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EXECUTIVE SUMMARY
The much anticipated reduction of the corporate tax rate to 20%
for Year of Assessment 2005 was finally announced and confirmed
by the Minister for Finance in his 2004 Budget speech on 27th February
2004. However, the tax rates for individual taxpayers remained unchanged
with the highest marginal rate at 22%. The tax rates for individual
taxpayers will be reviewed and reduced to be in line with the corporate
tax rate as soon as it is permissible.
Other tax policy changes include the tax exemption of overseas
income received by individuals and for Singapore sourced investment
income received by individuals from Singapore financial instruments.
Withholding tax rate for royalty payment to non-residents will be
reduced to 10%.
These changes will definitely strengthen the competitiveness of
Singapore in the evolving international market. The reduction of
corporate tax rate to 20% will make Singapore more attractive to
foreign investments. Coupled with our sophisticated financial infrastructures,
Singapore will be able to attract more investments in the future.
The Budget will add as a timely stimulus to the economy that is
beginning to recover from the eventful year of 2003.
Chng Chung Hing
Senior Tax Manager
27th February 2004
KEY FEATURES
CORPORATE INCOME TAX >>
 Corporate
Income Tax Rate
Withholding
Taxes on Royalty Payments
Tax Measures
for the Development Of Newly Incorporated Enterprise
PERSONAL INCOME TAX >>
No Change
in Personal Tax Rate
Tax Exemption
for Individuals' Foreign-Sourced Income
Tax Exemption
for Individuals' Singapore-Sourced Investment Income
Increase
in CPF Topping Up Relief
GOODS AND SERVICES TAX (GST) >>
No Change
in GST Rate
TAX INCENTIVES >>
Regional
Headquarters Scheme
Pioneer
Incentive
Technopreneur
Investment Incentive
Approved
International Shipping Enterprise Scheme
Financial
Services Incentives
CENTRAL PROVIDENT FUND (CPF) >>
Medisave
Top-Up
CPF Contribution
Rates
OTHERS >>
Estate
Duties
Motor
Vehicle Taxes
Liquor
Duties
Tobacco
Duties
Portable
Medical Benefits
Corporate Income Tax Rate
Current
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The current corporate tax rate is 22% with partial
tax exemption for the first $100,000 chargeable income (CI)
i.e. 75% of up to the first $10,000 of CI and 50% of the next
$90,000 are exempted from tax, excluding Singapore dividends. |
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The following foreign sourced income are exempted
from tax with effect from 1 June 2003:- |
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All foreign income in the form of dividends, branch
profits and services income. |
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Foreign sourced royalties and interest used for
Research and Development purposes (for a period of 5 years). |
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The exemption will be available to all taxpayers,
whether individuals or companies, but will only apply to income
earned from foreign jurisdictions with headline tax rates of
at least 15%. |
Changes
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Corporate tax rate will be reduced from 22 % to
20% from Year of Assessment (YA) 2005. Partial tax exemption
for the first $100,000 CI continues to be applicable. |
Technical / Business Issues
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The reduction of the company tax rate will
help to maintain Singapore’s competitiveness and to
lighten the tax burden of companies.
