Budget 2000

Introduction

On Friday, 25 February 2000, the Minister for Finance, Mr Richard Hu, presented the Budget Statement for the Year 2000 in Parliament. The Budget measures aim to maintain the competitiveness of Singapore in the new millennium, particularly in the context of globalisation and technological advancement.

This Budget supplement highlights the key features of the Budget Statement.

Tax Changes for Companies and Businesses

Reduction in corporate tax rate

The corporate tax rate will be reduced from 26% to 25.5% for YA2001.

In line with the reduction in the corporate tax rate to 25.5%, the tax rate under the Income Tax Act for non-residents and certain payments, which is presently pegged at 26%, will be correspondingly reduced to 25.5% with effect from the YA2001. This change will apply as follows:

(a) Non-resident tax rate

At present, non-residents are required to pay tax on their chargeable income at the rate of 26%. This rate will be reduced to 25.5%.

(b) Withholding tax rate

Currently, certain payments to non-residents are subject to withholding tax at the rate of 26% or 15%. Such payments include interest, royalties, rents for movable property and technical fees. The withholding tax rate of 26% (where applicable) will be reduced to 25.5%. The withholding tax rate of 15% (where applicable) will remain unchanged.

(c) Tax rate for trustees and executors

A trustee (other than the trustee of an incapacitated person) and an executor are currently taxed at the rate of 26% on the income of the trust and the estate respectively. This rate will be reduced to 25.5%.

(d) Deduction of tax from dividends

Every company which is resident in Singapore is required to deduct tax at the rate of 26% from the amount of any dividend paid to its shareholders. This rate of tax deduction from dividends will be reduced to 25.5% for dividends paid on or after 1 January 2000.

(e) Tax rate for bodies of persons

Bodies of persons, eg societies, clubs and associations, are taxed under Part B of the Second Schedule to the Income Tax Act. The tax rates range from 6% for the first $2,500 of chargeable income to 55% for chargeable income in excess of $100,000. To ensure that bodies of persons who are taxed under this Schedule need not pay tax at a rate higher than companies, the highest effective rate of tax imposed under this Schedule is presently capped at 26%. This cap on the highest effective rate will be reduced to 25.5%.

Extension of property tax rebate for commercial and industrial properties

The property tax rebate on commercial and industrial properties will be extended for another year, ie from 1 July 2000 to 30 June 2001, at the lower rate of 25%. The rebate was first introduced on 1 July 1998 at the rate of 55%.

Further stamp duty relief for corporate restructuring and merger

Currently, section 15 of the Stamp Duties Act provides stamp duty relief for corporate restructuring and mergers. There will be a widening in the scope of section 15 to cover a wider spectrum of corporate restructurings and mergers. In addition to the existing exemptions, relief will be granted to the transfer of assets between associated companies, the restructuring and merger of listed companies, and companies which intend to list or further list their shares after the exercise.

Presently, if the transfer involves less than 90% of the company’s shares, or if the consideration is made in cash, the exercise would not qualify for the relief. These two conditions will be lifted for the transfer of assets between associated companies, ie where one company owns 75% or more of another company, or a third company owning at least 75% of both companies.

Currently, publicly listed companies and companies which intend to list their shares after a restructuring or merger are not able to meet the condition of a 2-year moratorium on changes in beneficial ownership of the shares. The 2-year moratorium will be lifted on the consideration shares held by public shareholders. Further, companies will be allowed to float a portion of their issued share capital up to the minimum listing threshold required by the Singapore Exchange for its mainboard listing. This threshold is currently 25%.

These changes will take effect shortly following announcement of details by the Inland Authority of Singapore.

Tax Changes to Encourage Innovation, Creativity and Enterprise

Enhanced tax treatment for stock options

In recognition of the importance of employee stock options in helping high-growth companies to retain and motivate top talent, an enhanced scheme for the tax treatment of employee stock options for high tech start-ups will be announced by the end of May 2000.

