Singapore Budget announces plans for GloBE Rules and Domestic Top-up Tax

Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong delivered the 2023 Budget Statement to Parliament on 14 February 2023, including plans to implement the Global Anti-Base Erosion (GloBE) Rules and Domestic Top-up Tax (DTT). A number of existing incentive regimes were also extended.

Wong announced that Singapore plans to implement the Global Anti-Base Erosion (GloBE) Rules and Domestic Top-up Tax (DTT) for businesses with financial years starting on or after 1 January 2025. The government said it would continue to monitor international developments and adjust its implementation timeline accordingly.

The DTT will top-up an MNE group’s effective tax rate in Singapore to 15%. The DTT will apply to MNE groups operating in Singapore that have annual revenues of at least €750 million, as reflected in the consolidated financial statements of the ultimate parent entity.

As part of Budget 2023, the Finance Minister proposed a new tax incentive scheme for qualifying donors with family offices operating in Singapore. Qualifying donors will be able to claim 100% tax deduction for overseas donations made through qualifying local intermediaries, capped at 40% of the donor’s statutory income. To qualify, donors must have an incentivised fund vehicle under the section 13O or section 13U schemes and meet the eligibility conditions such as incremental business spending of $200,000. Further details will be provided by 30 June 2023.

The government is to introduce a new Enterprise Innovation Scheme (EIS) to provide enhanced tax deductions for businesses working on qualifying activities to boost innovation. From Year of Assessment (YA) 2024, businesses that engage in research and development (R&D), innovation and capability development activities will be able to claim up to 400% tax deduction for five categories of qualifying activities, as well as a cash conversion option. The categories are:

• Staff costs and consumables incurred on qualifying R&D projects conducted in Singapore.
• Qualifying costs for intellectual property registration.
• Acquisition and licencing of IP Rights.
• Qualifying training expenditure.
• Innovation projects carried out with Polytechnics, the Institute of Technical Education, or other qualified partners.

The existing Financial Sector Incentive (FSI) Scheme, which was scheduled to lapse after 31 December 2023, is to be extended until 31 December 2028. However, the existing set of applicable concessionary tax rates will be streamlined to two rates for different categories of FSI awards approved on or after 1 January 2024, as follows:

• Increase from 5% to 10% – FSI-Capital Market (CM), FSI-Derivatives Market (DM) and FSI-Credit Facilities Syndication (CFS).
• Remain at 10% – FSI-Fund Management and FSI-Headquarter Services.
• Increase from 12% to 13.5% – FSI-Trustee Companies.
• Remains at 13.5% – FSI-Standard Tier (ST).

The withholding tax exemption under the FSI-Headquarter Services incentive, which covers interest payments on qualifying loans made to qualifying non-residents, will also be extended until 31 December 2028.

The Qualifying Debt Securities (QDS) Scheme will be extended until 31 December 2028 and the scope of qualifying income will be streamlined and clarified such that it will include all payments in relation to the early redemption of a QDS. The MAS will provide details by 31 May 2023.

The requirement that a QDS must be substantially arranged in Singapore will be strengthened as follows:

• All debt securities issued on or after 15 February 2023 must be substantially arranged in Singapore by a financial institution holding a specified licence.
• At least 30% of the issuance costs of insurance-linked securities (ILS) issued from 1 January 2024 onwards must, to the extent that the substantially arranged in Singapore requirement is not met, must be paid to Singapore businesses.

The Approved Special Purpose Vehicle (ASPV) Engaged in Asset Securitisation Transactions (ASPV scheme), which grants a suite of tax concessions to an ASPV engaged in asset securitisation transactions, will be extended until 31 December 2028.

The concessions include a tax exemption on income derived by an ASPV from asset securitisation transactions, a fixed Goods & Services Tax (GST) recovery rate on qualifying business expenses at a rate of 76% and a withholding tax (WHT) exemption on payments to qualifying non-residents on over-the-counter financial derivatives under certain conditions.