SUMMARY TABLE
BUDGET 2007 TAX CHANGES
s/n. / Tax Change / Brief description of tax change / Amendment to Income Tax Act / Explanation for Amendment1 / Reduction in Corporate Tax Rate / The income tax rate for companies will be reduced to 18% with effect from year of assessment (YA) 2008. In line with the reduction in company tax rate to 18%, the following tax rates will also be correspondingly reduced to 18%:
(a)tax rate for non-resident persons (other than non-resident individuals and non-resident Hindu joint family (HJF) which will remain at 20%);
(b)rate at which tax is withheld for payments (other than those subject to the 10% or 15% final withholding tax) due and payable on or after 1 January 2007 to non-resident persons other than non-resident individuals/HJF;
(c)tax rate for trustees (other than trustees of incapacitated persons) and executors;
(d)rate of deduction of tax from Singapore franked dividend paid during the period from 1 January 2007 to 31 December 2007[1];
(e)rate of tax to be used to compute the effective company tax rate for a body of persons.
The rate of tax on Singapore franked dividend received by non-resident individuals and HJF will also be reduced to 18%, unless the individuals or HFJ opt to be taxed at 20% on the net dividend instead of 18% on gross dividend. / Sections 26A, 35, 43, 44, 44A, 45, 45G and 46
[Clauses 16, 18(b), 23(a), (e), (i), 27, 28, 29 (a), (b), (c), 31, 33(b) and 41(a)] / Clause 16 makes a consequential amendment to section 26A (Ascertainment of income of member of Lloyd’s syndicate) arising from the reduction in company tax rate as a result of the amendment of section 43(1) by clause 23.
Clause 18 amends section 35 (Basis for computing statutory income) to make a consequential amendment to subsection (5) arising from the reduction in company tax rate to 18% as a result of the amendment of section 43(1) by clause 23.
Clause 23 amends section 43 (Rate of tax upon companies and others) —
(a) to reduce the tax rate in subsection (1) from 20% to 18% for companies, trustees, executors and non-resident persons who are not individuals or Hindu joint families;
(b) to provide for a final tax of 18% on the gross amount of Singapore franked dividends paid to a non-resident individual or Hindu joint family during the period from 1st January 2007 to 31st December 2007, unless the non-resident elects to be taxed at 20% on the net amount of the dividends.
Clauses 27 and 28 make consequential amendments to section 44 (Deduction of tax from dividends of companies) and section 44A (Transitional provisions for company subjected to former imputation system), respectively, arising from the reduction in the company tax rate to 18% as a result of the amendment of section 43(1) by clause 23.
Clause 29 makes consequential amendments to section 45 (Withholding of tax in respect of interest paid to non-resident persons) arising from the amendment of section 13 by clause 6 and the changes in the tax rate as a result of the amendment of section 43(1) by clause 23.
Clause 31 makes a consequential amendment to section 45G (Application of section 45 to distribution from any real estate investment trust) arising from the changes in the tax rate as a result of the amendment of section 43(1) by clause 23.
Clause 33 makes a consequential amendment to section 46 (Tax deducted from dividends, interest, etc.) arising from the changes in the tax rate as a result of the amendment of section 43(1) by clause 23, and the insertion of new section 45GA by clause 32.
Clause 41 makes consequential amendments to certain provisions of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86) arising from the changes in the tax rate as a result of the amendment of section 43(1) by clause 23, and the insertion of sections 43Y and 43Z by clause 26.
2 / Raising the Threshold for Partial Tax Exemption / The threshold for the partial tax exemption for all companies will be increased to $300,000.
The tax exemption will be given as follows:
(a) up to the first $10,000 of the normal chargeable income (excluding Singapore franked dividend), 75% of the income or an amount up to $7,500 is exempt from tax; and
(b) up to the next $290,000 of such income, 50% of the income or an amount up to $145,000 is exempt from tax.
The change is effective from YA 2008. / Section 43
[Clause 23(f), (g)] / Clause 23 amends section 43 (Rate of tax upon companies and others) to extend the 50% exemption of the income (excluding Singapore franked dividends) of a company under subsection (6) to the next $290,000 after the first $10,000 of the chargeable income (excluding Singapore franked dividends) of the company.
3 / Lifting the Sunset Clause for the Income Tax Exemption Scheme for New Companies / Currently, full tax exemption is granted on up to $100,000 of the normal chargeable income (excluding Singapore franked dividends) of a qualifying company, for any of its first three consecutive YAs that falls within YA 2005 to YA 2009 (inclusive). The first YA refers to the YA relating to the basis period during which the company is incorporated:
The YA2009 expiry date will now be removed, but the tax exemption will continue to apply to only the first three consecutive YAs of a qualifying company. All other features of the scheme remain unchanged.
