Name of Tax Change

Current Treatment

New Treatment

Reduction in Corporate Tax Rate

Currently, the corporate tax rate is 20%.

The corporate tax rate will be reduced to 18% with effect from year of assessment (YA) 2008. In line with the reduction in corporate tax rate to 18%, the following tax rates which are presently pegged at 20% will also be correspondingly reduced to 18% with effect from YA 2008:

(a)        tax rate for non-resident persons [other than non-resident individuals and non-resident Hindu joint family, which will remain at 20%];

(b)        rate at which tax is withheld for payments (other than those subject to the 10% or 15% final withholding tax) to non-resident persons other than non-resident individuals/ Hindu joint family;

(c)        tax rate for trustees (other than trustees of incapacitated persons) and executors;

(d)        rate of deduction of tax from Singapore franked dividend paid during the period from 1 January 2007 to 31 December 2007[6]; (see next item)

(e)    rate of tax to be used to compute the effective company tax rate for a body of persons.           

One-tier Corporate Tax System/ Payment of Singapore Franked Dividends in 2007

A) The one-tier corporate tax system took effect on 1 January 2003. Companies were given five years from that date till 31 December 2007 to use up their unutilized section 44A tax credits to frank dividends. After 31 December 2007, the unutilized balances will be nullified. To mitigate the adverse effects of the one-tier corporate tax system, we also introduced concessions that effectively allowed the interest expense attributable to one-tier exempt dividends to be deducted while companies restructured their operations. These concessions are available up to 31  December 2007.

B) Currently, the rate of deduction of tax from Singapore franked dividends is 20%.

A) In order to preserve what is seen as a consistent and fair regime and to reinforce our intention to move to the one-tier corporate tax system as soon as possible, there will not be further extension to the five-year transitional period for:

i) utilization of section 44A tax credits;

ii) transitional concessions; and

iii) utilization of section 44 charges.

B) With the reduction in corporate tax rate, the rate of deduction of tax from Singapore franked dividends for 2007 will be 18%. Despite the reduction of corporate tax rate, the tax rate for non-resident individuals/ Hindu joint family will remain at 20%.  This is to align with the top marginal tax rate for resident individuals/ Hindu joint family.

Hence, when a non-resident individual/ Hindu joint family receives a Singapore franked dividends for the year 2007 (which has tax deducted at source at the rate of 18%), the franked dividend received is to be subjected to tax at 20%.  The company paying the franked dividends would be required to withhold and remit 2% of the gross dividends to the Comptroller of Income Tax.

To alleviate the administrative burden of companies that remain on the imputation system for the purpose of paying franked dividends, the rate of tax on franked dividends received by non-resident individuals/ Hindu joint family will be reduced to 18% of the gross amount of such dividends.  This reduced tax rate of 18% will be a final tax.  However, in recognition that non-resident individuals/ Hindu joint family may claim expenses incurred to earn the income from Singapore, non-resident individuals/ Hindu joint family are allowed the option to be taxed at 20% of net dividends instead of 18% of gross dividends.

Tax Deduction for Borrowing Costs

Generally, deduction of an expense is allowed if the expense is revenue in nature and is incurred in the production of income. In the case of borrowings used to acquire a capital asset, and where the capital asset is used to acquire income, only the interest cost is currently deductible under section 14(1)(a) against the income generated from the capital asset.  Other borrowing costs associated with such borrowings do not qualify for any tax deduction.

Specified borrowing costs, other than interest, which are incurred on a borrowing that is used to acquire a capital asset used to produce  income will be deductible for tax purposes, provided these costs are paid as a substitute for interest or to reduce interest costs.

The tax change will take effect from YA2008. IRAS will release more details by May 2007.

Increase in Partial Tax Exemption Threshold

Currently, 75% of the first $10,000 of normal chargeable income (excluding Singapore franked dividend), and 50% of the next $90,000 of a company is tax exempt.  This Partial Tax Exemption (PTE) scheme is generally available to all companies.   

