Singapore’s budget for business

We look at some of the significant changes unveiled in Singapore’s 2022 budget and what it means for businesses and investors. And what they need to do next.

The Singapore Budget 2022, unveiled by finance minister Lawrence Wong, included a package of targeted support to help workers and businesses adapt and evolve to the technological, digital and environmental challenges faced by the region in the 21st Century. Mr Wong heralded the budget as a “three-pronged plan” which would encourage more local firms to take up innovation through research and development, upskilling the workforce and raising the carbon tax.

So what are the main changes?

A delay in the Goods and Service Tax (GST) hike

The Singapore Government plans to stagger the GST hike over two periods, starting from  2023. Businesses and consumers had been bracing themselves for a rise in the Goods and Service Tax (GST) since 2018, but it had been delayed to help the economy.

This means the first increase, from 7% to 8%, will take effect from 1 January 2023, with the second rise, from 8% to 9%, taking effect from 1 January 2024.

Personal taxation

Mr Wong said the strength of the region meant that those who “earn more, [can] contribute more”. This means the top marginal personal income tax rate will be raised in 2024. The portion of chargeable income in excess of S$500k and up to S$1m will be taxed at 23%, up from the current 22% levied on the portion of chargeable income in excess of S$320k.

• For the portion of chargeable income in excess of S$1m, the personal income tax rate will go up to 24% from the existing 22%.
• The increase is set to affect the top 1.2% of personal income taxpayers and will raise up to S$170m of additional tax revenue per year.

A move to asset-based taxation – property and cars

Singapore’s 2022 Budget includes an increase in the top marginal property tax rate to 32%, and 36% for owner-occupied residential property and non-owner occupied residential property.

The move reflects the Singapore Government’s intention to turn its attention to asset-based taxation and will be phased in over two years from 1 January 2023.

Luxury cars are also subject to revised taxes. If a vehicle is valued at more than S$80k, a tax of 220% is due on the amount over this, and this tax is already in effect.

Employee changes

The minimum qualifying salaries for new Employment Pass (EP) and S Pass applicants will rise by S$500 from September 2022.

The minimum qualifying salary for new EP applicants will go up to S$5,000 from the current S$4,500.

In the financial services sector, where the salaries are higher, this amount will go up to S$5,500 from the current S$5,000.

Qualifying salaries for older EP applicants, which increase progressively with age, will also be raised in tandem.

The minimum qualifying salary for new S Pass applicants will go up to S$3,000 from the current S$2,500.

In the financial services sector, a higher minimum qualifying salary of S$3,500 will be introduced. Thereafter, the minimum qualifying salary for new S Pass applicants will be raised in September next year, and again in September 2025.

Future taxes

Singapore will also progressively raise carbon tax to reach its net zero target. This means Singapore’s carbon tax will be increased to reach S$50 to S$80 per tonne of emissions by 2030. This is higher than the previous target of S$10 and S$15 per tonne by 2030 announced in Budget 2018. The revised carbon tax trajectory comes as Singapore looks to bring forward its net-zero target to “by or around mid-century”, aligning its goals with the Glasgow Climate Pact and positioning Singapore’s ESG investment status.

The Government is exploring a top-up tax called the Minimum Effective Tax Rate, which will top up the multinational enterprise groups’ effective tax rate in Singapore to 15%. This is not unexpected as other countries like Ireland and Switzerland have also announced their intention to implement a 15% minimum tax in response to the global minimum tax proposal. The question is how the Singapore version should be implemented to reduce the compliance burden on businesses.

What do businesses need to do now?

William Chia, head of school of business and law at the London School of Business and Finance Singapore said the GST rate hike will have a huge impact on more than 80% of the businesses in Singapore, which are currently not GST-registered.

He said: “In most transactions, these businesses will incur higher costs, as they will have to absorb the GST passed on to them by their suppliers. Although not all GST-registered companies are able to fully recover or offset the GST incurred on their expenses, those that are not GST-registered should seriously consider the impact of the GST rate hikes on their bottom line.  These companies should evaluate the nature of their businesses to see if there is a need to apply for voluntary GST registration to mitigate rising costs.”

ZEDRA’s Lisa Tan said: “Businesses also need to evaluate the hiring of foreigners and the mix of local employees versus foreign employees for their workforce, given the higher minimum qualifying salaries for the various work permits. This will also affect their existing workforce for renewals of work permits from 1 September 2023.”

How ZEDRA can help

Singapore is one of the most exciting and dynamic places in the world to do business. ZEDRA’s Singapore based team can help your company harness the benefits and opportunities the region has to offer.

“This budget is a progressive budget which is helping harness the incredible dynamism of the region to help inspire and grow business here. It’s also helping to level up some of the inequalities which we’ve seen emerge since the pandemic.”

“That said, there are some changes that companies need to be aware of. Whether you are incorporating a new entity or transferring foreign operations to Singapore, we can assist to set up and administer your business,” said ZEDRA’s Lisa Tan.

Yong Sen Goh added: “We can also help with establishing family trusts. We provide trusteeship and administration services to the overlying family trust , and administration services to the underlying companies holding these corporate entities as part of the trust assets. With the shift in emphasis to asset-based taxation, families and high net worth individuals should also evaluate their asset holdings especially if they are looking to purchase Singapore residential properties.”

“Singapore is very modern and forward-thinking. It’s possible to do a lot of administration online, and the authorities have facilitated setting up operations, recruitment and bureaucracy.

“But while it’s a great place to do business, knowing your way around the legalities and requirements can be challenging for those that aren’t familiar with the administration and processes. Our clients often turn to us as a local service provider who can handle accounting, payroll, ongoing company administration, compliance, and understand how best businesses can benefit from Singapore’s excellent environment.”

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.