For companies that qualify for the scheme, normal chargeable income between $100,000 - $300,000 (excluding Singapore franked dividends) will be eligible for 50% tax exemption under the enhanced partial tax exemption scheme which takes effect from YA2008. / Section 43
[Clause 23(h)] / Clause 23 amends section 43 (Rate of tax upon companies and others) to remove the expiration date for the application of subsection (6A) (first $100,000 of the chargeable income of a qualifying company to be exempt from tax for the company’s first 3 consecutive years of assessment falling within the years of assessment 2005 to 2009), and provide in that subsection (similar to subsection (6)) a 50% tax exemption for the next $200,000 of the company’s chargeable income (excluding Singapore franked dividends).
4 / Accelerated Capital Allowance for New vehicle to Replace Pre-Euro IV Diesel Goods Vehicles and Buses / The one- year write-off for capital expenditure incurred on diesel vehicles under section 19A(9) of the Income Tax Act will be extended to new goods vehicles and buses acquired to replace the old ones that do not meet with the new Euro- IV emission standard and which were registered on or after 1 January 1991 but before 1 October 2006. The incentive will be granted for 5 years and will take effect for vehicles registered during the period from 15 February 2007 to 14 February 2012.
For further details, please refer to the circularissued on 1 June 2007 by the Inland Revenue Authority of Singapore. / Section 19A
[Clause 14(b), (c)] / Clause 14 amends section 19A (Allowances of 3 years write off for machinery and plant, and 100% write off for computer, prescribed office automation equipment and robot, etc.) to provide for 100% capital allowance to be made in respect of any new goods vehicle or bus that is registered in the period from 15th February 2007 to 14th February 2012 as a replacement for any existing goods vehicle or bus that used diesel oil and was registered in the period from 1st January 1991 to 30th September 2006, subject to conditions.
5 / Tax Deduction for Other Borrowing Costs / Prescribed borrowing costs (other than interest expense) which are incurred on a borrowing that is used to acquire a capital asset and that asset is employed to produce chargeable income, will be deductible for income tax purposes, provided these costs are paid as a substitute for interest expense or to reduce interest costs.
The change will take effect from YA 2008.
Inland Revenue Authority of Singapore will be releasing a circular on this tax change. / Sections 14 and 15
[Clauses 10(a) and 11] / Clause 10 amends section 14 (Deductions allowed) to allow the deduction of prescribed borrowing cost incurred which is in lieu of interest expense or for the reduction of interest expense.
Clause 11 provides for a consequential amendment to section 15 (Deductions not allowed) to disallow deduction not only for interest in certain circumstances but also for any payment falling within section 12(6).
6 / Extension of Section 19B Writing Down Allowance / The scheme to allow the writing down allowances for acquisition of intellectual property rights, which expires on 31 October 2008, will be extended by another five years, up to 31 October 2013. / Section 19B
Clause 15 / Clause 15 amends section 19B (Writing-down allowances for intellectual property rights) to extend the provision of writing-down allowances for capital expenditure incurred in respect of intellectual property rights acquired up to 31st October 2013.
7 / New International Arbitration Tax Incentive / An approved law practice will be granted a 50% income tax exemption on qualifying incremental income in excess of a base income derived from legal services rendered in connection with any international arbitration, the hearing of which had been held in Singapore.
Application to be an approved law practice and for the incentive under the scheme can be made to EDB from 1 July 2007 to 30 June 2012. The incentive period will be a maximum of five years.
Ministry of Law will be releasing a circular on this tax change. / New Section 13V
[Clause 9] / Clause 9 inserts new section 13V.
The new section 13V provides for a tax exemption on the income of an approved law practice from the rendering of legal services in connection with any international arbitration the hearing of which is held in Singapore, subject to conditions. The exemption applies to 50% of such income that exceeds the average annual income derived from the rendering of similar services in the 3 years before approval was granted. The approval is for a period not exceeding 5 years.
8 / Enhancement to Qualifying Debt Securities Scheme / The Qualifying Debt Securities Scheme is enhanced to accord tax exemption or concessionary tax rates on prepayment fee, redemption premium and break cost that are derived by investors from Qualifying Debt Securities, subject to conditions. The inclusion of these items of payments for exemption or concessionary tax rates is applicable to all Qualifying Debt Securities issued during the period from 15 February 2007 to 31 December 2008.
