24 February 2014

On 21 February 2014, the Deputy Prime Minister and Minister for Finance, Mr Tharman Shanmugaratnam, delivered the Budget Statement for the Financial Year 2014.

The tax changes announced include:

For individuals

1. Enhancement of the parent and handicapped parent reliefs

• With effect from Year of Assessment (“YA”) 2015, the amount of parent/handicapped parent relief will be increased.  Individuals who are staying with these dependants will enjoy a higher relief amount, as follows:

	Staying with dependent		Not staying with dependent
	Prior to YA 2015	YA 2015 onwards	Prior to YA 2015	YA 2015 onwards
Parent Relief	S$7,000	S$9,000	S$4,500	S$5,500
Handicapped Parent Relief	S$11,000	S$14,000	S$8,000	S$10,000

• In addition, claimants of parent/handicapped parent relief will be able to share the relief according to the claimants’ agreed proportion. If more than one claimant is making the claim and the claimants cannot agree on the apportionment ratio, the relief will be apportioned equally among all the claimants. These changes will take effect from YA 2015.

2. Enhancement of the handicapped spouse, handicapped sibling and handicapped child reliefs

• With effect from YA 2015, the amount of handicapped spouse, handicapped sibling and handicapped child relief will be increased as follows:

	Prior to YA 2015	YA 2015 onwards
Handicapped Spouse Relief	S$3,500	S$5,500
Handicapped Sibling Relief	S$3,500	S$5,500
Handicapped Child Relief	S$5,500	S$7,500

3. Removal of transfers of qualifying deductions and deficits between spouses

• With effect from YA 2016, married couples can no longer transfer qualifying deductions and deficits to each other (including under the loss carry-back scheme).
• As a transitional measure, inter-spousal transfers of qualifying deductions and deficits incurred by a married couple in and before YA 2015 will still be allowed up till YA 2017, subject to existing rules.
• The Inland Revenue Authority of Singapore (“IRAS”) will provide more details by end May 2014.

4. Removal of sec 40 relief

• The sec 40 relief will be removed from YA 2016.

For businesses

1. Extension of Productivity and Innovation Credit (“PIC”) scheme

• The PIC scheme will be extended for three years till YA 2018.
• Furthermore, the expenditure cap of S$400,000 per qualifying activity per YA can be combined across YA 2016 to YA 2018 (i.e. S$1.2 million per qualifying activity).
• However, the expenditure cap for PIC cash payout of S$100,000 per YA for all six qualifying activities cannot be combined across the three YAs, as is the case currently.

2. Introduction of PIC+ scheme

• A new PIC+ scheme will be introduced for small and medium enterprises (“SMEs”) which incur PIC qualifying expenditure beyond the combined cap of S$1.2 million applicable for the relevant three YAs from YA 2013 to YA 2015 and YA 2016 to YA 2018 respectively.
• 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$1.2 million for each qualifying activity can claim 400% enhanced tax deduction on an additional S$200,000 of qualifying expenditure.
• A qualifying SME is an entity with (a) annual turnover of not more than S$100 million, or (b) employment size of not more than 200 workers. This criterion will be applied at the group level if the entity is part of a group. Businesses will self-assess their eligibility for the scheme. Businesses that meet the qualifying criteria can claim the expenditure similar to the current PIC application process.
• The PIC+ scheme will take effect for expenditure incurred for YA 2015 to YA 2018. The combined expenditure cap will be up to S$1.4 million for YA 2015, and up to S$1.8 million for YA 2016 to YA 2018.
• The expenditure cap for PIC cash payout will remain at S$100,000 of qualifying expenditure per YA.
• IRAS will provide more details by end March 2014.

3. Extension of PIC benefits to training of individuals under centralised hiring arrangements

• With effect from YA 2014, businesses will be allowed to claim PIC benefits on training expenses incurred in respect of individuals hired under centralised hiring arrangements.
• IRAS will release further details by end March 2014.

4. Refinement of the three-local-employees condition for PIC cash payout

• With effect from YA 2016, businesses applying for PIC cash payout will have to meet the three-local-employees condition for a consecutive period of at least three months prior to claiming the cash payout.

5. Tax deferral option under the PIC scheme to lapse

• The tax deferral option under the PIC scheme will lapse with effect from YA 2015.

