Singapore Budget 2023: Moving forward in a new era

On 14 February, Deputy Prime Minister and Minister for Finance, Mr Lawrence Wong, announced a budget aimed at giving Singaporeans the assurance and confidence to move forward together and seize opportunities. Here we highlight the features that are of most interest to corporates, family offices and ultra high net worth individuals.

Mr. Wong told CNBC that setting this year’s budget was “a very delicate balancing act to manage due to the different competing pressures,” referencing support for economic competitiveness whilst helping families and lower income groups with rising costs.

According to the budget report, the government expects positive but slower economic growth in Singapore of 0.5% to 2.5% this year. The downside risks to this year’s forecast is a greater than expected decline in the US and EU economies that could tip the world into recession, the Ukraine war could further weigh on global trade, and a potential new COVID-19 variant.

The report also says despite inflation and the pandemic, Singapore’s economic fundamentals remain strong. They say they have built a reputation as a reliable node in the global supply chains, have deep relationships with both the US and China, as well as partners in ASEAN and the wider region, and they are a neutral and increasingly important place for global and regional businesses.

What are the key highlights?

Global Anti-Base Erosion (GloBE) rules under BEPS Pillar 2 and Domestic Top-up Tax (DTT)

Singapore will implement the Global Anti-Base Erosion (GloBE) rules under The Organization for Economic Cooperation and Development (OECD) BEPS Pillar 2 and a Domestic Top-up Tax (DTT) for large multinational enterprises (MNEs) from their financial year starting on or after 1 January 2025.

Under Pillar 2, a DTT will be introduced to top-up the effective tax rate (ETR) of qualifying MNEs in Singapore to 15%. Qualifying MNE groups must have a minimum annual global revenue of EUR 750MM. Excluded entities such as international organisations, non-profit organisations and government entities will not be subject to GloBE rules.

The proposed changes are likely to have the greatest effect on large MNEs operating in Singapore and overseas subsidiaries of Singapore parent companies of large MNE groups.

New Allowances and Deductions under the Enterprise Innovation Scheme (EIS)

The tax deductions and allowances available under the EIS, which aims to encourage businesses to undertake research and development (R&D), innovation and capability development activities, have been enhanced and added to, effective from the Year of Assessment (YA) 2024 to YA 2028.

The new tax deduction/allowance rates are:

• 400% enhanced tax deduction, capped at $400,000 of qualifying expenditure across four categories of qualifying activities:
• Staff costs and consumables incurred in qualifying R&D projects in Singapore per YA,
• Registration of Intellectual Property (IP) costs incurred per YA,
• Acquisition and licensing of qualifying IP rights per YA (only available to businesses that generate less than $500MM in revenue in the relevant YA), and
• Qualifying training expenditure per YA on courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework.
• Annual tax deductions of 400%, capped at $50,000 of qualifying expenditure per YA, for qualifying innovation projects carried out with polytechnics, Institute of Technical Education or other qualified partners.

For businesses that are not profitable, there is also an option to convert 20% of total qualifying expenditure per YA across qualifying activities in lieu of tax deductions/allowances into a cash payout of up to $20,000 (to be eligible, the business must employ three full-time Singapore citizens).

New Buyer’s Stamp Duty (BDS) Rates

Higher-value residential and non-residential properties will see a rise in BDS, with the measures expected to affect 15% of residential properties and 60% of non-residential properties.

Higher marginal BSD rates will apply to all properties acquired on or after 15 February 2023, as follows:

• Residential Properties: a 5% BSD (up from 4%) for residential properties over $1.5 million and below $3 million. 6% BSD will apply to the portion of a property’s value in excess of $3 million.
• Non-residential properties: a 4% BSD (up from 3%) for non-residential properties over $1 million and below $1.5 million. 5% BSD will apply to the portion of a property’s value in excess of $1.5 million.

Transitional provisions will be available where an Option to Buy (OPT) was granted by sellers to potential buyers on or before 14 February 2023 and the OTP is exercised on or before 7 March 2023, or within the OTP validity period, whichever is earlier (provided that the OTP has not been varied on or after 15 February 2023).

This proposed change is a step forward in promoting a fair and equitable tax system, in an effort to redress wealth and income inequality by the Government.

New Additional Registration Fee (ARF) rates

A new ARF structure will apply to all new and imported used cars and goods-cum-passenger vehicles registered with Certificates of Entitlement (COEs) obtained from the second COE bidding exercise in February 2023 onwards.

For vehicles that do not need to bid for COEs (e.g. taxis, classic cars), the new rates will apply for those registered on or after 15 February 2023.

Higher marginal ARF rates will also apply for luxury cars (with COE obtained in February 2023).

Preferential ARF (PARF) rebates, provided to car owners as an incentive to deregister their vehicles early, will be capped at $60,000.

Both measures above are expected to affect the top one-third of newly-registered cars by Open Market Value. Overall, this is in line with the Government’s push to enhance fairness and progressivity in Singapore’s tax system.

See below for more budget measures of note:

Extension of the 250% Tax Deduction for Qualifying Donations to IPCs and Eligible Institutions

To encourage charitable giving, the 250% tax deduction available for qualifying donations to Institutions of a Public Character (IPCs) and other eligible institutions will be extended for another three years, i.e. for donations made between 1 January 2024 and 31 December 2026 inclusive. The Business and IPC Partnership Scheme (BIPS) will also be enhanced into a broader Corporate Volunteer Scheme whereby the scope of qualifying volunteering activities will be expanded eg: to include activities conducted virtually (online mentoring, online tutoring, etc) or outside the IPCs’ premises.

These adjustments will take effect from 1 January 2024.

Philanthropy Tax Incentive Scheme for Family Offices

A tax incentive scheme will be introduced which will allow qualifying donors with family offices operating in Singapore to claim a 100% tax deduction for overseas donations made through ‘qualifying local intermediaries’. The tax deduction will be capped at 40% of the donor’s statutory income. Before this was introduced, no tax deduction was allowed for such overseas donations.

To qualify, donors must have a fund established under Monetary Authority of Singapore (MAS) section 13O or 13U schemes, and meet eligibility conditions, such as incremental business spending of $200,000.

The MAS will provide further details about the scheme by 30 June 2023 and for now no immediate action needs to be taken. It will be interesting to see what the definition of ‘qualifying local intermediaries ’is and how this will help promote the establishment of international non-profit organisations in Singapore.

This appears to be the first time overseas donations can qualify for a tax deduction and, if successful in being introduced, may well pave the way for Singapore to be positioned as a philanthropy hub.

Conclusion

The 2023 budget is wide-reaching and inclusive. The budget’s “very delicate balancing act” is focused on support measures for Singaporeans, growing the economy and equipping workers, strengthening the social compact, building a resilient nation, and a competitive, resilient and fair tax system.

Here is a link to the full Singapore 2023 Budget.

How ZEDRA can help

ZEDRA’s trust and corporate professionals along with our network of accountants and attorneys can support you and your advisers. We’ll guide you through the nuances of what these measures mean along with recommendations for any needed structuring or restructuring of your interests.

Contact Wendy Sim, Lisa Tan or Yong Sen Goh to find out more about how we can help you manage your family’s cross-border assets.