Singapore Budget 2011 - Business Tax
Corporate Income Tax Rate
There was no reduction in the corporate income tax rate. The tax rate stays at 17% with a partial tax exemption for normal chargeable income of up to S$300,000 as follows:- 75% exemption of up to the first S$10,000; and
- 50% exemption of up to the next S$290,000
At 17%, Singapore's corporate income tax rate is already one of the lowest corporate tax rates in the world. This rate is only 0.5% higher than the current Hong Kong corporate tax rate of 16.5% and 4.5% higher than the corporate tax rate of 12.5% in Ireland on trading income.
The 3% rate difference between corporate income tax and the top marginal personal income tax rate of 20% remains. Self-employed individuals, depending on their level of income, may find it more attractive to corporatise their businesses in view of the lower corporate income tax rate and partial tax exemptions. However, the additional costs of operating a company, eg., audit and secretial fees, will also have to be taken account before such decision is made.
Corporate Income Tax Rebate and SME Cash Grant
A corporate income tax rebate will be granted for YA 2011. The rebate will be 20% of the corporate income tax payable, capped at S$10,000.For small companies which may not benefit fully from the corporate income tax rebate as they pay very little taxes, a one-off SME cash grant will be provided. The grant will be based on 5% of the company's revenue for YA 2011, subject to a cap of S$5,000. The company must, however, have made CPF contributions in YA 2011.
Companies will automatically receive the higher of the corporate income tax rebate or the grant when the IRAS assesses their YA 2011 corporate income tax returns.
Productivity and Innovation Credit (PIC)
The Productivity and Innovation Credit (“PIC”) was introduced in the Singapore Budget 2010.PIC has been enhanced in Budget 2011 to provide tax benefits for investments by businesses in a broad range of activities along the innovation value chain. The tax benefits under PIC will be effective from Years of Assessment (YA) 2011 to YA 2015.
The six activities along the innovation value chain that will qualify for PIC benefits are:
- Acquisition or leasing of prescribed automation equipment;
- Training of employees;
- Acquisition of Intellectual Property Rights;
- Registration of patents, trademarks, designs and plant varieties;
- Research and development activities; and
- Investment in approved design projects.
Tax Benefits under PIC
400% Tax Deduction/Allowances
For YA 2011 to YA 2015, all businesses can enjoy deduction/allowances at 400% of their expenditure on each of the six qualifying activities instead of the 100%/150% tax deduction/allowances under the existing tax rules.
The deduction/allowances are subject to the following expenditure cap:
- Total expenditure cap for YAs 2011 and 2012 - $800,000 for each of the six qualifying activities; and
- Total expenditure cap for YAs 2013 to 2015 - $1,200,000 for each of the six qualifying activities.
| Year of Assessment (YA) | Expenditure Cap per Qualifying Activity | Tax Deduction per Qualifying Activity |
| 2011 and 2012 (Combined) | $800,000 | $3,200,000 (400% x $800,000) |
| 2013 to 2015 (Combined) | $1,200,000 | $4,800,000 (400% x $1,200,000) |
Cash Payout Option
To support small and growing businesses which may be cash-constrained, to innovate and improve productivity, businesses can exercise an option to convert their expenditure into a non-taxable cash payout. They can convert up to $100,000 (subject to a minimum of $400) of their total expenditure in all the six qualifying activities into a cash payout. The rate of conversion is 30% which means a maximum cash payout of $30,000 per year.
This PIC cash payout option is available for the first three years of PIC, i.e. YA 2011 to YA 2013.
For YA 2011 and YA 2012, businesses can opt to convert up to a combined cap of $200,000 qualifying expenditure for all six qualifying activities, into a cash payout. The total cash payout for YA 2011 and YA 2012 is therefore a maximum of $60,000 ($200,000 x 30%). For YA 2013, the maximum cash payout is $30,000 ($100,000 x 30%).
Eligibility for Cash Payout Option
Businesses eligible to opt for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have:
- incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;
- active business operations in Singapore; and
- at least three local employees (Singapore citizens or PRs with CPF contributions excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company). A business is considered to have met this three-local-employees eligibility if it contributes CPF on the payrolls of at least three local employees in the last month of its basis period for the qualifying YA.
Foreign Tax Credit Pooling System
The Government will introduce foreign tax credit pooling to give businesses greater flexibility in their claim of foreign tax credits, reduce their Singapore taxes payable on remitted foreign income, as well as to simplify tax compliance.Under the foreign tax credit pooling system, foreign tax credit is computed on a pooled basis, rather than one a source-by-source and country-by-country basis for each particular stream of income. The amount of foreign tax credit to be granted will be based on the lower of the pooled foreign taxes paid on the foreign income and the pooled Singapore tax payable on such foreign income. Resident taxpayers can elect for the foreign tax credit pooling system if the following conditions are fulfilled:
- foreign income tax paid on the foreign income in the foreign jurisidiction from which the foreign income is remitted;
- the headline tax rate of the foreign jurisidiction from which the foreign income is remitted is at least 15% at the time the foreign income is received in Singapore; and
- there is Singapore tax payable on the foreign income and the taxpayer is entitled to claim for foreign tax credit under section 50, 50A or 50B of the ITA on that foreign income.
