tax exemption on qualifying foreign-sourced income (i.e. foreign-sourced dividend income, interest income, trust distributions and branch profits) received by S-REITs and wholly-owned Singapore resident subsidiary companies of S-REITs, that is paid out of qualifying income or gains in respect of overseas property acquired on or before 31 March 2020 by the trustee of the S-REITs or its wholly-owned Singapore resident subsidiary company. The income tax concessions at B) are scheduled to lapse after 31 March 2020.To continue to promote the listing of REITs in Singapore and to strengthen Singapore’s position as a REITs hub in Asia, the existing tax concessions for S-REITs will be extended till 31 December 2025. The sunset clause for the tax exemption on S-REITs distributions received by individuals will be removed. All other conditions for the income tax concessions remain the same. MAS will provide further details of the change by May 2019.
4Extend the income tax concessions for Singapore-listed Real Estate Investment Trusts Exchange-Traded Funds (“REITs ETFs”)REITs ETFs are granted the following income tax concessions: a) Tax transparency treatment on the distributions received by REITs ETFs from S-REITs, which are made out of the latter’s specified income; b) Tax exemption on such REITs ETFs distributions received by individuals, excluding individuals who derive any distribution: i) through a partnership in Singapore; or ii) from the carrying on of a trade, business or profession; and c) 10% concessionary tax rate on such REITs ETFs distributions received by qualifying non-resident non-individuals. The income tax concessions are scheduled to lapse after 31 March 2020.The existing tax treatment accorded to REITs ETFs will be extended till 31 December 2025. The sunset clause will be removed for the tax exemption on REITs ETFs distributions received by individuals. All other conditions for the income tax concessions remain the same. MAS will provide further details of the change by May 2019.
5Extend the GST remission for S-REITs and Singapore-listed Registered Business Trusts (“RBTs”) in the infrastructure business, ship leasing and aircraft leasing sectorsGST remission is granted to S-REITs and RBTs in the infrastructure business, ship leasing and aircraft leasing sectors, to allow them to claim GST on the following, subject to conditions: a) their business expenses, regardless of whether they hold underlying assets directly or indirectly through multi-tiered structures such as special purpose vehicles (“SPVs”) or sub-trusts; b) their business expenses incurred to set up SPVs that are used solely to raise funds for the S-REITs or RBTs, and that do not hold qualifying assets of the S-REITs or RBTs, directly or indirectly; c) business expenses of financing SPVs mentioned in (b). The GST remission is scheduled to lapse after 31 March 2020.To continue facilitating the listing of S-REITs and RBTs in the infrastructure business, ship leasing, and aircraft leasing sectors, the existing GST remission will be extended till 31 December 2025. All conditions for the GST remission remain the same. MAS will provide further details of the change by May 2019.
6Extend and Refine Tax Incentive Schemes for Funds Managed by Singapore-based Fund Managers (“Qualifying Funds”)Qualifying Funds are granted the following tax concessions, subject to conditions: a) Tax exemption on specified income (“SI”) derived from designated investments (“DI”); and b) Withholding tax exemption on interest and other qualifying payments made to non-resident persons (excluding permanent establishments in Singapore). Qualifying Funds comprise the following: a) Basic tier funds (sections 13CA and 13R schemes); and b) b)Enhanced tier funds (section 13X scheme) To qualify as a basic tier fund, a fund has to meet certain conditions, including not having 100% of the value of its issued securities beneficially owned, directly or indirectly, by Singapore persons . For enhanced tier funds approved as a collective structure, the master fund in the approved structure can have up to two tiers of SPVs. Such SPVs must be wholly-owned (directly or indirectly) by the master fund and can only take the form of companies. Separately, for real estate, infrastructure and private equity funds applying to be enhanced tier funds, the minimum fund size requirement to be met at the point of application may be determined based on the amount of committed capital (“committed capital concession”). The schemes for Qualifying Funds are scheduled to lapse after 31 March 2019. Qualifying Funds are granted the following tax concessions, subject to conditions: a) Tax exemption on specified income (“SI”) derived from designated investments (“DI”); and b) Withholding tax exemption on interest and other qualifying payments made to non-resident persons (excluding permanent establishments in Singapore). Qualifying Funds comprise the following: a) Basic tier funds (sections 13CA and 13R schemes); and b) b)Enhanced tier funds (section 13X scheme) To qualify as a basic tier fund, a fund has to meet certain conditions, including not having 100% of the value of its issued securities beneficially owned, directly or indirectly, by Singapore persons . For enhanced tier funds approved as a collective structure, the master fund in the approved structure can have up to two tiers of SPVs. Such SPVs must be wholly-owned (directly or indirectly) by the master fund and can only take the form of companies. Separately, for real estate, infrastructure and private equity