Deferment of Income Tax Payments

The Deputy Prime Minister and Minister for Finance, Mr Heng Swee Keat, unveiled additional support measures to ease cash flow for taxpayers in the Resilience Budget announced on 26 March 2020. One of the measures is the automatic deferment of income tax payments as explained below.

Businesses
For companies, the Corporate Income Tax (CIT) payments that are due in the months of April, May, and June 2020 will be deferred for three months and collected in July, August, and September 2020 respectively. It is crucial to note that the automatic deferment of CIT payments will complement the automatic extension of additional two months interest-free instalments on ECI as announced in the Unity Budget 2020 on 18 February 2020. An example to illustrate the deferment of CIT payments is provided below:

Example

Company A’s financial year-end is in December and had e-filed its Estimated Chargeable Income (ECI) for the Year of Assessment (YA) 2020 on 15 January 2020 with a CIT payable of S$9,000. Accordingly, the number of instalment plans availed to Company A for its ECI is twelve and the revised instalment plan for Company A’s ECI tax payable for YA 2020 is as follows:

Deferment of Income Tax Payments 1

Note: The example illustrated above has taken into account the two relief measures (i.e. automatic extension of interest-free instalment of 2 months for payment of CIT on ECI and CIT rebate of 25% of the CIT payable (capped at S$15,000) for YA 2020) as announced in the Unity Budget on 18 February 2020.

By examining the figures in the table above, it is evident that Company A’s CIT payable on its ECI is deferred for three months to ease the cash flow needs for April, May and June 2020 as a relief measure to help Company A tide through the challenges brought by the COVID-19 outbreak in these months.

Companies can expect to receive a letter from the IRAS by 15 April 2020 on the deferred CIT payments. Companies who are on the GIRO will be able to view their revised instalment plans at IRAS’ myTax Portal from 1 May 2020.

Self-Employed Persons (SEPs)

The tax filing deadline for SEPs to e-file their Personal Income Tax (PIT) returns via the IRAS tax portal for YA 2020 is by 18 April 2020. Accordingly, the PIT payments for SEPs that are due in the months of May, June, and July 2020 will be deferred for three months and collected in August, September, and October 2020 respectively. An example to illustrate the deferment of PIT payments for SEPs is provided below:

Example

SEP B files his PIT returns for YA2020 by 18 April 2020 with a PIT payable of S$1,200. SEP B has an existing GIRO instalment arrangement with the IRAS and his PIT is payable in 12 months of equal instalments. The revised instalment plan for SEP’s PIT payable for his YA 2020 tax assessment is as follows:

Deferment of Income Tax Payments 2

Individual Taxpayers (Employees)

Individual taxpayers can opt to defer their income tax payments due in May, June and July 2020 by signing up for the deferment option by 31 July 2020. The application can be made online here: https://form.gov.sg/5d5ce149c0a8230012d27118.

This deferment does not apply to non-Singapore citizen employees who have sought tax clearance and employees of foreign employers.

Once the request to defer the payment is approved, the new arrangement shall supersede any due date indicated on the Notice of Assessment.

If the taxpayer is paying his or her income tax by GIRO, there will be no GIRO deduction in May, June and July 2020. The income tax deduction will resume in August, September or October 2020 and the end-date of the instalment plan will be extended by 3 months.

For taxpayers settling their income tax liabilities in one lump sum payment, the payment will be deferred by three months.

Singapore Budget 2020

In a strong response to the adverse impact on the Singapore economy due to the COVID-19 outbreak, a $4 billion relief package was unveiled in the Budget announced on 18 February 2020.

Dubbed as the “Stabilisation and Support Package”, the relief package includes measures targeted at specific sectors hit by the COVID-19 and broad-based support for businesses to retain their employees and alleviate their cash flow problems.