6. Extension of research and development (“R&D”) tax measures

• The additional 50% tax deduction accorded under sec 14DA(1) of the Income Tax Act (“ITA”) will be extended for ten years till YA 2025.
• The further tax deduction accorded under sec 14E of the ITA will be extended for five years till 31 March 2020.
• Businesses can continue to claim tax deductions/allowances on R&D expenditure incurred for R&D in areas unrelated to their existing trade or business as long as the R&D is conducted in Singapore.
• In addition, businesses can continue to claim a further 300% allowance on up to S$400,000 of qualifying R&D expenditure under the PIC scheme, which has been extended till YA 2018.

7. Extension and refinement of the sec 19B Writing Down Allowance (“WDA”) scheme

• The 100% WDA accorded under sec 19B of the ITA will be extended for five years till YA 2020.
• The accelerated WDA for media and digital entertainment (“MDE”) companies will be extended for three years till YA 2018.
• All other existing conditions of the sec 19B WDA will remain unchanged.
• IRAS will publish a list by end April 2014 to provide clarity on the types of items that would not meet the description of “information that has commercial value”. The list will be legislated by end December 2014 to expressly exclude customer-based intangibles and documentation of work processes.
• Businesses can also continue to claim a further deduction of up to 300% on up to S$400,000 of such qualifying costs under the PIC scheme, which has been extended till YA 2018.

8. Extension of sec 14A tax deduction scheme for registration costs of intellectual property

• The 100% tax deduction accorded under sec 14A of the ITA will be extended for five years till YA 2020.
• Furthermore, businesses can continue to claim a further 300% deduction on up to S$400,000 of such qualifying costs under the PIC scheme, which has been extended till YA 2018.

9. Extension and refinement of the Land Intensification Allowance (“LIA”) scheme

• The LIA scheme will be extended for five years till 30 June 2020.
• In addition, the LIA will be extended to the logistics sector and businesses carrying out qualifying activities on airport and port land.
• A new condition requiring existing buildings that have already met or exceeded the GPR benchmark to meet a minimum incremental GPR criterion of 10% will be introduced.
• All other existing conditions of the LIA scheme will remain unchanged.
• The enhancements are effective for LIA approvals granted, and capital expenditure incurred on or after 22 February 2014.
• The Economic Development Board (“EDB”) will release the implementation details by end May 2014.

10. Waiver of withholding tax requirement for payments made to branches in Singapore

• Payers will no longer need to withhold tax on sec 12(6) and 12(7) payments made to permanent establishments (“PEs”) that are Singapore branches of non-resident companies.
• These Singapore branches will continue to be assessed for income tax on such payments that they receive and will be required to declare such payments in their annual tax returns.
• The waiver will take effect for all payment obligations that arise on or after 21 February 2014.

For the financial sector

1. Basel III Additional Tier 1 instruments to be treated as debt for tax purposes

• Basel III Additional Tier 1 instruments, other than shares, will be treated as debt for tax purposes. Accordingly, distributions on such instruments will be deductible for issuers and taxable in the hands of investors, subject to existing rules.
• The tax treatment will apply to distributions accrued in the basis period for YA 2015 and thereafter, in respect of such instruments issued by Singapore-incorporated banks (excluding their foreign branches) that are subject to MAS Notice 637.
• The Monetary Authority of Singapore (“MAS”) will release further details by end May 2014.

2. Extension and refinement of tax incentive schemes for qualifying funds

• Section 13CA, 13R and 13X schemes will be extended for five years till 31 Mar 2019.
• The sec 13C scheme will be allowed to lapse after 31 March 2014.
• With effect from 1 April 2014, the sec 13CA scheme will be expanded to include trust funds with resident trustees, which are presently covered under the sec 13C scheme.
• With effect from 1 April 2014, the investor ownership levels for the sec 13CA and 13R schemes will be computed based on the prevailing market value of the issued securities on that day instead of the historical value.
• The list of designated investments under the sec 13CA, 13R and 13X schemes will be expanded to include loans to qualifying offshore trusts, interest in certain limited liability companies and bankers acceptance. This will apply to income derived on or after 21 February 2014 from such investments. Other existing conditions of the schemes will remain unchanged.
• MAS will release further details of the changes by end May 2014.

3. Extension of concession for recovery of GST for qualifying funds

• As a concession, qualifying funds that are managed by a prescribed fund manager in Singapore are allowed to claim GST incurred on expenses at a fixed rate. This concession will be extended for five years till 31 March 2019.
• MAS will release further details of the changes by end March 2014.

