Passing of Income Tax (Amendment) Bill; Publication of MOF Responses to Feedback from Consultation on Draft Bill

On 3 October 2023, the Income Tax (Amendment) Bill (“Bill“) was passed by Parliament. The Bill will implement (i) tax measures announced in the 2023 Budget Statement, and (ii) amendments arising from international tax developments and MOF’s periodic review of Singapore’s tax system.

In the Second Reading Speech on the Bill, Senior Minister of State for Finance Mr Chee Hong Tat highlighted a few amendments, including:

(a)    The introduction of the Enterprise Innovation Scheme (“EIS”) to encourage businesses to engage in research and development (“R&D“), innovation and capability development activities:

• The EIS grants enhanced tax deductions and allowances for five key activities in the innovation value chain. Examples include R&D conducted in Singapore, and innovation projects carried out with qualified partners (“qualifying innovation projects“).
• Mr Chee noted that businesses making full use of the EIS could enjoy tax savings amounting to nearly 70% of their investment.
• The EIS will be available from Year of Assessment (“YA“) 2024 to YA2028.

(b)    The taxation of foreign-sourced disposal gains (“foreign gains”) when received in Singapore by entities of multinational enterprise groups that do not have economic substance in Singapore:

• The policy objective of subjective foreign gains to tax under specific circumstances is not to introduce a tax on capital gains in Singapore. Rather, it aligns Singapore’s tax regime with international norms by addressing international tax avoidance risks relating to non-taxation of disposal gains in the absence of real economic activities.
• The new tax treatment will apply to foreign gains earned and received in Singapore on or after 1 January 2024.

Previously, in June 2023, the Ministry of Finance (“MOF“) conducted a public consultation on the draft Bill (please see our Legal Update titled “MOF Consults on Proposed Amendments to Income Tax Act” for more details). MOF published its response on 8 September 2023, accepting certain feedback relating to the above two amendments.

(a)    Introduction of EIS

• In response to a request to allow EIS benefits to be carried forward for at least five years, MOF clarified that EIS enhanced deductions/allowances that cannot be fully offset against the income of a business are treated as unutilised trade losses or allowances. As such, they can be carried forward indefinitely, subject to conditions.
• A second request related to the tax deduction for qualifying innovation projects, namely to expand the scope of qualifying expenditure to include expenditure paid to an intermediary or service provider who in turn collaborates with approved educational or research institutions. MOF noted that it would study the uptake of the tax deduction and review the potential expansion of qualifying expenditure. 

(b)    Taxation of foreign-sourced disposal gains. MOF accepted feedback relating to the following aspect.

• Allowing foreign-sourced disposal losses (“foreign losses“) to be set off against foreign gains that are subject to tax. The set-off will be restricted to foreign losses that would otherwise have been brought to tax if they were foreign gains. Further, unutilised foreign losses may be carried forward indefinitely for set-off against foreign gains in future years.
• Allowing expenses incurred to protect or preserve the value of the foreign asset to be deductible from taxable foreign-sourced disposal gains, as long as such expenses have not been deducted against any other income.

Removing the requirement for non-pure equity holding entities (PEHEs) to carry on a trade, business or profession in Singapore. This was to make allowance for investment holding entities (IHEs), given that they are passive holding entities that might not meet this requirement.

Click on the following links for more information (available on the MOF website at www.mof.gov.sg):

• Second Reading Speech by Mr Chee Hong Tat, Senior Minister of State for Finance, on the Income Tax (Amendment) Bill
• MOF Public Consultations – “Summary of Responses to Public Consultation on the Draft Income Tax (Amendment) Bil 2023”