The Singapore Business Advantage

Singapore possesses one of the most open economies for international trade and investment.  Foreign investors have often lauded Singapore’s pro-business environment, modern infrastructure, highly educated and skilled labour force and robust economic and legal system.  Singapore is often considered the “heart of Asia” for international corporations looking to expand their operations into this region.
 
The availability of low-cost trade financing, sophisticated risk management solutions, world-class logistics, and access to leading financial institutions and insurance companies and Asia’s top arbitration centre combine to make Singapore a strong and well-developed ecosystem of trade services.
 
The World Economic Forum’s Global Competitiveness Report ranked Singapore second in its Global Competitiveness Index based on performance in various pillars of competitiveness, including macroeconomic education, institutions, infrastructure and financial market development.  Singapore also consistently ranks first in the Ease of Doing Business rankings.
 
Singapore has one of the lowest effective tax rates for companies after taking into account the various reliefs and rebates available.  Singapore only has a single corporate tax rate of 17%.  However, based on the tax exemptions on the first S$300,000 of chargeable income (“CI”), the effective tax rate ranges from 5.8% for companies with S$300,000 of CI to 11.4% for companies with S$1m of CI.  There is also no capital gains tax in Singapore and no taxes on specific types of foreign sourced income even when remitted to Singapore.
 
The Singapore government has a wide array of incentives to meet the different needs of businesses.  For example, SPRING Singapore, a Singapore government agency, offers assistance in financing and management development to eligible start-ups.  Another agency, International Enterprise Singapore, spearheads the development of Singapore’s external economic wing by helping Singapore-based companies to internationalise and also assists foreign businesses wishing to expand into Singapore in partnership with local companies.
 
Singapore has several tax treaties in force to prevent double taxation of income and also to exempt certain types of income.  More recently, Singapore has strengthened its framework for international cooperation to combat cross-border tax offences by adopting various measures, including criminalising the proceeds from serious tax offences and entering into exchange of information arrangements with more jurisdictions.  These measures reaffirm Singapore’s reputation as a financial centre with the highest standards of transparency and integrity.
 
Recent Budget measures have featured productivity as a recurring theme, and several tax incentives have been introduced to encourage businesses to enhance productivity by giving enhanced tax allowances for investments made in specific activities.  The details of the various incentives are as follows:
 
Productivity and Innovation Credit (PIC)
 
The Productivity and Innovation Credit (PIC) scheme, introduced in 2010, enables businesses to claim a tax deduction for up to four times the expenses incurred for automation equipment , staff training and development and other qualifying activities.  The PIC Bonus is a dollar-for-dollar cash bonus which helps businesses defray rising operating costs such as staff wages and rentals and encourages businesses to undertake improvements in productivity and innovation.  The PIC bonus is determined by the amount of expenditure businesses incur on PIC-qualifying activities.  During the 2014 Budget, the government announced that the PIC scheme will be extended until Year of Assessment (YA) 2018 (from 2015 previously).  Businesses stand to benefit from the 300% additional deduction on qualifying activities subject to a cap of S$400,000 per year. 
 
PIC+ Scheme for SMEs
 
Under the PIC+ scheme, the expenditure cap for qualifying SMEs will be increased from S$400,000 to S$600,000 per qualifying activity per YA.  This means that these SMEs that invest beyond the current combined expenditure cap of S$1.2m for each qualifying activity can claim 400% enhanced tax deduction on an additional $200,000 of qualifying expenditure.  PIC+ will take effect for expenditure incurred in YA 2015 to YA 2018.
 
Infocomm Technology (ICT) for Productivity and Growth Programme (IPG)
 
The government is also encouraging businesses to adopt ICT solutions in a bid to boost productivity and will subsidise up to 70% of the qualifying costs.  In addition, the government will subsidise the subscription plans for high speed broadband so that more businesses will have access to the fibre broadband network. 
 
Investment in Skills and Training and R&D
 
The government will also top up another S$500m to the Lifelong Learning Endowment Fund to S$4.6b, again showing its commitment to continuous learning and development. 
There is also a 10 year extension for the broad based 50% additional tax deduction on qualifying R&D expenditure until 2025.  For EDB approved R&D activities, there will be a further tax deduction and this too has been extended until 31 March 2020 (from March 2015 earlier). 
 
Newly Incorporated Companies
 
A newly incorporated company that meets qualifying conditions can claim full tax exemption on the first S$100,000 of normal chargeable income for each of its first three consecutive years of assessment.  To qualify for the tax exemption for new start-up companies, the company must be Singapore incorporated and resident in Singapore with no more than 20 shareholders, at least one of which is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.  A 50% exemption is also given on the next S$200,000 of normal chargeable income for the first three years; thereafter the first S$10,000 will qualify for a 75% exemption and the next S$290,000 will qualify for a 50% exemption.  Locally incorporated companies also enjoy additional tax benefits such as protection from double taxation and tax exemption on foreign sourced income.
 
MGI is one of the world's top alliances of independent audit, tax, accounting and consulting firms.  With some 6,000 professional staff in 300 locations around the world, MGI continues to grow.  This gives MGI member firms a true global coverage.  Together, our personal touch, entrepreneurial approach and global reach all go to make the MGI difference.  This article is contributed by Imran Assan, who is a partner at MGI Menon & Associates, an MGI member firm in Singapore. 
 
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Whilst every effort has been taken to ensure that the contents are factually correct at the time of printing, rules, regulations and tax laws do change.  Readers are advised to seek professional advice before making any decision based on the information contained herein.