ONE of Singapore’s corporate tax incentive schemes is adding a higher concessionary tax rate tier of 15 per cent for large multinationals, to allow such companies to continue qualifying despite global tax changes.
This is among the changes to the Economic Expansion Incentives (Relief from Income Tax) Act (EEIA), provided for in an amendment bill passed in Parliament on Monday (Nov 11).
The Development and Expansion Incentive (DEI) scheme was introduced in 1997 to encourage companies to grow capabilities and conduct new and expanded activities in Singapore, with two concessionary tax rate tiers of 5 per cent and 10 per cent.
The addition of a 15 per cent tier arises from the government’s “periodic review to ensure that our tax incentives remain relevant to companies with different circumstances and needs”, Minister of State for Trade and Industry Alvin Tan said in the second reading of the bill.
Pillar Two of the Base Erosion and Profit Shifting (BEPS) 2.0 initiative prescribes a global minimum effective tax rate of 15 per cent for large multinational enterprises (MNEs) with annual group revenue of 750 million euros (S$1.1 billion) or more.
A company affected by this change would not be able to benefit from the 5 per cent or 10 per cent DEI tiers. But the new 15 per cent tier may be “sufficient for its needs”, said Tan.
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Under a second amendment, non-headquarters service companies will become eligible for a DEI award tenure of up to 40 years. Previously, non-headquarters companies – both service and manufacturing ones – were offered only a 20-year award tenure.
Companies that could benefit include those that provide payment technologies, artificial intelligence solutions and aircraft maintenance and overhaul services, said Tan.
The third set of amendments will allow the minister to prescribe, via regulations, projects for which Investment Allowance (IA) may be provided. This will give the government greater flexibility to respond to the fast-changing economic landscape, said Tan.
Revenue and timelines
Saktiandi Supaat, Member of Parliament (MP) for Bishan-Toa Payoh GRC, asked if smaller companies – to which Pillar Two does not apply – can still expect to be granted the 5 per cent or 10 per cent concessionary tax rates, as a norm.
Tan said yes, noting that those rate tiers are available to all eligible companies. In response to a separate question, he said the government will not unilaterally amend a company’s concessionary tax rate if it continues to meet its incentive outcome.
Several MPs also asked about the tax revenue that might be forgone due to these changes.
In response, Tan noted the DEI is not automatically granted to all companies looking to invest in Singapore, but is “offered judiciously”.
It is only granted if economic agencies assess that the incentive is crucial to land an investment in Singapore, and that the investment will generate a net benefit for the economy.
“In other words, we assess how effective the tax incentive is based on benefits brought forth by the project – for example, the number of good jobs created, and if not for the incentives, whether the investment may land here in the first place,” he said.
Other MPs asked about the IA scheme, which provides a tax exemption of up to 100 per cent of fixed capital expenditure. They wanted to know the timeline and criteria for including new qualifying project types, and whether the government reviews the list.
Tan replied that the government periodically reviews the list of qualifying activities to ensure that they are aligned with Singapore’s strategic national priorities and are relevant to its next phase of economic development.
But he did not reveal the amount of IA that has been granted so far, nor give a breakdown by project type, saying: “Similar to the DEI, the IA is offered judiciously, and we consider any taxable income forgone by the IA award to be notional in nature.”
More broadly, MPs asked if there will be a holistic review of Singapore’s investment attraction tool kit now that Pillar Two of BEPS 2.0 is being implemented in more countries.
Tan noted that Pillar Two changes may reduce the room for tax competition among countries, but does not reduce competition for investment. “The global economic landscape has become even more competitive with major economies like the US, Germany and Japan rolling out generous incentives to attract investments.”
This is why both the Ministry of Trade and Industry and Ministry of Finance are continuously refreshing Singapore’s incentive tool kits and updating related legislations, to ensure the country’s schemes remain relevant and competitive.
However, there are no plans to overhaul the EEIA, Tan said. “But I note members’ feedback to consider a new consolidated act.”