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Franked dividends paid on or after 1 January 2004
will carry a Section 44A tax credit of 20%. |
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Payments made on or after 1 January 2004 to non-residents
that are subject to withholding tax at the corporate tax rate
would also be reduced to 20%. |
Withholding Taxes on Royalty Payments
Current
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Under Section 45A of the Singapore Income Tax
Act, companies are required to withhold tax on payment of royalties
made to non-residents of Singapore at a final tax rate of 15%
subject to the Double Taxation Agreement that Singapore had
concluded with the payee’s country. |
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The following income have been specifically excluded
from the scope of the 15% tax rate:- |
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Royalties and other payments received by an author,
composer or choreographer, or any company in which the author,
composer or choreographer beneficially owns all the issued share
capital from a person carrying on in Singapore the business
of publishing, of recording music or of producing cinematograph
films, choreographic works or plays for the assignment of, or
the right to use, the copyright in any literary, dramatic, musical
or artistic work and |
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Royalties and other payments which are derived
by an inventor, author or proprietor of an approved invention
or approved innovation for the assignment of, or for the rights
in the approved invention or approved innovation. |
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The withholding tax rates for the above royalties
payable to non-residents will be the prevailing corporate tax
rate multiplied by the lower of the net royalties or 10% of
the gross royalties payable. |
Changes
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The final withholding tax rate on royalty payment
will be reduced from 15% to 10% from 1 January 2005. |
Technical / Business Issues
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Businesses will incur lower costs in cases where
they have to absorb the withholding taxes on behalf of the non-resident
recipients especially for smaller businesses that are not enjoying
any of the existing incentives for royalty payments. |
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Businesses will also be able to exploit foreign
Intellectual Property that are available to them as it will
be more attractive for foreign Intellectual Property owners
to sub-licence their Intellectual Property rights to Singapore
businesses. |
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The reduction will mean that the reduced tax
rates under some tax treaties are no longer necessary as the
general rate is reduced to 10%. |
Tax Measures for the Development of Newly Incorporated Enterprise
Current
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Companies enjoy partial tax exemption for the
first $100,000 CI. The maximum exemption is $52,500. |
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The partial tax exemption does not apply to Singapore
dividends received. |
Changes
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Newly incorporated companies now enjoy full tax
exemption on the first $100,000 of their normal CI. |
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The full tax exemption will apply to any of
the first three consecutive YAs falling within YA 2005 to
YA 2009.
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The first YA of a qualifying company is the
YA that relates to the basis period in which the company is
incorporated. This means that if the company is incorporated
in year 2004, its first YA will be 2005 and it hence qualifies
for the full exemption from YA 2005 to YA 2007.
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A new company will qualify for the full tax
exemption for a relevant YA under this scheme if it meets
all the following conditions:-
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it is incorporated in Singapore; |
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it is a tax resident of Singapore for that YA; |
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it has no more than 20 shareholders throughout
the basis period relating to that YA; and |
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all its shareholders are individuals throughout
the basis period relating to that YA. |
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The exemption does not apply to Singapore
dividends received by the qualifying companies.
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Technical / Business Issues
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Entrepreneurs will be encouraged to start up new
companies to pursue their business aspirations. |
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New companies will be able to retain a larger
portion of their earnings to be ploughed back into their businesses. |
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Companies may consider reviewing the timing of
their business spending to optimise the tax savings from tax
exemptions. |
Personal Income Tax Rate
Current
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The top marginal personal tax rate for resident
individuals remains unchanged at 22%. |
Technical / Business Issues
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From YA 2005, the top marginal personal tax rate
will be higher than the corporate tax rate. Companies may consider
deferring the payment of directors’ fees and franked dividends
to individual shareholders who are already being taxed at the
top marginal personal tax rate to optimise tax savings. |
Tax Exemption for Individuals' Foreign-Sourced
Income
Current
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Foreign-sourced income remitted into Singapore
by Singapore tax residents is liable to tax. |
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Remittance of foreign dividends and service income
from 1 June 2003 from foreign jurisdictions with headline tax
rates of at least 15% is exempted from tax. |
Changes
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All foreign-sourced income received by resident
individual is exempted from tax from YA 2005. |
Technical / Business Issues
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Now that the tax barrier for foreign income remittance
