Singapore: Fiscal Incentives (Special Economic Sectors)

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International Trading Companies

International trading companies which trade with non-residents and other "approved" traders in "approved" commodities (e.g. agricultural commodities, bulk edible products, building and industrial materials, minerals, machinery components, consumer products and industrial products) are entitled to the following fiscal benefits:

• An indefinite 10% concessionary tax rate on corporate profits. The current corporate income tax rate is 17% (18% in 2009).

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies which hold "approved international trader" status are exempt from any further taxation on the shortfall in so far as that shortfall is caused by approved international trader status.

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Approved Oil Traders

With a view to facilitating and expanding oil trading activities in Singapore, established oil traders with good worldwide networks, strong track records and who conduct a considerable volume of physical trade on a principal basis are entitled to the following fiscal benefits:

• A concessionary corporate income tax rate of 10% on profits instead of the current 17% rate. The concession is available for a 5 year period (renewable thereafter for another 5 years). The profits must relate to income derived from international trading activities with non-residents or other "approved" traders in "approved" oil products.

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies which hold "approved oil trader" status are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the approved international trader status.

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International Aircraft Leasing Companies

The aim of this incentive is to attract aircraft leasing companies to Singapore. The leasing activities must be offshore if the favorable fiscal concessions are to apply. An international aircraft leasing company is entitled to the following fiscal concessions:

• A concessionary corporate income tax rate of 10% on profits instead of the current 17% rate. The concession is available for a 5 year period (renewable thereafter for another 5 years). The profits must relate to income derived from "qualifying" activities which generally speaking means offshore aircraft leasing activities.

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in international aircraft leasing are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary status granted to the company.

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Interest Repayments

15% withholding taxes are deducted in Singapore on loan interest repayments made to non-resident entities. This percentage may be reduced or eliminated altogether under a double taxation treaty. By way of an exception, aircraft leasing companies resident in Singapore are exempted from the withholding taxes levy on interest repayments provided the interest repayments refer to foreign loans made for the purposes of financing aircraft purchases.

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International Shipping Operations

Resident companies which own foreign registered ships are entitled to the following fiscal benefits:

• Exemption from corporate income tax for an indefinite period on all income earned by ships registered in Singapore or abroad in respect of all shipping activities conducted from or outside Singapore

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in shipping activities are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary status granted to the company.

In September, 2004, Singapore's Transport Minister, Yeo Cheow Tong announced that proceeds from the sale of ships by firms on the country's shipping registry would be tax-exempt from 2005.

In a speech to the International Maritime Awards 2004, the Minister announced that this exemption would be in place for the following five years, and would allow firms to sell vessels and book the sales in Singapore “without worrying whether they will be taxed for such gains.”

“This will help them to better plan and manage their fleet,” he noted. Under Singapore's Approved International Shipping Enterprise (AIS) regime, introduced in 1991, approved companies are also provided with a tax exemption on qualifying income. “The AIS scheme has served Singapore well,” observed Mr Yeow. “However, the changing market conditions and business needs of shipping companies mean that we must continually adapt our policies and enhance our initiatives to ensure that we remain an attractive maritime hub,” he added.

In February, 2005, the Singapore government announced fresh tax incentives for the shipping sector as part of its policy to maintain the city-state as a major maritime and trading hub. Under the changes announced by the Transport Minister at the Singapore Maritime Foundation, owners of ships registered in Singapore and certain transport firms with regional headquarters in the city would receive tax breaks on foreign exchange and derivative gains.

Prior to this change, shipping firms were required to apply for these tax breaks on an individual basis. The government is hopeful that the move will encourage shipping firms to undertake risk management activities in Singapore.

Measures to boost the maritime and logistics industries in the 2006 budget included a new Maritime Finance Incentive offering tax exemption for qualifying income of ship investment vehicles and a 10% concessionary tax rate for qualifying income of ship investment managers. Shipping companies will be allowed to renew their Approved International Shipping incentive for a third period of 10 years, lengthening the maximum period of incentive from 20 years to 30 years.

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International Consultancy Service Companies

Companies qualifying for this concession are entitled to the following fiscal benefits:

• Up to 50% of "qualifying" income derived from overseas activities is exempt from corporate income tax for a period of 5 years.

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in international consultancy services are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary status granted to the company.

In April, 2004, the Singaporean government extended the 50% of 'qualifying income' tax break to partnerships, in an attempt to encourage more accounting, audit, and law firms to locate their headquarters in the country.

Under the Expansion Incentive for Partnerships scheme, firms which are able to prove that they intend to expand their Singapore-based operations would be able to receive a 50% tax exemption on qualifying overseas income over a certain amount (determined by the average of the partnership's profits for the provision of services in the region over the three years prior to the application).

Baker & McKenzie tax partner, Edmund Leow welcomed the move, observing that: "Traditionally Singapore has always tried to attract foreign investment from multinational corporations with tax incentives. They have now realized that professional services firms are very important to the economy as well."

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Plant & Machine Service Companies

Companies qualifying for this concession are entitled to the following fiscal benefits:

• A concessionary corporate income tax rate of 10% on profits in so far as profits relate to offshore plant and machinery leasing income. The concession is granted for an indefinite period.

• Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in the offshore leasing of plant and machinery are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary status granted to the company.

Further information on assistance programmes and incentives for companies can be found on the Economic Development Board website.

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