A quick summary of some of the broad-based measures under the relief package is provided below:

  1. Companies will receive a 25% corporate tax rebate for the year of assessment 2020. The rebate will be capped at $15,000.
  2. Companies that file their estimated chargeable income (ECI) from 19 February 2020 to 31 December 2020 and companies that have filed their ECI before 19 February 2020 and have ongoing instalment payments to be made in March 2020 will be automatically granted an additional two months of interest-free instalments if they are paying their corporate income tax via GIRO.
  3. The existing carry-back relief scheme will be enhanced for the year of assessment 2020. Under the enhanced scheme, unabsorbed capital allowances and trade losses for the year of assessment 2020, subject to conditions, may be carried back up to three immediate preceding years of assessment. Businesses will be allowed to carry back an estimated amount of qualifying deductions available for the year of assessment 2020 before the actual filing of their income tax returns. The amount of carry-back allowed will be capped at $100,000.
  4. Qualifying capital expenditure incurred on the acquisition of plant and machinery in the financial year 2020 (i.e. year of assessment 2021) will qualify for accelerated write-off over two years.
  5. Currently, under Section 14Q of the Income Tax Act, a tax deduction can be claimed over three consecutive years of assessment on qualifying expenditure incurred by a taxpayer on renovation and refurbishment (R&R) for the purposes of its trade, profession or business. This will be temporarily enhanced to allow qualifying R&R expenses incurred in the financial year 2020 (i.e. year of assessment 2021) to be claimed over one year of assessment.
  6. The Wage Credit Scheme (WCS), that was first introduced in Budget 2013, encourages employers to share productivity gains with workers by co-funding wage increases of at least $50 given by the employers to Singapore citizen employees who earned a gross monthly wage of up to $4,000. The WCS has been enhanced in 2 ways in this year’s Budget. Firstly, the wage ceiling for co-funding will be raised from $4,000 to $5,000 for the years 2019 and 2020. Secondly, the co-funding ratios will be increased from 15% to 20% for the year 2019 and from 10% to 15% for 2020.
  7. A new jobs support scheme will offset 8% of the gross monthly wages of every employee who is a Singapore citizen or permanent resident. The grant will be subject to a monthly wage cap of $3,600 per worker. This is extended to all employers with the exception of Government organisations and representative offices. This is a one-off scheme for 2020 only.
  8. The enterprise financing scheme which is available to SME’s across all industries will be enhanced for one year to help SMEs with their working capital needs. The government will raise the maximum loan quantum from $300,000 to $600,000 and enhance the Government’s risk share to up to 80% (from the current 50% to 70%) for SMEs borrowing from Participating Financial Institutions under the scheme.

In addition to the broad-based measures under the relief package, some of the key schemes under the Singapore tax regime that are due to lapse have been extended. This includes the Double Tax Deduction for Internationalisation scheme, Mergers & Acquisitions scheme, Upfront Certainty of Non-Taxation of Companies’ Gains on Disposal of Ordinary Shares and the Global Trader Programme.

To learn more about the key tax changes announced in this year’s Budget, read Crowe Singapore’s Budget 2020 Newsletter available here.

Deductibility of Withholding Tax on Interest Payments Borne by Companies on behalf of Non-Residents

The Inland Revenue Authority of Singapore (IRAS) has updated its webpage on the Tax Treatment of Business Expenses to reflect the change in the tax treatment of withholding tax (WHT) on the interest payments borne by companies on behalf of non-residents, taking effect from Year of Assessment 2020.

In general, a company (“payer”) will be required to withhold tax on interest paid to a non-resident. In certain instances, the withholding tax on the interest may be borne by the payer on behalf of a non-resident.

Contractual Obligation to bear the WHT

Where the payer is contractually obligated to bear the tax for the non-resident, the withholding tax borne will be treated as part of the interest paid. The interest expense (inclusive of the withholding tax borne on behalf of the non-resident) is deductible if the loan is taken up to finance income-producing assets.

No Contractual Obligation to bear the WHT

IRAS has advised that if there is no contractual obligation for the payer to bear the tax on behalf of the non-resident, the withholding tax borne by the payer will not be treated as part of the interest paid. The tax deductibility of the withholding tax borne on behalf of the non-resident will then depend on the purpose of the loan.