is lifted, individuals may focus more on other financial factors
in deciding the location of their investments. |
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Since remittance of foreign personal income is
exempted from tax, individuals may consider holding foreign
investments directly instead of through Singapore holding companies. |
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The exemption will free up funds tied up overseas
to flow back to Singapore to stimulate local investment and
consumption. |
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The exemption will attract high net worth individuals
within the region to use Singapore as their place of residence
to retain their overseas income. |
Tax Exemption for Individuals' Singapore-Sourced
Investment Income
Current
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Singapore-sourced investment income from financial
instruments received by resident individuals is liable to tax
unless specifically exempted. |
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Interest income received by resident individuals
from standard deposit accounts will enjoy partial tax exemption
for YA 2005 and full exemption from YA 2006. |
Changes
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Singapore-sourced investment income received from
financial instruments by resident individuals is exempted from
tax from YA 2005. |
Technical / Business Issues
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The exemption is a counter measure to ensure that
the new exemption on foreign-sourced personal income will not
be biased against individuals receiving income from Singapore
financial instruments. |
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With the exemption, individual taxpayers are encouraged
to save and plan for their retirement. |
CPF Topping Up Relief
Current
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Under the CPF Minimum Sum Topping-Up Scheme, individuals
are allowed to make top-ups to the CPF Retirement Accounts belonging
to themselves, their spouses, parents and grandparents. A tax
deduction based on the lower of actual amount contributed or
$6,000 is granted to an individual who makes cash top-ups. |
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Individuals are not entitled to any tax relief
for cash top-ups to the Retirement Accounts of their non-working
spouses. |
Changes
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The tax relief ceiling on cash top-ups will be
increased from $6,000 to $7,000 from YA 2005. |
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The tax relief will be extended to individuals
making cash top-ups to non-working spouses who are 55 years
old and above, and who earned not more than $2,000 in the basis
period. |
Technical / Business Issues
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The increment of the tax relief to $7,000 will
help individuals reduce their taxable income and encourage savings
for retirement needs. |
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The new changes aim to make Singaporeans self-reliant
and financially independent in their old age. |
Goods and Services Tax (GST)
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The current standard GST rate remains unchanged
at 5%. |
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Exports of goods and the provision of international
services will be charged at 0%. |
Regional Headquarters Scheme
Current
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Companies that are granted the regional headquarters
incentive are offered concessionary tax rate of 15% for a maximum
period of three years. |
Changes
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The maximum duration of the regional headquarters
incentive will be increased from three to five years with immediate
effect. |
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Companies currently within the scheme for more
than a year will also be eligible for this new change. |
Technical / Business Issues
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The incentive is to entice MNCs to continue or
shift their headquarters operations to Singapore, strengthening
Singapore’s position as a prime location for headquarters
operations in Asia. |
Pioneer Incentive
Current
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Granted to companies engaging in the manufacture
of certain products or the development of specific qualifying
services. |
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Qualifying companies can enjoy tax exemption
for a period of five to ten years. |
Changes
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The maximum duration for the pioneer incentive
will be extended to fifteen years with immediate effect. |
Technical / Business Issues
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The incentive is to attract new MNC activities
in the high-tech or high value-added manufacturing and services
industries to move their operations in Singapore. This will
strengthen Singapore’s position as a global business hub
in Asia. |
Technoprenuer Investment Incentive (TII)
Current
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Innovators and high-tech start-up companies (qualifying
investors) enjoy a tax deduction on losses incurred from selling
qualifying shares in an approved technopreneur start-up, or
from the liquidation of that start-up between the 2nd and 7th
year from the date of allotment of shares. |
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Losses of qualifying investors are allowed to
be set-off against other income derived from Singapore. |
Changes
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This incentive is expanded to include all forms
of start-ups and is renamed as the Enterprise Investment Incentive
(EII). |
Technical / Business Issues
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The incentive encourages entrepreneurs to take
risks and develop their ideas, as well as to create and seize
new business opportunities in overseas markets. |
Approved International Shipping Enterprise Scheme
(AIS)
Current
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The charter income of an AIS derived from the
operations of its vessels (both Singapore flag and non-Singapore
flag vessels) outside Singapore will be exempt from tax. |
Changes
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All charter income (onshore and offshore) of an
