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.Incentives Act

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Contents

INTRODUCTION 2
EXECUTIVE SUMMARY 3
1.1 OVERVIEW OF THE INCOME TAX ACT 4
1.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (Income Tax Act) 5
1.3 ARTICLE ON INCOME TAX ACT 7
2.1 OVERVIEW OF THE DOUBLE TAX AGREEMENT 8
2.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (DTA) 9 2.2.1 Tax Credit Relief 9
2.2.2. Tax exemption 9
2.2.3. Reduced tax rate 9
2.2.4. Relief by deduction 10
2.2.5. Tax sparing credit 10
2.3. SCENARIO OF GRANTING TAX RELIEF UNDER DIFFERENT METHODS 11
2.4. ARTICLE OF DOUBLE TAX AGREEMENT (DTA) 12
2.5. BENFITS FROM DOUBLE TAX AGREEMENT (DTAs) 13
3.1 OVERVIEW OF ECONOMIC EXPANSION INCENTIVES ACT (EEIA) 14
3.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (EEIA) 15
3.3. TABLE OF STATISTICS AND GRAPHICAL DATA 18
4. ISSUES OF HAVING TAX INCENTIVES 19 4.1. Institutional issues 19 4.2. Infant industry” issues 19
CONCLUSION 20
APPENDIX 21

INTRODUCTION

Singapore has been rated as the most business-friendly economy in the world, with

thousands of foreign expatriates working in multi-national corporations.

As such, the government is given an important role and responsibility of granting the financial matters of incentives to help Singaporeans. Every allocation of incentives is attributed to the requirement of the amount of investment involved, the technical output, the export potential, the employment opportunities and the general conduciveness to Singapore economic activity.

EXECUTIVE SUMMARY

The purpose of this report is to understand how the incentives can bring into help to

Singapore and other countries, by encouraging the use of foreign capital inflows as

well as investment.

Let’s discuss the following ways of how Singapore income tax, Double tax agreement and Economic expansion income tax act benefited to us in their incentives. This will be further elaborated and discuss how the use of these will bring the

incentives effectively.

.

4 OVERVIEW OF THE INCOME TAX ACT

Singapore offers a range of different tax incentives to ensure that it attracts global

Investments that help in reducing corporate income tax rates. It has a single-tier

territorial based flat rate corporate income tax system which is well known for its

effective and as one of the lowest tax rates that contributes to economic growth and

foreign investment into the city- state.

Single-tier income tax system has been adopted by Singapore since Jan 1, 2003, which indicates there is no double tax for shareholders. Dividend paid under the one-tier system is exempt from tax in the hands of the shareholders. There is no withholding tax on dividend payments.

In addition, there is no tax on capital gains in single tier system; such examples of

capital gains are gains on foreign exchange on capital transactions, gains on sale o

f fixed assets etc.

Nevertheless, companies can also apply for tax incentives through International Enterprise Singapore, Economic Development Board and the Monetary Authority of Singapore. The concessions and incentives set out in the Income Tax Act are administered by the Inland Revenue Authority of Singapore (IRAS).

1.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (Income Tax Act)

Singapore tax rate has been constantly changing going down over the years. As of year 2010, the corporate income tax rate will be further reduced from 18% to 17%. This is also one of the alternatives in helping the investment an attractive one to different jurisdiction.

The incentives and its tax concession summarize below effectively on how the tax incentives brings into good use to Singapore:

|Incentive |Tax Concession |
|Distribution of dividends |No withholding tax on dividend payment |
|Double deductions for R&D expenses |Double deduction of qualifying R&D |
| |R&D Expenses against income |
|Operational Head-quarters (OHQ) |Income arising from approved services will be taxed at 10%. |
| |Other income from overseas subsidiaries may also be eligible for|
| |effective tax relief |
|Venture Capital Incentive |Losses (up to 100% of equity invested) incurred from the sale of|
| |shares can be set off against the investor’s other |
| |taxable income |
|Approved Foreign Scheme |Full/Partial Exemption of Withholding tax on interest payments |

The following below are some tax incentives that include in the income tax act. They are exempted from tax on:

- Income derived from operating a Singapore registered ship;

- Interest earned on deposit held by a non resident from an approved bank;

- Offshore income of a financial institution derived by or from the operation of its Asian Currency Unit from specified syndication activities.

