Singapore Budget 2012 - Business Tax

SME Cash Grant

The corporate income tax rate remains at 17%. For the year of assessment (YA) 2012, companies (excluding dormant and inactive companies as well as trusts and REITs) will be granted a one-off SME cash grant based on 5% of their revenue in YA 2012, subject to a cap of S$5,000. To enjoy the SME Cash Grant, companies must have made CPF contributions for at least one employee who is not a shareholder during the relevant accounting period for YA 2012.

Eligible companies would automatically receive the cash grant after their tax returns for YA 2012 has been filed and tax has been assessed. The SME Cash Grant may be used to set off against the company’s tax payable for YA 2012.

Enhancement of the Productivity and Innovation Credit (PIC) Scheme

To provide more support for businesses to invest in innovation and productivity, the PIC scheme will be enhanced in 4 areas:

Cash Payout
The cash payout rate will be increased from 30% to 60% for up to $100,000 of qualifying expenditure from YA2013 to YA2015. Businesses may also claim the cash payout any time after the end of each financial quarter, but no later than the due date for the filing of its income tax return for the relevant year.

Training

In-house training courses
Certification will not be required for qualifying in-house training expenditure incurred up to $10,000 per YA. The total training expenditure cap eligible for tax deduction remains unchanged at $400,000.
Training of agents
Expenditure incurred by a principal on the training of its agents may qualify for PIC subject to certain conditions.

Research & Development (“R&D”)

R&D cost-sharing agreements
Expenditure incurred on R&D cost-sharing agreements may qualify as expenditure on R&D and enjoy PIC deduction. The qualifying expenditure will be deemed to be 60% of the shared costs.
Software development
The multiple sales requirement will be removed to facilitate R&D in software development not intended for sale. In-house R&D software development can now qualify as R&D. However, the development of software for internal routine administration of businesses will not be considered as R&D.

Investments in Automation Equipment Qualifying automation equipment acquired on hire purchase with repayment schedule straddling two or more financial years will be eligible for the cash payout option.

Enhancing the Renovation and Refurbishment (“R&R”) deduction scheme

To help businesses that need to renew and refresh their premises regularly to remain competitive, the R&R deduction scheme will become a permanent feature of the income tax regime. With effect from YA2013, the expenditure cap will be doubled to $300,000 for each three-year period.

Enhancing the Merger & Acquisition (“M&A”) Scheme

To further support companies carrying out M&A, 200% tax allowance will be granted on the transaction costs incurred on qualifying M&A, subject to an expenditure cap of $100,000 per YA. The allowance will be written down in 1 year.

The definition of qualifying M&A has been extended to include those where:

The acquiring company acquires shares of the target company through multiple tiers of wholly-owned subsidiaries; and
The qualifying conditions imposed on the target company are satisfied by any of the multiple tiers of wholly-owned subsidiaries of the target company

Extension of scheme
The M&A scheme will be available as an added feature for existing Headquarter incentive schemes, on a case-by-case basis. The condition that the acquiring company must be held by an ultimate holding company incorporated in, and a tax resident of, Singapore may be waived subject to conditions. EDB will administer this waiver.

These changes will take effect for qualifying M&A completed from 17 Feb 2012 to 31 Mar 2015.

Simplifying capital allowance claims for low-value assets

With effect from YA2013, the full cost of each asset that may be written down in one year will be increased to no more than $5,000 to further ease the claiming of capital allowances.

IRAS will release further details of the changes by 30 Jun 2012.

Providing certainty of non-taxation of companies’ gains on disposal of equity investments

For companies’ disposal of shares on or after 1 Jun 2012, gains derived from the disposal of equity investments by companies will not be taxed, if:

the divesting company holds a minimum shareholding of 20% in the company whose shares are being disposed; and
the divesting company maintains the minimum 20% shareholding for a minimum period of 24 months just prior to the disposal.

For share disposals in other scenarios, the tax treatment of the gains/ losses arising from share disposals will continue to be determined based on a consideration of the facts and circumstances of the case.

IRAS will release further details of the change by 1 Jun 2012.

Introducing the Integrated Investment Allowance (“IIA”) Scheme

To keep pace with the evolving business environment, a new IIA scheme will be introduced to provide an additional allowance on fixed capital expenditure incurred for productive equipment placed overseas on approved projects with effect from YA2013. EDB will administer the scheme.

The existing Integrated Industrial Capital Allowance incentive will be withdrawn following the introduction of the IIA scheme on 17 Feb 2012.

Enhancing the Double Tax Deduction (“DTD”) for Internationalisation Scheme

To further encourage our SMEs to venture abroad, and reduce administrative burden on businesses, tax deduction of up to 200% may be allowed on qualifying expenditure, up to $100,000 per YA, incurred on 4 specified activities on or after 1 Apr 2012, without the need for approval from IE Singapore or STB.

IE Singapore and Singapore Tourism Board will release further details of the changes by 31 Mar 2012.

Liberalising the cash distribution requirement for tax transparency for Real Estate Investment Trusts (REITs)

REITs that make distributions to unit holders in the form of units can enjoy tax transparency, subject to certain conditions. Unit holders who elect to receive distributions in units will be taxed in the same manner as if they had received the distribution in cash. This change will take effect for distributions made on or after 1 Apr 2012.