AIS company will be exempt from tax with effect from YA 2005. |
Technical / Business Issues
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The incentive is to retain and attract international
ship owners and operators to operate in Singapore. It also aims
to make Singapore an international shipping hub. |
Financial Services Incentives
Incentives were also announced for the following categories of
financial services and instruments:
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Processing services provided to financial institutions |
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Qualifying debt securities |
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Wealth management |
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Asset securitisation |
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Commodity derivatives trading |
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Secondary loans trading |
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Over-the-counter (OTC) financial derivatives |
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New financial products introduced by the top 20
members of the Singapore Exchange |
Technical / Business Issues
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The above incentives targeted at the respective
financial service industries are to promote Singapore as a wealth
management hub and maintain Singapore’s attractiveness
as a leading financial centre. |
Medisave Top-up
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The government will assist to top up the Medisave
accounts of Singaporeans aged 50 and above. The amount ranges
from $50 to $200 and will vary based on the age of the recipient
and his/her existing Medisave balance as shown below. |
CPF Contribution Rates
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With effect from 1 October 2003, CPF contribution
rates had been reduced from 36% to 33%. The employer and employee’s
contribution rates are shown in the attached table. |
CPF Salary Ceilings
Changes
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With effect from 1 January 2004, the employer’s
CPF contribution on ordinary wages (OW) will be reduced to a
salary ceiling of $5,500 per month or a CPF contribution of
$715 per month ($5,500 x 13%). |
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The CPF salary ceiling for employer’s CPF
contribution will be further reduced to $5,000 with effect from
1 January 2005 and subsequently to $4,500 in year 2006. |
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The additional wage (AW) ceiling is calculated
as follows :- |
Technical / Business Issues
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With the reduction in the CPF salary ceiling,
employers will incur lower staff costs and reduce their financial
burden. |
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The reduced employee CPF contribution ceiling
will produce a higher take home pay for employees but result
in a higher personal tax burden due to a reduction in the CPF
relief claimable. |
Building the Next Generation
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To encourage procreation, the Government has plans
to adopt a comprehensive approach to combat falling birth rates
via measures such as enhanced tax incentives and adequate support
facilities. Studies are being undertaken and the report for
procreation is expected to be ready before National Day. |
Estate Duties
Current
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Estate duties are payable upon the death of a
deceased. If the estate duty return is not filed after the date
of death, a 3% per annum interest may be imposed on the amount
of the unpaid estate duties. |
Changes
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For deaths occurring on and after 1 January 2005,
the administrators/executors will have a six-month interest
free period to file for estate duties. After which, interest
will start to accrue on the amount of unpaid estate duties. |
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In addition, upon the receipt of Notice of Assessment
from the Inland Revenue Authority of Singapore (IRAS), the administrators/executors
will be given a grace period of 30 days to make their estate
duty payments, after which a late payment penalty will be imposed. |
Motor Vehicle Taxes
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Additional registration fee (ARF) will be reduced
from 130% to 110% of Open Market Value (OMV). This is applicable
to cars with Certificates of Entitlement (COE) obtained from
the first COE bidding exercise in March 2004 onwards. |
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With immediate effect, excise duty for taxis will
be raised from 10% to 20% of OMV. This is to harmonise the payment
of ARF and excise duties for taxis and cars. |
Liquor Duties
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Excise duty rates of certain liquors will be raised
with immediate effect. |
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On a related issue, Singapore Customs will stop
the practice of assessing liquor duties based on standard bottle
sizes, and instead assess liquor duties based on exact volume.
The new practice will bring savings to the liquor industry. |
Tobacco Duties
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With immediate effect, excise duties for all tobacco
products would be raised. Excise duties on cigarettes will increase
from $255 to $293 per 1,000 sticks. This is to discourage smoking
and also to harmonise the excise duties on other tobacco products
with cigarettes. |
Portable Medical Benefits
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Employers who are doing well are encouraged to
participate in the Additional Medisave Contribution Scheme (AMCS).
Under the scheme, employers may contribute a maximum amount
of $1,500 per employee per year under the AMCS. These contributions
are also tax-free on the employee. Employers contributing to
the scheme will continue to enjoy tax deduction for medical
expenses of up to 2% of the total salary costs incurred after
1 April 2004. |
For enquiries, you may contact the following staff:
Mr Chng Chung Hing
DID: 6531 3733 Email : chchng@stoneforest.com.sg
Ms Koh Puay Hoon
DID: 6531 3734 Email : phkoh@stoneforest.com.sg
Mr Kevin Teo (for GST matters)
DID: 6531 3731 Email : kevinteo@stoneforest.com.sg
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