Singapore Budget 2023

Singapore’s Deputy Prime Minister and Minister for Finance, Mr Lawrence Wong, delivered the Singapore Budget 2023 on 14 February 2023.

This article outlines some of the key tax highlights of the budget relevant to foreign investors, including the intention to implement the Organisation for Economic Co-operation and Development (OECD)/Group of Twenty (G20) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two measures in 2025, together with a domestic top-up tax (DTT), to raise the effective tax rate for in-scope multinational enterprise (MNE) groups in Singapore to 15%. The budget also contains a number of proposals to review and update various industry development schemes in order to maintain Singapore’s competitiveness in attracting and retaining investments.

The budget proposals will be incorporated into the Income Tax Act once the Amendment Bill is passed by parliament and presidential assent is obtained. Typically, the bill is enacted into law in the fourth quarter of the year.

1. Corporate income tax rate and rebate

The corporate income tax rate would remain at 17% for Year of Assessment (YA) 2023 with no corporate income tax rebate proposed.

2. Implementation of a global minimum tax and a domestic minimum tax (DTT)

The budget confirms Singapore’s intentions to introduce a DTT to top up the Singapore effective tax rate of in-scope MNE groups to 15% in response to the OECD Pillar Two initiative, also known as the global anti-base erosion (GloBE rules), as part of a broader international effort to align minimum global corporate tax rates for large MNE groups. The DTT was originally presented in Budget 2022 as the minimum effective tax rate regime. The DTT would apply to MNE groups operating in Singapore with annual revenue of at least €750 million, as reflected in the consolidated financial statements of the ultimate parent entity.

In Budget 2023, the minister has announced that Singapore plans to implement the GloBE rules and the DTT which would apply to businesses’ financial years commencing on or after 1 January 2025. However, the minister also acknowledged the fluidity of developments on the BEPS 2.0 project and indicated that Singapore will continue to monitor the international situation. If there are delays internationally, the implementation timeline of the GloBE rules and DTT in Singapore would be adjusted accordingly.

3. Extension and refinement of the Financial Sector Incentive (FSI) scheme

The FSI scheme currently accords concessionary tax rates of 5%, 10%, 12%, and 13.5% on income from qualifying banking and financial activities, headquarters and corporate services, fund management, and investment advisory services. The FSI scheme is scheduled to lapse on 31 December 2023 but would be extended through 31 December 2028 with a number of refinements, including streamlining the concessionary tax rates into two (10% and 13.5%) for new and renewal awards approved on or after 1 January 2024. The Monetary Authority of Singapore will release further details of the changes by 31 May 2023.

4. Other key income tax measures

• Extension of the option to accelerate capital allowances claims for the cost of acquiring plant and machinery (P&M) over two years to capital expenditure incurred on the acquisition of P&M in the basis period for YA 2024 (i.e., financial year (FY) 2023);
• Extension of the option to claim an accelerated deduction for qualifying renovation and refurbishment (R&R) expenditure in the year in which it is incurred, rather than spread over three years, to qualifying R&R expenditure incurred in FY 2023;
• Extension through 31 December 2028 of the investment allowance (IA) scheme which provides an additional tax allowance for businesses that incur qualifying fixed capital expenditure on approved projects;
• Extension through 31 March 2026 of the IA—100% scheme for automation projects approved by Enterprise Singapore;
• Extension through 31 December 2028 and refinement of the Qualifying Debt Securities (QDS) scheme for qualifying companies and bodies of persons in Singapore to benefit from a 10% concessionary tax rate on qualifying income derived from QDS, and qualifying nonresidents and individuals to benefit from a tax exemption;
• Extension through 31 December 2028 and refinement of the tax incentive scheme for approved special purpose vehicles engaged in asset securitisation transactions (the ASPV scheme), and introduction of a new sub scheme to support covered bonds; and
• Extension through 31 December 2028 of the Insurance Business Development–Insurance Broking Business (IBD-IBB) scheme, granting approved insurance and reinsurance brokers a concessionary tax rate of 10% on commission and fee income derived from insurance broking and advisory services.

5. Goods and services tax (GST)

As announced in Budget 2022, the GST rate will be increased from 8% to 9% as from 1 January 2024 (it was previously increased from 7% to 8% as from 1 January 2023).

For further information, please contact Michael Velten.