As a consequence of the enhancement, changes are made to expand the taxability of the scope of income that does not form part of the statutory income of a designated unit trust (DUT) to include prepayment fee, redemption premium and break cost as unitholders, who are not foreign investor nor individuals, are not eligible to enjoy the exemption of the distributions out of these 3 items of payment.
The scope of tax exemption on locally-sourced investment income derived by individuals, is also expanded to include prepayment fee, redemption premium and break cost from debt securities. / Sections 10, 13, 13Q, 42, 43N and 45A
[Clauses 3(c), (d), 6(a), (f), (g), (h), (k), (m), 8, 21, 25 and 30] / Clause 3 amends section 10 (Charge of income tax) to amend subsection (20A) (which deems certain types of income as the income of a unitholder of a designated unit trust or approved CPF unit trust if he is not a foreign investor) so as to extend the types of income that are subject to tax in the hands of non-individual unitholders who are not foreign investors to prepayment fee, redemption premium and break cost from qualifying debt securities issued during the period from 15th February 2007 to 31st December 2008, and to other prescribed income that is directly attributable to qualifying debt securities.
Clause 6 amends section 13 (Exempt income) —
(a)to extend, subject to conditions, tax exemption to prepayment fee, redemption premium and break cost from qualifying debt securities issued during the period from 15th February 2007 to 31st December 2008, and to other prescribed income directly attributable to qualifying debt securities, derived by any non-resident person who does not have a permanent establishment in Singapore, or who carries on an operation through such a permanent establishment but the funds used to acquire the securities are not obtained from the operation;
(b)to extend tax exemption to prepayment fee, redemption premium and break cost from any debt securities derived on or after 15th February 2007, and to other prescribed income directly attributable to any debt securities derived on or after a prescribed date, by any individual where such income is not derived through a partnership in Singapore or from the carrying on of a trade, business or profession.
Clause 8 makes a consequential amendment to section 13Q (Exemption of relevant income of prescribed locally administered trust) arising from the insertion of section 13(1)(zk) and (zl) by clause 6.
Clause 21 amends section 42 to extend the 10% concessionary tax rate applicable to a body of persons to prepayment fee, redemption premium and break cost from qualifying debt securities issued during the period from 15th February 2007 to 31st December 2008 and other prescribed income directly attributable to qualifying debt securities, subject to conditions.
Clause 25 amends section 43N (Concessionary rate of tax for income derived from debt securities) to extend the 10% concessionary tax rate to prepayment fee, redemption premium and break cost from qualifying debt securities issued during the period from 15th February 2007 to 31st December 2008 and other prescribed income directly attributable to qualifying debt securities, subject to conditions.
Clause 30 makes a consequential amendment to section 45A (Application of section 45 to royalties, management fees, etc.) arising from the amendment of section 13 by clause 6.
9 / Income Tax exemption for Registered Charities and Exempt Charities / Charities (including philanthropic grant-making bodies) registered or exempt from registration under the Charities Act will enjoy income tax exemption without having the need to meet the 80% spending rule. This change will take effect from YA 2008. / New section 13(1)(zm)
[Clauses 6(f) and 7] / Clause 6 amends section 13 (Exempt income) to insert a new subsection (1)(zm) to provide for tax exemption of income of charities arising from the repeal of section 13M by clause 7.
Clause 7 repeals section 13M (Exemption of income of charities). The income of all registered and exempt charities under the Charities Act (Cap. 37) will be exempt from tax under new section 13(1)(zm), and the requirement that charities spend at least 80% of certain of their income and receipts accrued in the preceding year on charitable objects within Singapore before such income can qualify for exemption has been removed.
10 / New Tax Exemption Scheme for Not-for-Profit Organisations (NPOs) / Approved NPOs will be granted income tax exemption for an initial period of not more than 10 years subject to conditions.
Application for approved NPO status can be made to the EDB and MAS.
NPOs that may qualify for the incentive include those that have a regional or international focus and have strong linkages to key industry clusters. These NPOs have to contribute to the economic development of Singapore. Examples of such NPOs would include International Standards Organizations and Research Bodies.
The scheme is available from 15 February 2007 to 14 February 2017. NPOs that are approved under the scheme in the abovementioned window period may be eligible for renewal of the incentive beyond 14 February 2017. / New section 13U
[Clause 9] / Clause 9 inserts new section 13U.
The new section 13U provides for a tax exemption on the income of an approved not-for-profit organisation for a period not exceeding 10 years, which may be extended by the Minister or such person as he may appoint, subject to conditions.
