Budget 2007: Building Singapore Into A Global Business Hub

Budget 2007: Building Singapore Into A Global Business Hub

Date: 01/04/2007
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New business tax measures and incentives set the stage for promising growth.

New business tax measures and incentives set the stage for promising growth.


Making Singapore the best place to start, grow and globalise businesses - that was the key initiative highlighted by Tharman Shanmugaratnam, Second Minister for Finance, in his Budget 2007 Statement on 15 February 2007.

And judging by its economic progress - 7.9 per cent in 2006 - Singapore's business climate is poised for the future and headed for significant growth as an international player in the global business landscape. "Our economy has done well. Both the manufacturing and services sector are doing well, asset management in financial services is booming and the construction industry is now seeing resurgence," says Shanmugaratnam. Add to that, the major economies internationally are performing positively, painting a rosy picture for the Republic's economic development.

Stressing that the Republic must continue to focus on growth and embrace globalisation, Shanmugaratnam did not fail to caution the need to manage its downsides and make it work for everyone. In growing the economy, the government must build capabilities for the future, attract new investments, grow new businesses and create new and better paying jobs to replace old ones. To accomplish all these would require the government to spend more in the future, with additional revenues being a necessity. The new measures as outlined in Budget 2007 are designed then to prepare Singapore to be "ready for the future, ready for the world".

BENEFITS FOR BUSINESS

Taking the spotlight is the two per cent reduction in corporate tax rate, from 20 per cent to 18 per cent, with effect from Year of Assessment (YA) 2008. With the current 20 per cent corporate tax being higher than our key competitors such as Hong Kong (17.5 per cent) and Ireland (12.5 per cent), this corporate tax cut will enhance Singapore's competitiveness as a business location in the scope of intense global competition.

In addition to the cut in the corporate tax rate, companies can also look forward to an increase in the partial tax exemption (PTE) threshold from S$100,000 (US$65,329) to S$300,000 (US$195,989). This means automatic tax exemption of up to S$152,5001 (US$99,628) on the first S$300,000 (US$195,989) of a company's normal chargeable income. With this enhancement, 80 per cent of companies in Singapore will pay an effective tax rate of less than 10 per cent. For example, a company with normal chargeable income of S$300,000 (US$195,989) will have an effective tax rate of only 8.9 per cent. And for organisations with chargeable income of S$500,000 (US$326,646), the effective tax rate will be an estimated 12.5 per cent, equivalent to Ireland and significantly lower than Hong Kong.

Owi Kek Hean, Head of Tax, KPMG, gives the thumbs up to the corporate tax reduction. "Singapore's economic competitiveness has been given a boost with the two per cent reduction in corporate rates, bringing us within a whisker of Hong Kong's rate. Moreover, with the new partial exemption threshold, Singapore effective tax rate of a majority of business will even be lower."

New companies setting up in Singapore can also look forward to full income tax exemption up to the first S$100,000 (US$65,329) of their normal chargeable income for the first three years of their operations.

New companies setting up in Singapore can also look forward to full income tax exemption up to the first S$100,000 (US$65,329) of their normal chargeable income for the first three years of their operations.


New companies setting up in Singapore can also look forward to full income tax exemption up to the first S$100,000 (US$65,329) of their normal chargeable income for the first three years of their operations. With the corporate tax exemption and the corporate tax cut of 2 per cent, a new company with normal chargeable income of about S$300,000 (US$195,989) will have an effective tax rate of only 6 per cent.

Other key business tax measures include extending the writing down allowances (WDA) for the acquisition of intellectual property for another five years. And this will be available for capital expenditure incurred on intellectual property (IP) acquisitions up to 31 October 2013. The move reinforces Singapore's commitment to develop a conducive environment and infrastructure for intellectual property management activities.

PROMOTING AVIATION

Asia-Pacific aviation is expected to lead global growth in passenger and freight activity, which will in turn drive a growth in the aircraft leasing business. To promote the development of Singapore as a regional aircraft leasing centre, the Aircraft Leasing Scheme (ALS) is enhanced by offering a five per cent concessionary tax rate (in addition to the current 10 per cent) on qualifying leasing incomes. Further measures include the expansion of the list of qualifying lease incomes to cover incomes from onshore leasing (as opposed to just offshore aircraft leasing operations currently) and leasing of aircraft engines, and the extension of the concessionary tax rate to a registered business trust/approved company engaged in aircraft or aircraft engine financing arrangements.

Complemented by Singapore's vibrant financial sector, aviation expertise and extensive treaty network, the new ALS enhancements will further improve the Republic's value proposition as an attractive location for leasing companies to base their aircraft leasing and leasing related activities, against competitors Hong Kong and Dubai.

PROMOTING INTERNATIONAL ARBITRATION WORK IN SINGAPORE

To position Singapore as a location of choice for international arbitration work in the Asia Pacific region, a new tax incentive for international arbitration activities is introduced. Approved law firms will be granted a 50 per cent tax exemption on qualifying incremental income from international arbitration work for five years. This incentive, complemented by Singapore's reputation as a neutral, efficient place to seek redress, in turn promotes the country as an ideal dispute resolution location in Asia and reinforces Singapore as a premier headquarters location - a win-win situation all around.

PROMOTING PHILANTHROPY

To grow Singapore as a philanthropy hub, automatic tax exemption is now available for all registered charities, including philanthropic grantmakers with funds that are being managed from Singapore. In addition, the local spending requirement is now removed2 and double tax deductions are available for all donations made to foundations and philanthropic grant-makers3. Complemented by Singapore's strength as a key financial centre, these changes in tax treatment will help to develop Singapore as a philanthropic hub and create vibrancy in our local charitable sector.

Further to the broad based tax exemption for charities, non profit organisations (NPOs) that are not charities that use Singapore as a base to carry out regional and global activities will also be eligible for a tax incentive. This incentive, to be administered by the EDB, will give international NPOs that carry out substantial activities in Singapore an income tax exemption and could be of great benefit NPOs especially industry organisations looking for a Asia Pacific base.

Overall, Budget 2007 covers a broad economic base and has been well received. Says Owi, "This is a national budget for global integration. It squarely faces the challenges thrown up by globalisation by dealing with underlying disconnects among the various income and generational groups." Ultimately, the success of the Budget 2007 will be reflected in how much more Singapore develops into, and gains recognition as a global business hub.


1 Tax exemption: (75% of first $10,000) + (50% of next $290,000) = $152,000
2 Under current rules, charities are required to spend at least 80% of their annual receipts on charitable objects in Singapore ("80-20" spending rule) in order to be exempt from income tax. In addition, any organisation seeking to raise funds for any foreign charitable purpose, is required to spend at least 80% of the funds raised in Singapore ("80-20" fund raising rule).
3 Provided that the donations are eventually channelled to an Institute of Public Character.