- Foreign sourced income and Singapore sourced investment income by individuals

- Onshore charter income received by an Approved International Shipping (AIS)

Reduced tax rate of 5 years on:

- qualifying income derived from trading in commodity derivatives;

- qualifying income derived from the provision of high-value added procession.

Reduced tax rate of 10% on:

- qualifying income of an insurance company from insuring and re-insuring offshore risks;

- Income earned by an approved oil trader from offshore oil trading;

- Offshore income earned by an approved international trade from trading in approve commodities;

- Income derived by an approved finance and treasury centre from providing services;

- Offshore leasing income.

1.3 ARTICLE ON INCOME TAX ACT

Dated on 9th Sept 2009, an article states that Mexico’s GDP places its investment opportunity to Singapore companies across sectors. This helps in boosting the economy costing a hefty investment, worth of S$2.27 trillion.

2.1 OVERVIEW OF THE DOUBLE TAX AGREEMENT

A Double Tax Agreement (DTA) is a bilateral agreement between two countries which have their own sets of national objectives, policy and technical considerations, and each country may have to make various compromises in order to conclude the DTA to avoid double taxation, resulting from the application of their respective domestic tax laws.

Double tax occurs when there is more than one country that is being tax twice on the same taxpayer- the country of source where the income arises and the country of residence where the income is received.

To relieve taxpayers from the burden of double taxation, countries provide various types of reliefs under their domestic tax laws in which they have entered into with other countries.

2.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (DTA)

There are a few types of incentives offered under the double tax agreement. In order to avoid double tax more effectively, below are some methods of double tax relief in Singapore:

2.2.1 Tax Credit Relief

Under S50, Income Tax Act, the amount of tax credit relief is restricted to the lower of the paid/payable in the foreign and home country. Tax credit relief will be given to the tax payer on the foreign tax as domestic tax has already been imposed to them based on the same income.
In Singapore, Tax credit relief should be made while filing annual income tax returns (Form C) and should be shown in the company's tax computation. Documentary proof such as withholding tax receipts, letter from the foreign tax authority or dividend vouchers were required to evident the remitted income has been subjected to tax in the treaty country before the claims can be considered.

2.2.2. Tax exemption

Tax exemption is another method for avoiding double taxation where foreign income is exempt from domestic tax. There are two types of tax exemption which are as follows:

a) Full Exemption – The full amount of income will be excluded from the total income when determining the rate of tax to be imposed for the tax payer. b) Exemption with progression - This form can only apply where tax in the country of residence is computed using graduated rates.

Under S13 (8), the following conditions must be met in order for Singapore tax residents company to enjoy tax exemption on their foreign dividends, foreign branch profits and foreign sources services when remitted back to Singapore:

• The highest corporate tax rate (headline tax rate) of the foreign country from which the income was received is at least 15% and • The foreign income had been subjected to tax in the foreign country from which they were received. The rate at which the foreign income was taxed can be different from the headline tax rate.

2.2.3. Reduced tax rate

Income is taxed at a lower rate and is applicable for following classes of income under the reduced tax rate method:

a) Interest;

b) dividends;

c) royalties; and

d) profits from international shipping and air transport

2.2.4. Relief by deduction

The whole of foreign income is taxable under Singapore tax. However, under Relief by deduction, Singapore tax is only applied to amount remitted into Singapore which is net of foreign taxes.

2.2.5. Tax sparing credit

This can be usually found in DTAs between a developing country which offers tax

incentives to attract foreign investment and a developed country which is capital

exporting. The credit is given by the capital-exporting country under its laws to

promote investments.

Alternatively, if there is no treaty between your country and Singapore, whereby

Singapore resident receiving the following foreign income from countries and yet to

conclude a DTA, there is another alterative to be able to take advantage of unilateral

tax credit.