If the loan is taken up for revenue purposes (e.g. to finance the purchase of trading stock), the withholding tax expense will be deductible in the hands of the payer as it is a revenue expense. On the other hand, if the loan is taken up to finance capital assets, the payer will not be able to claim a tax deduction on the withholding tax expense because it is a capital expenditure of the payer.

Withholding tax expense is also not a prescribed borrowing cost that is specifically deductible under the Income Tax Act.

For further information, please refer to IRAS’ website.

Source: Inland Revenue Authority of Singapore.

Tax Exemption of Foreign Sourced Income

The Inland Revenue Authority of Singapore (IRAS) has recently updated its website, providing guidance on determining the country of source for dividend income if a foreign dividend-paying company is listed on the stock exchange in one jurisdiction but is a tax resident in another.  

Exemption of Foreign Sourced Dividends 

Foreign sourced dividends may be exempted from tax in Singapore under Section 13(8) of the Income Tax Act. One of the three mandatory qualifying conditions for tax exemption under Section 13(9) is that the highest corporate tax rate, or ‘headline tax rate’, of the foreign jurisdiction from which the income is received, must be at least 15% at the time the foreign income is received in Singapore.  

Source of Dividends 

Generally, dividend is considered to be sourced in the jurisdiction in which the dividend-paying company is tax resident. Therefore, if the dividend-paying company is tax resident in Singapore, dividend is considered sourced in Singapore. Conversely, a dividend is foreign sourced if it is paid by a non-Singapore tax resident company.  

Possible Scenario 

Foreign sourced dividend may be paid by a company that is listed on the stock exchange in one jurisdiction but is a tax resident in another.

In the abovementioned scenariothe IRAS has indicated that it cannot be presumed that the jurisdiction of listing of the dividend-paying company is where the dividend is sourced.

Where a dividend-paying company is incorporated outside the jurisdiction where it is listed, the Comptroller may treat the dividends as not sourced in the jurisdiction of listing unless there are facts to show otherwise. In such a circumstance, the “headline tax rate condition” will be considered as not met if the jurisdiction in which the dividend-paying company is incorporated has a headline tax rate of less than 15%. 

Deductibility of Life or Personal Accident Insurance Premiums

Generally, premiums on insurance policies taken out by an employer on employees are tax deductible if the beneficiaries of those insurance policies are the employees, or if the employer has the contractual obligation to pass the payout to the employees or their next-of-kin. This is on the basis that the premiums paid are a staff benefit.

Where the beneficiary of an insurance policy is the employer and there is
no contractual obligation to pass the insurance payout to the employees or their next-of-kin, the employer will be seen to have taken out the insurance policy to acquire a capital asset and premiums paid on those insurance policies shall not be tax deductible. There are certain exceptions to this rule, for example, where the insurance policy is a keyman insurance to cover loss of profit due to the demise or incapacity of a key employee of the business.

Revised Tax Position
The IRAS recently updated its website to change the tax treatment of premiums paid on group term life and personal accident insurance policies.

With effect from YA 2019, premiums paid on group term life or personal accident insurance policies are tax deductible to the employer even if the employer is the named beneficiary to the policy and there is no contractual obligation to pass the payout to the employees or their next-of-kin.

The IRAS made this revision after having received feedback from businesses that group term life and personal accident policies are usually purchased as staff benefits and employers are named as beneficiaries only for administrative convenience. Given that there is no contractual obligation to pass the payout to the employees or their next-of-kin, any payout received by the employer from the above-mentioned group insurance policies will be taxable in full to the employer. However, the employer will be allowed a tax deduction on the insurance payout to the extent it is disbursed to the employee. Such payouts received by the employee will be taxable to him or her unless specifically exempted under the Income Tax Act. In the same update by the IRAS, premiums paid on group insurance which provides for a cash surrender or investment/ saving value was included in the list of examples of insurance premiums that are capital in nature and not deductible.