funds applying to be enhanced tier funds, the minimum fund size requirement to be met at the point of application may be determined based on the amount of committed capital (“committed capital concession”). The schemes for Qualifying Funds are scheduled to lapse after 31 March 2019.To continue to grow Singapore’s asset management industry, the tax concessions relating to Qualifying Funds will be extended till 31 December 2024. The sections 13CA, 13R, and 13X schemes will also be refined to keep the schemes relevant and to ease the compliance burden. The key refinements are as follows: a) The condition that a basic tier fund must not have 100% of the value of its issued securities beneficially owned, directly or indirectly, by Singapore persons will be removed; b) The enhanced tier fund scheme will be enhanced to (i) include co-investments, non-company SPVs and more than two tiers of SPVs, (ii) allow debit and credit funds to access the “committed capital concession,” and (iii) include managed accounts ; c) The list of DI will be expanded by removing the counter-party and currency restrictions, and including investments such as credit facilities and advances, and Islamic financial products that are commercial equivalents of DI. The condition for unit trusts to invest in DI wholly will be removed; d) The list of SI will be enhanced to include income in the form of payments that fall within the ambit of section 12(6) of the ITA; and e) Qualifying non-resident funds under sections 13CA and 13X will be able to avail themselves of the 10% concessionary tax rate applicable to qualifying non-resident non-individuals when investing in S-REITs and REITs ETFs. The removal of the condition in (a) will be effective from YA2020 . The enhancements in (b) will apply on and after19 February 2019. The improvements in (c) and (d) will apply to income derived on and after 19 February 2019. The enhancements in (e) will apply to S-REITs and REITs ETFs distributions made during the period from 1 July 2019 to 31 December 2025.MAS will provide further details of the changes by May 2019.
7Recovery of GST for Qualifying FundsAs a concession, Qualifying Funds that are managed by prescribed fund managers in Singapore are allowed, by way of remission, to claim GST incurred on expenses at a fixed recovery rate. The concession is scheduled to lapse after 31 March 2019.To further grow Singapore as a centre for fund management and administration, the concession will be extended to 31 December 2024. MAS will release further details of the change by May 2019.
8Lapse the Designated Unit Trust (“DUT”) schemeUnder the DUT scheme, specified income derived by a unit trust with the DUT status is not taxed at the trustee level but is taxable upon distribution in the hands of investors. Qualifying foreign investors and individuals are exempt from tax on distributions made by a DUT. The DUT scheme is scheduled to lapse after 31 March 2019.Tax incentive schemes are reviewed regularly to ensure relevance. The DUT scheme will lapse after 31 March 2019. Funds in the form of unit trusts may apply for other tax incentives for funds. Existing DUTs will continue to receive the tax deferral benefits under the DUT scheme, on and after 1 April 2019, if they continue to meet all the conditions.
9Lapse the Approved Unit Trust (“AUT”) schemeUnder the AUT scheme, the trustee is taxed on its investment income, and 10% of the gains derived from the disposal of securities. The remaining 90% of the profits from the disposition of securities are instead taxed in the hands of the unitholders when distributed. Tax exemption is allowed on such distribution if the unitholder is: a) an individual resident in Singapore; or b) a person who is not resident in Singapore and has no permanent establishment in Singapore.Tax incentive schemes are reviewed regularly to ensure relevance. The AUT scheme will lapse after 18 February 2019. Existing AUTs will continue to receive the tax concession under the AUT scheme for five years from YA 2020 to YA 2024. This will allow existing AUTs sufficient time to transit to alternative tax incentive schemes, where relevant.
10Lapse the Property Tax (Tourist Projects) OrderThe Property Tax (Tourist Projects) Order was introduced on 1 January 1987, to promote tourism. Under the concession, the Minister may approve new tourist projects to have their Annual Value computed based on 6% of the preceding year’s gross receipts, for the first five years from the completion of the buildings.Schemes are reviewed regularly to ensure relevance. The Property Tax (Tourist Projects) Order will lapse after 18 February 2019. The Government remains supportive of the tourism industry and has various schemes in place to support tourism projects which have clear economic benefits to Singapore.

1“Singapore persons” is defined in the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by Fund Manager in Singapore) Regulations. It includes persons who are Singapore citizens, residents of Singapore or permanent establishments in Singapore.

2A managed account is a dedicated investment account where an investor places funds directly with a fund manager without using a separate fund vehicle.

3Applicable from YA 2020 instead of on and after 19 February 2019, to avoid subjecting existing funds to two different set of conditions in the same basis period.

4Unless such income is derived through a partnership in Singapore or is derived from the carrying on of a trade, business or profession.

Posted in Company Incorporation, Taxation.