2.2.6. Unilateral tax credit
This occurs when a Singapore resident has not conclude an Avoidance of Double
Taxation agreement (DTA) whereby it has receive the following foreign income from other countries, will be allowed to get a unilateral tax credit under Section 50A of the
Singapore Income Tax Act. 1. Income derived from any professional, consultancy and other services rendered in any territory outside Singapore. 2. Dividends or 3. Profits derived by an overseas branch of a Singapore resident company.
This also apply to foreign sourced royalty from non-treaty countries, provided the royalty is not 1. borne directly or indirectly by a person resident in Singapore or a permanent establishment in Singapore or 2. deductible against any Singapore sourced income
The benefit of claiming tax credit on income is derived from professional services

rendered outside Singapore.

2.3. DIFFERENT METHODS OF GRANTING TAX RELIEF

[pic]

2.4. ARTICLE OF DOUBLE TAX AGREEMENT (DTA)

An article dated on 21st Aug 2009 is said that both countries, Singapore and New

Zealand have signed an Avoidance of Double Taxation Agreement (DTA) that aligns

with the new internationally agreed standard for the exchange of information. By

doing that, it allows Singapore business face lower tax barriers and can enjoy tax

barrier certainty across their border trade and investments with New Zealand and

vice versa. Another article which dated on the 25th Aug 2009 is also similar in a way

that a new double taxation treaty was signed between [pic]Singapore and Britain will

bring the city-state towards meeting OECD standards on exchange of information

upon request to chase tax evaders.

2.5. BENFITS FROM DOUBLE TAX AGREEMENT (DTAs)

DTA benefits to Singapore tax residents and tax residents of the treaty country who

exercised business in Singapore and allow us to claim for relief. But it is not

applicable to non-residents. Let’s look at some ways of how it benefits from DTAs:

1) DTA provides us with assurance on when and how tax is to be imposed in the country where the income-producing activity is conducted. It helps in differinating the jurisdictional authority on cross-border transactions.
2) It prevents international tax evasion by approving the exchange of information between the tax authorities of both contracting countries.
3) It enables us to claim for relief for taxes paid overseas
4) It identifies the correct taxing of each individual country.

3.1 OVERVIEW OF ECONOMIC EXPANSION INCENTIVES ACT (EEIA)

The economic expansion incentive act (EEIA) was introduced in 1967. The key aim for this act then was to attract foreign companies to come to Singapore to invest in mainly in the manufacturing sector as Singapore was facing high employment rate due to the withdrawing of
British troops. Under the EEIA, the EDB is given the authority to grant a company “pioneer status”.

These companies with pioneer status are given tax relief on their income and through these relief, more and more companies found that their profit would be higher if they come to Singapore than anywhere else. With the influx of direct foreign investment, Singapore was able to not only solve the problem of unemployment but also adopt the technology brought in by the investors.

From then on, the reliance of EEIA as a key policy to the continual growth was evident by the many amendments made throughout the years. One example of such amendment is that the period of tax relief on the income of pioneer companies is extended to 15 years (from 5 years initially).

3.2 TYPES OF INCENTIVES AND ITS EFFECTIVENESS (EEIA)

The table below shows a list of tax incentives that uses it tax concession effectively.

