Singapore has long been an attractive environment for multinational companies. The country’s strategic location, political stability, and ready availability of human resources are just some of its strengths. Drawing inspiration from the early days of independence to build a model of prosperity from the ground up, the government has increased subsidies from enhanced tax incentives and deductions to encourage foreign direct investment in targeted growth areas. It has developed a toolkit of incentives ranging from money to subsidies.
Ahead of the 2024 Singapore Budget, long-standing policies will need to be carefully recalibrated as the Singapore government moves towards implementing the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting Pillar 2 Initiative. Might happen.
Even as Singapore joins a global movement to force multinational companies to pay their fair share of taxes, our message is to keep Singapore thriving as a global investment destination, especially by: Realigned tax incentives continue to play an important role in promoting growth areas such as Innovation with sustainability, advanced manufacturing, and artificial intelligence (AI).
Impact of Pillar 2
Under Pillar 2, multinational companies with global revenues of more than €750 million (S$1.1 billion) will generally receive a 15% tax return in the jurisdictions in which they operate, subject to certain minimum requirements and exceptions. must pay the minimum effective tax rate (ETR).
The government will introduce a second pillar from 2025, including qualified domestic surcharges and income aggregation rules for foreign-headquartered groups, which means the government will introduce tax benefits to Singapore, subject to international developments. The announcement was made during last year’s budget proposal. Subject to ETR lower than 15%.
Around 1,800 multinational companies headquartered or otherwise based in Singapore are expected to be subject to the new tax regime. Small businesses and startups are less likely to be affected.
So what does this mean for Singapore’s tax incentives? Current incentives aimed at lowering companies’ effective tax rates, such as the Investment Allowance Scheme, Pioneer Certificate Incentive, and Development and Expansion Incentive, will remain in place until at least 2028. .
However, these and other incentives may need to be expanded and future-proofed.
Make incentives more attractive
To simplify what can be a complex calculation, Singapore’s tax incentives for multinational companies are divided into three broad categories.
First, there are “substandard” tax benefits, such as preferential tax rates and enhanced deductions, which can reduce a company’s ETR and tax liability significantly below 15%. Under Pillar 2, these tax incentives are less favorable as they trigger a premium tax on the excess profits of multinational groups whose global revenues exceed his €750 million (S$1.1 billion). Not.
Second, there is an incentive to reduce or waive the need for multinational companies to pay withholding tax on payments to non-residents, such as interest and royalties, which will particularly encourage innovation and technology transfer to Singapore. Currently, these incentives are limited to companies that engage in certain activities, such as high-value manufacturing, or that meet investment criteria regarding expenditure and number of employees. In Pillar 2, these incentives must remain isolated from his ETR calculations. Therefore, we believe that the Singapore government may move to expand eligibility to support more diverse business and desirable economic activities in Singapore.
The third category of incentives involves the provision of grants to support operating or investment costs. This should have minimal impact on the company’s ETR reduction. We now know that the Singapore government is considering introducing a Qualified Refundable Tax Credit (QRTC).
QRTC can be used to offset a company’s tax liability and to be considered eligible by the OECD, the credit must be redeemed in cash or its equivalent within four years of the credit being granted, if it remains unused. It is designed in such a way that you have to pay for it. QRTC is treated as income under Pillar 2 rules rather than a reduction in tax liability, making it an attractive new incentive in Singapore’s toolkit to encourage multinationals to relocate and continue operating in Singapore. It could be a tool.
If the QRTC is designed to be flexible, it can encourage economically desirable activities related to sustainability, climate change, digital transformation, workforce development, research and development, and innovation, all of which will benefit Singapore’s economy. It is believed to bring about
Preparing Singapore for the future
For Singapore, we believe that Pillar 2 was not designed as a revenue-raising measure, and as other economies develop their own plans to attract investment from multinational companies, However, I do not think that we can expect an increase in tax revenue in the long term. We are a government source for funding to build Singapore’s national infrastructure, strengthen digital connectivity, fund talent initiatives and stimulate the startup ecosystem in promising areas such as the green economy, AI and precision medicine. We hope that you will consider reinvesting some of that money. Key sectors include semiconductors, healthcare, and aerospace. There may also be scope for stronger non-tax incentives, such as cash subsidies and the provision of shared facilities and utilities, to make it easier for multinationals to relocate.
Overall, it is encouraging that Singapore has adopted a measured and gradual approach to implementing Pillar 2. It leaves time for international knowledge to be incorporated and provides sufficient time for companies to adapt to the new rules. We hope that the next budget will strengthen the strong incentive system that has attracted foreign direct investment to the island for decades.
We believe that Singapore’s incentive system will continue to be modernized and future-proofed for a changing world, stimulating economic activity, accelerating growth and creating quality jobs for Singaporeans. .