Income tax concession for royalty payments

Currently, authors, composers and inventors can avail themselves of a tax incentive which exempts from tax 90% of gross royalties received.

With regard to authors and composers, the concession is only applicable to income received from publishers in Singapore for the assignment of or for the right to use the copyright in any literary, dramatic, musical or artistic work. With effect from YA2001, royalty payments received by a composer or an author from recording, film or drama companies in Singapore will also qualify for this incentive.

Presently, the incentive for inventors and innovators is only applicable to income derived by Singapore citizens or permanent residents in respect of inventions/innovations that are manufacturing-related. This incentive will be extended to non-Singapore citizens or permanent residents, and to approved inventions and innovations from the non-manufacturing sectors. The concession will be granted for a period of five years from YA2001.

Estate duty exemption rules for residential properties

The rules for residential properties in Singapore to qualify for estate duty exemption under the S$9m limit have been relaxed. Small scale business activities may be conducted in a residential property without disqualifying it from the exemption limit, so long as the residential character of the property is not materially affected. The relaxation, which benefits technopreneur home offices, takes effect from Budget Day 2000.

Tax Changes for the Financial Services Sector

Abolition of stamp duty on contract notes

Stamp duty on contract notes will be abolished with effect from 30 June 2000. Presently, stamp duty on contract notes has been suspended until 29 June 2000.

Abolition of withholding taxes on financial guaranty insurance contracts

To promote financial guaranty insurance business in Singapore, claim payments made under financial guaranty insurance policies by financial guaranty insurers approved by the Monetary Authority of Singapore to non-residents is exempt from withholding tax with effect from Budget Day 2000.

Incentives to encourage development of swap market

To encourage the development of the swap market in Singapore, the concessionary 10% tax rate on income derived by financial institutions from trading in bonds will be extended to income derived by financial institutions from trading in interest rate and currency swaps. This concession will take effect from YA2001 and will apply until 27 February 2003, which is also the expiry date of the 5-year bond incentives which took effect from 28 February 1998.

The exemption of withholding tax on interest rate and currency swap payments to non-residents (which is currently only granted to ACUs) will be extended to all bona fide interest rate and currency swap payments made to non-residents by financial institutions other than ACUs. This exemption will take immediate effect.

Extension of ACU scheme to all offshore financial derivatives

At present, Asian Currency Units (ACUs) are taxed at a concessionary rate of 10% on income from transactions in certain specified derivatives, including interest rate and currency swaps in non-Singapore dollars, with offshore counterparties and other ACUs. The 10% concessionary tax rate will be extended to income derived by ACUs from all other offshore derivative transactions in non-Singapore dollars. This extension will apply for a period of five years from YA2001.

GST zero-rating on trustee services provided to non-resident settlors and beneficiaries

Trustee services provided by trustees situated in Singapore will be zero-rated for GST purposes where at least 80% of the beneficiaries and settlors are non-residents of Singapore and at least 80% of the trust assets were originally contributed by non-resident settlors. The new treatment takes effect from Budget Day 2000.

Tax Changes for the Property Sector

The property tax exemption for land under development has been withdrawn with immediate effect from Budget Day 2000. Projects which have been granted tax exemption will continue to enjoy the concession for a maximum period of five years or upon completion, whichever is earlier.

Tax Changes for Individuals and the Family

There will be a one-off, across-the-board rebate of 5% on individual income tax for YA2000.

A Supplementary Retirement Scheme (SRS), which allows Singaporeans to contribute voluntarily over and above their CPF savings, will be introduced. Contributions to SRS will be accorded tax deductions at the time of contribution, with tax being payable only when the savings are withdrawn. The SRS contributions can only be made by employees, subject to a percentage cap based on their salary. As the SRS is not intended to pose an additional cost to business, employers will not contribute. The scheme is expected to be implemented by next year.

Elizabeth Wong
Allen & Gledhill