On 18 February 2020, the Singapore Ministry of Finance has delivered the Budget Statement for the Financial Year (“FY”) 2020. We are pleased to highlight here below the main tax and employment changes that may impact businesses in Singapore.
As preliminary remark, it must be noted that Budget 2020 has been presented against the backdrop of the COVID-19 outbreak, as well as broader uncertainties in the economy landscape. It therefore provides a comprehensive suite of measures to care for and support all business entities and Singapore individuals, to enhance economy-wide support and stabilization.
A. Corporate Income Tax (“CIT”)
Corporate Income Tax rebate
A CIT rebate of 25%, capped at S$ 15,000, is granted to all Singapore companies for tax payable in Year of Assessment (“YA”) 2020.
Provided the tax rebate is capped at S$ 15,000, it will benefit especially small and medium enterprises with immediate cash flow concerns.
Automatic Extension of two interest-free instalments for payment of CIT
Companies will be automatic granted a two-months extension of interest-free instalments for payment of CIT on Estimated Chargeable Income (“ECI”) filed within three months from the companies’ financial year end. The automatic extension will apply to (i) all companies that file their ECI from 19 February to 31 December 2020; and (ii) companies that file their ECI before 19 February 2020 and have ongoing instalments to be made in March 2020.
This measure aims to help and ease companies’ cash flow.
Option to accelerate Capital Allowances
Companies that incur capital expenditure on the acquisition of plant and machinery in the basis period for YA 2021 (i.e., financial year 2020) shall have the option to accelerate the write-off of the expenditure over two years, which will be 75% write-off of the cost incurred in YA2021 and 25% of the cost incurred in YA2022. This option, once made, is irrevocable.
Option to accelerate deductions of expenses incurred on Renovation and Refurbishment
Such expenditure is currently deductible over three consecutive years subject to a cap of S$ 300,000.
Now, companies that incur qualifying expenditure for renovation and refurbishment in the basis period for YA 2021 (i.e., financial year 2020) may opt to claim such an expenditure in a single year, subject to the same cap of S$ 300,000 for an aggregate period of three consecutive years. Once made, the election is irrevocable.
The acceleration of deductions can provide immediate cash tax savings to profitable businesses; nevertheless, non-profitable businesses will not benefit from this option because no deferment of claims is allowed under this scheme.
More years to carry-back unabsorbed capital allowances and tax losses
Under the current carry-back relief scheme, qualifying deductions for a certain year of assessment may be carried back to offset the assessable income of a taxpayer for the immediately preceding YA. The amount of qualifying deduction available for carry-back is capped at S$100,000.
From YA 2020, the carry-back relief scheme is enhanced to allow qualifying deductions for YA 2020 to be carried back for up to three immediately preceding years of assessment, capped at S$ 100,000 of qualifying deductions.
The changes to the carry-back relief scheme would allow a Singapore company that has qualifying deductions in YA 2020 to obtain a cash refund by utilising these deductions against the prior three YAs’ assessable income. The Inland Revenue Authority of Singapore (“IRAS”) will provide further details about this scheme in the following weeks.
B. Good and Service Tax (“GST”) rate stays 7%
The GST Tax Rate was planned to increase from 7% to 9% sometime between 2021 and 2025. Given the current economic headwinds, the Minister of Finance decided that the prospected GST rate hike will not take effect in 2021 and will remain at 7%.
In addition, to cushion the impact of the future GST rate increase, the following measures have been announced:
- Implementation of a S$ 6 billion Assurance Package when the GST rate will be raised;
- Continue to absorb GST on publicly subsidised healthcare and education activities;
- Enhance the permanent GST Voucher Scheme.
C. Tax Incentives
Double Tax Deduction for Internationalisation scheme
Under the current Double Tax Deduction for Internationalisation Scheme (“DTDI”), businesses are allowed a deduction up to 200% of qualifying expenses incurred for certain market expansion and investment development activities. The DTDI scheme, which was to expire on 31 March 2020, has been extended to 31 December 2025.
In addition, the scope of the DTDI has been enhanced to include the following market expansion and investment development costs:
- Third-party consultancy costs relating to new overseas business development to identify suitable talent and build up business network; and
- New categories of expenses incurred for overseas business missions (i.e. fees incurred on speaking spots to pitch products/services at overseas business and trade conferences, transporting materials/samples used during business missions, and third-party consultancy costs to arrange business networking events to promote products/ services).
The increased scope will take effect for expenses incurred on or after 1 April 2020. The measure is a major trust of for local enterprises to expand internationally.
Non-taxation of gains on disposal of shares
Currently, section 13Z of the Income Tax Act exempts companies from tax on gains from disposal of ordinary shares by qualifying companies, if:
- The divesting company holds a minimum shareholding of 20% in the company whose shares are being disposed; and
- The divesting company has maintained the minimum 20% shareholding for at least 24 months prior to the disposal.
The scheme is due to lapse after 31 May 2022. It has been proposed to extend it to disposals made on or before 31 December 2027. Further details should be provided by IRAS by end of June 2020.
D. Stabilisation and Support Packages
Jobs Support Scheme
The Jobs Support Scheme (“JSS”) will help enterprises to retain their local employees during this period of uncertainty.
Employers will receive an 8% cash grant on the gross monthly wages of each local employee (applicable to Singapore Citizens and Permanent Residents only) for the months of October 2019 to December 2019, subject to a monthly wage cap of S$ 3,600 per employee. Employers do not need to apply for the JSS. The grant will be computed based on CPF contribution data.
Employers can expect to receive the JSS payment from IRAS by 31 July 2020.
Enhancement to Wage Credit Scheme
The Wage Credit Scheme (“WCS”) currently in place will be enhanced in Budget 2020. A summary of the changes to WCS is summarized in the table below:
|Scheme||Existing WCS||Enhanced WCS
as announced in Budget 2020
|Qualifying years||· 2018, 2019, 2020||· 2019, 2020|
|Level of co-funding||· 20% of qualifying wage increases in 2018
· 15% of qualifying wage increases in 2019
· 10% of qualifying wage increases in 2020
|· 20% of qualifying wage increases in 2019
· 15% of qualifying wage increases in 2020
|Gross monthly wage ceiling||· S$ 4,000||· S$ 5,000|
|Qualifying wage increases||· Increases in gross monthly wage of at least S$ 50.00 given to Singapore Citizen employees in the qualifying year, up to a gross monthly wage level of S$ 4,000.00, will be co-funded.
· In addition, increases in gross monthly wage of at least S$ 50.00 given in 2017, 2018 and 2019 up to a gross monthly wage level of S$ 4,000.00, and sustained in subsequent years of the scheme, will be co-funded.
|· Increases in gross monthly wage of at least S$ 50.00 given to Singapore Citizen employees in the qualifying year, up to a gross monthly wage level of S$ 5,000.00, will be co-funded.
· In addition, increases in gross monthly wage of at least S$ 50.00 given in 2017, 2018 and 2019 up to a gross monthly wage level of S$ 5,000.00, and sustained in subsequent years of the scheme, will be co-funded.
Employers do not need to apply for the WCS; the entities who benefit from additional wage credit arising from the Budget 2020 enhancements, will receive a separate supplementary pay-out in the second half of 2020.
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Should you have any queries as to how Budget 2020 may impact your business, please do not hesitate to contact Fidinam Singapore.
Daniela Radrizzani, Head of Finance