The threshold for PTE will be increased to $300,000, as follows:

·      75% exemption of up to the first $10,000 of normal chargeable income (excluding Singapore franked dividend); and

·      50% exemption of up to the next $290,000 of normal chargeable income (excluding Singapore franked dividend).

This tax change will take effect from YA2008. 

Lifting the Sunset Clause for the Income Tax Exemption Scheme for New Companies

Full income tax exemption is granted on the normal chargeable income (excluding Singapore franked dividend) up to $100,000, for tax resident exempt private companies (EPCs) incorporated in Singapore.   The tax exemption scheme is currently applicable to the new company’s first three consecutive YAs falling within YAs 2005 to 2009.

The sunset date of YA2009 is lifted. Tax resident EPCs incorporated in Singapore will hence be granted tax exemption on their normal chargeable income up to $100,000 for the full three consecutive YAs regardless of whether any of these first three YAs falls beyond YA 2009.

Extension of Section 15 Stamp Duty Relief

Section 15 Stamp Duty Relief is only available to intra-group transfers of assets involving companies with limited liability and registered business trusts.

Section 15 Stamp Duty Relief on intra-group transfers will be extended to unlimited companies, Limited Liability Partnerships (LLPs) where all the partners are companies and Statutory Boards.

IRAS will be issuing a guide on the new treatment in February 2007.

Accelerated Depreciation Allowance for Replacement of Pre-Euro IV Diesel Goods Vehicles and Buses

Currently, capital expenditure incurred on  new diesel driven goods vehicles and buses that replaced old ones that were registered before 1 January 1991 are allowed to be written-off in one year instead of over three or six years under section 19A(9) of the Income Tax Act (ITA). However, capital expenditure incurred on diesel driven goods vehicles and buses meeting the new Euro-IV emission standard that replace existing pre Euro IV vehicles registered on or after 1 January 1991 are allowed to be written-off over either three or six years.

New goods vehicles and buses acquired to replace the old ones that do not meet with the new Euro- IV emission standard and which were registered on or after 1 January 1991 will qualify for one-year write-off for income tax purposes.  The incentive will be granted for five years and will take effect for new vehicles registered from 15 February 2007 to 14 February 2012.

Extension of Section 19B Writing Down Allowance

No writing down allowance will be given for any capital expenditure incurred to acquire intellectual property rights by any company after 31 Oct 2008. 

The writing down allowance concession for acquired intellectual property rights will be extended by another five years, till 31 October 2013.

Enhancement to Investment Allowance Scheme

Currently, under the Investment Allowance (IA) scheme administered by SPRING and EDB, the maximum qualifying period (i.e. period within which the fixed capital expenditure must be incurred in order to qualify for the IA) is five years from the investment day specified in the certificate issued.  For companies that purchase equipment on hire purchase, any capital expenditure incurred (i.e. hire purchase instalments made) beyond the qualifying period will not qualify for the IA.

The maximum qualifying period for companies that purchase equipment on hire purchase would be extended from five years to eight years.

This change will take effect for equipment purchased on or after 15 February 2007.

Name of Tax Change

Current Treatment

New Treatment

International Arbitration Tax Incentive 

N.A. 

Approved law firms will be granted a 50% income tax exemption on qualifying incremental income derived from international arbitration work. 

This scheme will be available from 1 July 2007 to 30 June 2012.  The incentive duration will be up to five years.  

The Ministry of Law will release further details by May 2007. 

Name of Tax Change

Current Treatment

New Treatment

1) Income Tax exemption for Registered Charities

2) Double tax deductions for donors to foundations and grantmakers

1) Charities are required to spend at least 80% of their annual receipts on charitable objects in Singapore within two years in order to be exempt from income tax.

2) Individuals and companies can obtain double tax deductions (DTD) for donations to organisations with Institutions of Public Character (IPC) status.