|Types of Incentives |Requirements |Tax Concession |
|Pioneer Status |Projects must result in the creation of new industries or |Tax exemption on income from qualifying |
| |strategically expand existing industries in Singapore. |activities |
| | | |
| |Most projects can be considered unless products are already | |
| |manufactured locally without tax incentives | |
|Development and Expansion |Projects must generate significant economic spin-off for |Reduced tax 5% or 10% on incremental |
|Incentive |Singapore. |income from qualifying activities |
|(also available for IHQ Award) | | |
|Expansion Incentive for |i) Partnership in Singapore providing audit, accounting or |Exemption of 50% of incremental |
|Partnerships |legal services , with at least 50% equity stake held by |qualifying overseas income. |
|(EIP) |Singapore tax residents. | |
| |ii) Well-established in the industry, attained critical size | |
| |(equity, assets, employees, business share, etc). | |
| |iii) Employ at least 10 additional professionals by the end of | |
| |year 5 of the incentive period. | |
|Export of Services |i) Companies must be engaged in providing prescribed services |Exemption of 90% of incremental export |
| |which relate to overseas projects for non-residents. |services income. |
| |ii) Minimum export level of 20% of total revenue and commitment| |
| |in terms of s killed manpower and fixed asset | |
|Investment Allowance |Investment must be made within the stipulated qualifying period|Allowance of 30% or 50% of approved fixed|
| |which should not exceed 5 years (or 10 years for projects for |capital expenditure on top of normal 100%|
| |promotion of tourist industry) from Investment Day, unless the |capital allowance |
| |asset is on hire-purchase and acquired on or after 15 February | |
| |2007. | |
|Finance & Treasury Centre Tax |A division or department of a company which provides treasury, |Reduced tax 5% or 10% on fees, interest, |
|Incentive (FTC) |investment or financial services in Singapore to related and |dividends and gains from qualifying |
| |associated companies (approved network companies). |services/activities |
| |The FTC may also carry out specified qualifying activities on |WHT exemption on interest payments on |
| |its own account. With effect from15 February 2007, FTCs may |loans from banks and network companies |
| |also invest in unit trusts that engage wholly in qualifying |for FTC activities |
| |activities that FTCs can carry out on their own account. | |
|Approved Royalties Incentive |Technology or know-how transferred must be more advanced than |Reduced WHT 0% or 5% on royalty payments |
| |the prevailing industry average. |to access advanced technology and |
| | |know-how |
|Approved Foreign Loan |Loan must be obtained for the purchase of productive equipment |Reduced WHT 0%, 5% or 10% on interest |
| |and of a minimum amount of $200,000. |payments on loans taken to purchase |
| | |productive equipment |

With the above list of incentive, both foreign and local companies engaging in approved activities, such as high value added manufacturing or creation of intellectual property will receive considerable concessions. Through these concessions, Singapore hopes to retain or even attract more companies to come and conduct business. By doing so, Singapore is able to target those industries that it predicts to be a helpful source which will propel Singapore’s growth into the future.

3.3. TABLE OF STATISTICS AND GRAPHICAL DATA

This table and chart illustrates the growth of Foreign and Singapore investment over the recent year.

|Items |
| |
|Date of Latest |
|Most Recent Period |
|% Change |
|Previous Period |
|% Change |
| |
|Investment |
| |
|Foreign Direct Investment in Singapore |
|S$m |
|2008 |
|470,315.90 |
|1.0 |
|465,475.60 |
|25.6 |
| |
|Singapore's Stock of Direct Investment Abroad |
|S$m |
|2008 |
|298,101.80 |
|-5.2 |
|314,471.80 |
|27.6 |
| |

Source: http://www.singstat.gov.sg/stats/latestdata.html#note1

| |
|[pic] | |
| | |

Source: http://www.singstat.gov.sg/stats/charts/econ.html

In addition, the foreign direct investment in Singapore has slight increased of 1%. On the other hand, the Singapore stock of direct investment abroad has decrease slightly of 5.2% mainly due to the fact of credit crunch. However, after the swift global recovery from the credit crunch, growth is expected to continue in direct investment.

APPENDIX

Income tax

Double Tax Agreement

http://www.iras.gov.sg/irasHome/uploadedFiles/Quick_Links/dtawriteupforwebsiteamended.pdf

http://www.guidemesingapore.com/tax/c664-singapore-tax-treaties-guide.htm

Economic Expansion Incentive Act

http://www.edb.gov.sg/edb/sg/en_uk/index/why_singapore/Guide_to_Investing_in_Singapore/financial_assistance.html

http://www.pwc.com/en_SG/sg/tax-facts-and-figures/assets/tff200912.pdf

http://www.complete-corp.com.sg/assets/A_Business_Guide_to_Singapore.pdf

http://www.iras.gov.sg/irasHome/page.aspx?id=1746

http://www.singstat.gov.sg/stats/latestdata.html#note1

http://www.singstat.gov.sg/stats/charts/econ.html

http://www.fas.nus.edu.sg/ecs/pub/wp/previous/AHTAN2.pdf

http://www.globalurban.org/GUD%20Singapore%20MES%20Report.pdf

google books - Singapore business: the portable encyclopedia for doing business with Singapore By Christine Genzberger

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