4. Enhancement of the foreign-sourced income exemption scheme for Listed Infrastructure Registered Business Trusts (“RBTs”)

• The specified scenarios under sec 13(12) of the ITA will be expanded to cover dividend income originating from foreign-sourced interest income so long as it relates to the qualifying offshore infrastructure project/asset. IRAS will continue to verify that the qualifying conditions are met for all specified scenarios.
• Interest income derived from a qualifying offshore infrastructure project/asset will automatically qualify for sec 13(12) exemption provided certain conditions are met. With the change, IRAS will verify that the qualifying conditions are met instead of the current case-by-case approval by the Minister for Finance.
• IRAS will release further details, including the effective date of these enhancements, by end May 2014.

5. Refinement of the Designated Unit Trust (“DUT”) scheme

• With effect from 21 February 2014, the DUT scheme will be limited to unit trusts offered to retail investors.
• Existing non-retail unit trusts that were approved under the scheme prior to 21 February 2014 may continue to retain their DUT status.
• Subject to the fulfilment of conditions, unit trusts do not have to apply for the DUT scheme to enjoy the benefits of the scheme from 1 September 2014.
• Other existing conditions of the DUT scheme will remain unchanged.
• The relevance of the scheme will be periodically reviewed. To ensure this, the next review date of 31 March 2019 will be legislated.
• MAS will release further details of the changes by end May 2014.

Other tax incentives for businesses

Investment Allowance (“IA”) scheme for aircraft rotables to lapse

• The IA scheme for aircraft rotables will be allowed to lapse after 31 March 2015.

Property tax

Introduction of review date for Approved Building Project (“ABP”) scheme

• The ABP scheme will be periodically reviewed to ensure its relevance.
• The next review will take place on 31 March 2017.

Stamp duty

1. Streamlining of stamp duty rates for leases

• The basis for charging stamp duty on leases executed on or after 22 February 2014 will be as follows:

Before 22 February 2014		On or after 22 February 2014
Lease Period	Stamp duty rates	Lease Period	Stamp duty rates
Up to one year	S$1 for every S$250 or part thereof of the average annual rent	Up to four years	0.4% of the total rent for the entire period of the lease
Exceeding one but not exceeding three years	S$2 for every S$250 or part thereof of the average annual rent	Exceeding four years or for any indefinite term	0.4% of four times of the annual rent for the entire period of the lease
Exceeding three years or for any indefinite term	S$4 for every S$250 or part thereof of the average annual rent

2. Streamlining of stamp duty rates for land premiums and property purchases

• The stamp duty rates for land premiums and property purchases executed on or after 22 February 2014 will be as follows:

Before 22 February 2014		On or after 22 February 2014
Purchase price or market value (whichever is higher)	Buyer’s stamp duty rates	Purchase price or market value (whichever is higher)	Buyer’s stamp duty rates
First S$180,000	S$1 for every S$100 or part thereof	First S$180,000	1%
Next S$180,000	S$2 for every S$100 or part thereof	Next S$180,000	2%
Remainder	S$3 for every S$100 or part thereof	Remainder	3%

3. Streamlining of stamp duty rates for share transfers and mortgages

• The stamp duty rates for share transfers and mortgages executed on or after 22 February 2014 will be as follows:

Before 22 February 2014		On or after 22 February 2014
Types of instruments	Stamp duty rates	Types of instruments	Stamp duty rates
Transfer of stock or shares	S$0.20 for every S$100 or part   thereof of the purchase price or market value of the stock or shares transferred, whichever is higher	Transfer of stock or shares	0.2% of the purchase price or market value of the stock or shares transferred, whichever is higher
Mortgage instruments	S$2 or S$4 for every S$1,000 or part   thereof (depending on the type of mortgage instrument), subject to maximum duty of S$500	Mortgage instruments	0.2% or 0.4% of the relevant amount (depending on the type of mortgage instrument), subject to maximum duty of S$500

Vehicle tax

Extension of the Carbon Emissions-based Vehicle Scheme (“CEVS”) and Green Vehicle Rebate (“GVR”) scheme

• The CEVS will be extended by six months till 30 June 2015.
• The GVR scheme for commercial vehicles, buses and motorcycles will also be extended by six months till 30 June 2015.

The full text of the budget speech can be found at the Budget 2014 website.

Source: Ministry of Finance and Inland Revenue Authority of Singapore