Claim of Pre-commencement Expenses
Since YA 2004, the first day of the accounting year in which a business earns its first dollar of trade receipts is deemed as the date on which the business commences operations.To facilitate the starting up of businesses, the enterprise development concession will be enhanced to allow businesses to claim pre-commencement revenue expenses incurred in the accounting year immediately preceding the accounting year in which they earn their first dollar of business receipts.
The proposed enhancement is effective from YA 2012. Businesses are allowed to claim pre-commencement revenue expenses incurred in the accounting year 2010 if the first dollar of business receipts is earned in the accounting year 2011.
This concession does not apply to companies to which the provisions of section 10E apply. Section 10E applies to companies carrying on the business making investments which includes the business of letting if immovable properties.
The IRAS will release further details by end June 2011.
Enhancement to deductions on donations
The tax deduction of 250% will be extended for another five years for donations made during 1 Jan 2011 to 31 Dec 2015. All existing criteria to qualify for tax deduction remain unchanged.
Streamlining of the section 14B and section 14K tax deduction schemes
The sections 14B and 14K tax deduction schemes will be merged into a single scheme given their common objective of assisting businesses to internationalise and expand overseas. The merged scheme will also be simplified to allow businesses to benefit from the scheme. For instance, businesses can now submit their applications up to the day of their overseas marketing trip, instead of seven days before the trip.A sunset clause of 31 March 2016 will be introduced for this scheme.
These changes will apply to applications submitted and approved on or after 1 April 2011. The IE Singapore will release further details by end of March 2011.
Facilitate Employee Equity-Based Remuneration (EEBR) schemes by extending tax deduction to cover cost of parent company’s shares acquired through a Special Purpose Vehicle (SPV) set up to administer EEBR scheme
With effect from YA 2012, a company which sets up a Special Purpose Vehicle (SPV) for acting as a trustee to acquire the parent company's shares for the purpose of EEBR will be given tax deduction for the share acquisition cost incurred if:- The SPV is set up, as a company or a trust, solely to administer the EEBR scheme(s) for companies within the group; and
- The SPV acquires the parent company's shares from the parent company or the market and holds them in trust for the employees of the companies within the group for the EEBR scheme(s).
- The amount paid by the company to the SPV for the parent company's shares; and
- The cost incurred by the SPV in acquiring the parent company's shares,
This will take effect from the YA 2012, which relates to the basis period in which the company is eligible to claim a tax deduction in respect of the shares and:
- applies the parent company's shares for the benefit of its employees under its EEBR scheme through a SPV; or
- is liable to pay the SPV for the shares transferred, whichever is later.
Extension of tax exemption scheme for income derived from structured products
With effect from YA 2012, a company which sets up a Special Purpose Vehicle (SPV) for acting as a trustee to acquire the parent company's shares for the purpose of EEBR will be given tax deduction for the share acquisition cost incurred if:- The SPV is set up, as a company or a trust, solely to administer the EEBR scheme(s) for companies within the group; and
- The SPV acquires the parent company's shares from the parent company or the market and holds them in trust for the employees of the companies within the group for the EEBR scheme(s).
- The amount paid by the company to the SPV for the parent company's shares; and
- The cost incurred by the SPV in acquiring the parent company's shares,
This will take effect from the YA 2012, which relates to the basis period in which the company is eligible to claim a tax deduction in respect of the shares and:
- applies the parent company's shares for the benefit of its employees under its EEBR scheme through a SPV; or
- is liable to pay the SPV for the shares transferred, whichever is later.
Tax Benefits for Voluntary CPF Medisave Contributions by Eligible Companies to Self-employed Persons (SEPs)
As announced in Budget 2011, eligible companies that make voluntary contributions to Self-employed Persons’ CPF Medisave Accounts from 1 Jan 2011 will be given tax deduction with effect from YA 2012.To qualify for the tax deduction, the contribution must meet the following conditions:
- The contribution is made to the Medisave Account of a self-employed person (SEP);
- The contribution is made in cash by a company;
- There must be a valid contract between the eligible company and the SEP, which is in force when the contributions are made, and which provides for:
- the rental or loan of assets by that company to the SEP, for the SEP to carry on his trade, profession, business or vocation; or
- the provision of services by the SEP to that company, where the SEP and that company are in the same trade, profession, business or vocation.