Concessionary tax rate tier for tax incentives
With effect from 17 February 2024, an additional concessionary tax rate (CTR) tier will be introduced for the following tax incentives:
- A CTR of 15% for the Global Trader Programme, Development and Expansion Incentive and Intellectual Property Development Incentive, under which approved companies currently enjoy a reduced tax rate of either 5% or 10%; and
- A CTR of 10% for the Finance and Treasury Centre Incentive and the Aircraft Leasing Scheme, both of which currently offer a concessionary tax rate of 8%.
It is unclear as to whether the additional CTR tier will have lower economic commitments compared to the existing CTR tiers that offer lower concessionary tax rates.
The introduction of the new tier provides more options to businesses which are prepared to offer lower economic commitments in return for the tax incentive. That said, given that 15% is just two percentage points lower than the corporate tax rate of 17%, companies will have to consider the cost-benefit trade off before deciding whether it is worthwhile to seek the CTR of 15%.
For Pillar Two in-scope MNEs in Singapore enjoying tax incentives, these MNEs need to consider Domestic Top-up Tax with effect from 1 January 2025. The possibility that these existing incentivised Singapore companies may pivot to the new tier should be explored, in case it could help lighten their Pillar Two compliance burden.
Further details on the implementation of the new CTR tiers will be released by the Economic Development Board of Singapore and Enterprise Singapore by the second quarter of 2024.
Overseas Humanitarian Assistance Tax Deduction Scheme
As part of continued efforts to encourage philanthropy and inculcate inclusiveness and compassion, the Finance Minister announced a new Overseas Humanitarian Assistance Tax Deduction Scheme (OHAS) which will apply from 1 January 2025. The scheme will grant a 100% tax deduction to individual and corporate donors making qualifying overseas cash donations subject to certain conditions.
Qualifying tax deductions under the OHAS, together with tax deductions accorded under the Philanthropy Tax Incentive Scheme for Family Offices, will be capped at 40% of the donor’s statutory income. Unutilised amounts will not be available to be carried forward to subsequent years of assessment or for transfers to related parties under the Group Relief System.
The tax deduction under the OHAS is only accorded for cash donations for assistance where there is a valid Fund-Raising for Foreign Charitable Purposes permit issued by the Commissioner of Charities. In addition, cash donations made under the OHAS will enjoy a 100% deduction only instead of the 250% tax deduction for donations to Institutions of a Public Character in Singapore.
While the introduction of the OHAS may promote Singapore’s contribution to global humanitarian efforts, the effectiveness may be limited given the stringent requirements and lower tax benefits. We hope to see future enhancements so that the generosity of the people and corporations in Singapore will be able to reach further and support those in need overseas.
Deduction for renovation or refurbishment expenditure
With effect from YA 2025, the scope of expenditure qualifying for tax deduction under the renovation or refurbishment (R&R) scheme will include designer and professional fees. This will be welcomed by taxpayers as such fees may form a sizeable portion of R&R expenses, particularly in the smaller-scale R&R projects.
In addition, all businesses will transition to a standardised three-year relevant period starting from YA 2025 to YA 2027, and the $300,000 cap on qualifying expenditure will be reset in YA 2025. Businesses that are midway through their three-year periods and which have already incurred qualifying expenditure in YA 2023 and/or YA 2024 will benefit from the reset of the qualifying expenditure cap in YA 2025. The standardisation of the three-year period will help to reduce the need for tracking the expenditure claims by taxpayers and the IRAS.
Lastly, businesses will also be granted the option of claiming accelerated deduction over a year on qualifying expenditure incurred, subject to the cap of $300,000 over the three-year relevant period. This permanent enhancement should provide greater flexibility for businesses to manage cash flows arising from the accelerated tax deduction and is welcomed. Nonetheless, various factors should be considered by the business before deciding to elect for the accelerated deduction. For example, the accelerated tax deduction may not reduce cash tax liability if the taxpayer is in a tax loss position.
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