11 / Enhancement to the Approved Aircraft Leasing Scheme (ALS) / The ALS has been enhanced with the following features:
(a)Offer of a concessionary tax rate of 5% (in addition to existing 10% rate) on qualifying lease income for a period of 5 years, with a possible extension of another 5 years;
(b)Expansion of the scope of income qualifying for the concessionary tax rates of 5% or 10%, to include:
(i)income from leasing of aircraft engines; and
(ii)income from leasing of aircraft or aircraft engines to any person in Singapore i.e. onshore leasing;
(c)Extension of the concessionary tax rates of 5% or 10% to a registered business trust or an approved company under an aircraft or aircraft engine financing arrangement;
(d)Offer of a concessionary tax rate of 10% on income derived by an approved fund management company or trustee manager in connection with and incidental to the management of the aircraft leasing portfolio/financing vehicle under the enhanced ALS.
The above enhancements will apply to applications approved during the period from 1 March 2007 to 29 February 2012. / New sections 43Y and 43Z
Miscellaneous amendments
[Clauses 13(a), 26, 40(c), (d), (g), (i) and 41(b)] / Clause 26 inserts new sections 43Y and 43Z.
The new section 43Y enables regulations to be made to levy concessionary tax rates of 5% or 10% upon specified income derived by an approved aircraft leasing company from the leasing of any aircraft or aircraft engine or from other prescribed activity, subject to conditions. The approval may be granted during the period from 1st March 2007 to 29th February 2012 and the concessionary tax rate granted to the company shall be valid for a period of 5 years, with a possible extension of another 5 years.
The new section 43Z enables regulations to be made to levy a concessionary tax rate of 10% upon specified income derived on or after 1st March 2007 by an approved aircraft investment manager from managing an approved aircraft leasing company or from other prescribed services carried out for such company, subject to conditions.
Consequential amendments are –
Clause 13 makes a consequential amendment to section 19A arising from the insertion of section 43Y by clause 26.
Clause 40 makes consequential amendments to certain provisions of the Act arising from the insertion of sections 43Y and 43Z by clause 26.
Clause 41 makes consequential amendments to certain provisions of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86) arising from the changes in the tax rate as a result of the amendment of section 43(1) by clause 23, and the insertion of sections 43Y and 43Z by clause 26.
12 / Changes to CPF Contribution Rate / The tax deduction in respect of any mandatory CPF contribution or any contribution made to any approved pension or provident fund designated by the Minister under section 39 (8) by employers on or after 1 July 2007 shall not exceed 14.5%.
The tax relief cap for CPF contributions made by a self employed individual will be raised to 34.5% of the individual's net trade income assessed, or $26,393, whichever is the lower, from YA 2008. / Sections 14 and 39
[Clauses 10(b) and 20(a), (b)] / Clause 10 amends section 14 (Deductions allowed) to provide that the deduction allowable to any employer for contributions made from 1st July 2007 to the Central Provident Fund or any designated pension or provident fund in respect of an employee shall not exceed 14.5% of the remuneration paid to the employee.
Clause 20 amends section 39 (Relief and deduction for individual and Hindu joint family) to increase the limit of relief given to a self-employed individual in respect of his voluntary contributions to the Central Provident Fund.
13 / Extension of tax relief to cash top-ups to CPF accounts of siblings / The CPF Minimum Sum Topping-Up Scheme will be enhanced by extending tax relief to any individual resident in Singapore who is a Singapore citizen or Singapore Permanent Resident who makes cash top-ups to the CPF Retirement Account of their siblings aged 55 and above, and who earn $2,000 or less in the year preceding the year of top-up.
This tax change takes effect from YA 2008. / Section 39
[Clause 20(c), (d), (e) ] / Clause 20 amends section 39 (Relief and deduction for individual and Hindu joint family) to provide for deduction to an individual who has paid money into the Central Provident Fund retirement account of his sibling, subject to conditions.
[1]With the reduction in the company tax rate, the rate at which credit is granted for franked dividend under section 46(1)(a) of the Income Tax Act shall not exceed 18%. Where tax on franked dividend paid in 2007 has been deducted at 20%, the net dividend received by the shareholder is deemed to have been paid without deduction of tax and will be grossed-up at the rate of 18% to determine the gross dividend assessable to tax. The difference between the amount of tax deducted at 20% from such dividend and the tax deemed to be so deducted will be credited to the 44A balance of the company declaring the dividend and will be available for franking future dividends before 31 December 2007.