1) Registered charities will enjoy income tax exemption without having the need to meet the 80% spending rule.

2) Individuals and companies that donate to foundations and grantmakers will be eligible for double tax deductions, if the donations are channeled to Institutions of Public Character in Singapore within a specified timeframe.

Details will be announced by September 2007.

Tax Exemption Scheme for Not-for-Profit Organisations (NPOs)

N.A. 

NPOs approved by Economic Development Board (EDB) will be granted income tax exemption for an initial period of not more than 10 years.  The incentive may be renewed subject to approval by EDB.

Eligible NPOs will include those that promote the economic development of Singapore, such as standards organizations and research bodies.

The scheme takes effect from 15 February 2007.

Name of Tax Change

Current Treatment

New Treatment

Enhancement to the Approved Shipping Logistics Enterprise Scheme (ASL)

Ship agencies, ship management companies and shipping logistics companies under the Approved Shipping Logistics Enterprise Scheme (ASL) are granted a 10% concessionary tax rate on qualifying income for a period of five years.

The incentive period for ASL companies will be extended from five years to ten years with effect from 15 February 2007.

MPA will release details by May 2007.

Enhancement to the Approved Aircraft Leasing Scheme (ALS)

Aircraft leasing companies which are approved under the ALS enjoy a concessionary tax rate of 10% for a period of five years on income from offshore leasing of aircrafts.

The 10% concessionary tax rate is also granted on income derived from the performance of ancillary activities such as:

a) Management of aircraft leases.

b) Advisory and agency services relating to the sale of leasing of aircraft.

With effect from 1 March 2007 to 29 February 2012, the ALS will be enhanced as follows:

a)      Grant a concessionary tax rate of 5% (in addition to existing 10% rate) on qualifying lease income for a period of five years;

b)      Extend the concessionary tax rates to registered business trust or an approved company under an aircraft or aircraft engine financing arrangements.

c)      Expand the scope of income qualifying for the concessionary tax rate to include:

i) income from leasing of aircraft engines; and

ii)       income from leasing of aircraft or aircraft engines to any person in Singapore i.e. onshore leasing.

Details will be released by EDB by May 2007.

Zero-rating of GST for servicing, sale and lease of containers. ['servicing' refers to repairs, maintenance and management services of containers]

The supply of servicing, sale and lease of air and sea containers can only be zero-rated if the customer is foreign-based and the containers will be shipped overseas to a specific destination. The problem is that the customer may not know where his container will be shipped at the point of billing.  Furthermore, local customers have to pay GST even though the containers will eventually be used for international transportation of goods.

Given that sea or air containers are primarily used for the international transportation of goods, the supply of servicing, sale and lease of containers are recognised as international services and therefore qualify for zero-rating. Thus, both foreign and local customers will not pay any GST. 

The tax treatment will take effect from 1 April 2007. IRAS will be issuing a guide on the new treatment in March 2007.

Current ($)

New ($)

Difference ($)

Employee CPF

160

132

-28

Employer CPF

104

77

-27

WIS Cash (monthly)

-

29

29

WIS CPF (monthly)

-

71

71

Take-home Pay

640

697

57

Total CPF Contributions

264

280

16

Total Income

904

977

73

Employer Savings ($)

27

Total WIS ($)

100

Current ($)

New ($)

Difference ($)

Employee CPF

200

180

-20

Employer CPF

130

117

-13

WIS Cash (monthly)

-

29

29

WIS CPF (monthly)

-

71

71

Takehome Pay

800

849

49

Total CPF Contributions

330

368

38

Total Income

1,130

1,217

87

Employer Savings ($)

13

Total WIS ($)

100

Current ($)

New ($)

Difference ($)

CPF Contributions

80

28

-52

WIS CPF (monthly)

-

67

67

Takehome Pay

920

972

52

Total CPF Contributions

80

95

15

Total Income

1,000

1,067

67

Total WIS ($)

67