May 2019
Singapore’s Finance Minister announced the 2019 Singapore Budget on 18 February 2019. The Budget set out measures (amongst others) aimed at further enhancing Singapore as an intellectual property hub as well as a wealth management hub.
Extension of Writing Down Allowance for Acquisition of Intellectual Property Rights
To attract foreign companies to house their intellectual property rights (IPRs) in Singapore tax resident companies, the Government granted a writing down allowance (WDA) on acquisition costs over a continuous five-year period beginning from the Year of Assessment (YA) of the basis period in which the capital expenditure was incurred to acquire the IPR.
The scheme was subsequently enhanced to allow taxpayers to elect for a ten-year or fifteen-year writing down period to better reflect the varying useful lives of different IPRs. It was announced in the Budget that this scheme will be extended to YA 2025 instead of allowing it to lapse after YA 2020. This brings great news to MNCs looking to shift their IPRs to Singapore as this will further reduce the already-competitive effective tax rate on Singapore-sourced income. This announcement following the lapse of the Productivity and Innovation Credit (PIC) scheme after YA 2018 is indeed timely to strengthen Singapore’s position as IP hub. Though businesses can no longer enjoy a 400% tax deduction on qualifying acquisition costs under the PIC scheme, the WDA may still serve to significantly reduce taxable income, as acquisition costs may prove to be rather substantial.
Apart from tax measures, the Intellectual Property Office of Singapore (Ipos) has offered companies other tools and capabilities to grow their intangible assets and commercialise their IPR. Ipos is a statutory board under the Singapore Ministry of Law of the Singapore Government which advises on and administers intellectual property laws, promotes IP awareness and provides the infrastructure to facilitate the development of IP in Singapore.
Extension and refinement of tax incentive schemes for funds managed by Singapore-based Fund Managers
In line with the Singapore Government’s efforts to develop the city state into a wealth management hub, safe harbour provisions were created for funds managed by Singapore-based fund managers, i.e. tax incentives under Sections 13CA, 13R and 13X of the Singapore Income Tax Act (SITA). Without these incentives, the Singapore fund managers would have created a taxable presence for such funds in Singapore.
The incentives were originally slated to expire after 31 March 2019. However, the Finance Minister has extended the sunset clause for these incentives to 31 December 2024.
Currently, the onshore and offshore fund schemes (Section 13CA and Section 13R) cannot be 100% owned by Singapore citizens or Singapore tax residents or companies with a permanent establishment in Singapore. This condition will be removed with effect from YA 2020. The Enhanced-Tier Fund Scheme (Section 13X incentive) has been further enhanced to include co-investments, non-company SPVs and SPVs with more than two tiers.
Variable Capital Companies (VCCs) with single or multiple sub-funds can also enjoy these incentives. VCCs provide an alternative option to the typical structure for investment funds and can be used for all types of investment funds in Singapore, e.g. mutual funds, hedge funds, private equity and real estate funds. The Singapore tax framework for VCCs was announced in late 2018.
These enhancements are very encouraging for high net worth families to set up family offices in Singapore or shift their holding companies to Singapore. This is especially so with the recent focus on companies having economic substance in overseas jurisdictions before they are regarded as tax resident in those locations. With the new compliance requirements, it may be worthwhile for high net worth families to re-evaluate their current structure and consider Singapore as a location for their investments to mitigate their overall tax exposure.
Please contact us at BDO in Singapore for further information on these two enhancements.
Evelyn Lim
evelynlim@bdo.com.sg