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On
17 November 2004, the Income Tax (Amendment) Act 2004, the Economic Expansion
Incentives (Relief from Income Tax) (Amendment No 2) Act 2004 and the Goods and
Services Tax (Amendment) Act 2004 were all passed in Parliament. This article
considers some of the important amendments to the above legislation.
Amendment
to Income Tax Act
The
main purpose of the Income Tax (Amendment) Act (‘Amendment Act’) is to
implement the income tax changes announced in the 2004 Budget. It also seeks to
address the
Some
of the key changes effected by the Amendment Act include the following:
Reduction
in corporate income tax rate
The corporate income tax rate is reduced to 20% with
effect from the Year of Assessment (‘YA’) 2005. Consequently, payments to
non-residents for technical assistance and services and management services are
also subject to
Reduction
in royalty withholding tax rate
With
effect from 1 January 2005, royalty payments pursuant to s 12(7)(a) of the
Income Tax Act (Cap 134) (‘ITA’) and know-how payments pursuant to s
12(7)(b) ITA to non-residents will be subject to
Processing
services provided to financial institutions and commodity derivatives trading
Following
from the Budget 2004, the above incentives are introduced to provide a
concessionary tax rate of 5% on income derived by (i) an approved company from
the provision of the prescribed processing services in Singapore to any
financial institution and another approved company and
(ii) prescribed transactions in commodity derivatives or
commodities, provided certain conditions are met. The purpose of these new
incentives is to ensure
Income
tax treatment on LLPs
Readers
may recall that a public consultation exercise was carried out by the Ministry
of Finance (‘MOF’) in July 2004 to seek feedback on the proposed
Essentially,
an LLP is treated as a flow through entity for
Amendment to Economic Expansion Incentives
(Relief from Income Tax) Act
Similar
to the Income Tax (Amendment) Act, the main purpose of the amendment to the
Economic Expansion Incentives (Relief from Income Tax) Act (‘EEIA’) is to
implement the income tax changes announced in the 2004 Budget.
Some
of the key changes effected by the EEIA include the following:
Maximum
tax relief period for pioneer enterprises and pioneer service companies
Following
from the 2004 Budget, the maximum tax relief period for pioneer enterprises and
pioneer service companies under Parts II and III of EEIA has been extended to 15
years (previously 10 years).
In
addition, the Minister is now empowered under s 4 EEIA to approve an industry,
which is not being carried on in
Expansion
of scope of the
The
scope of the Technopreneur Investment Incentive has been expanded to cover all
forms of start-ups and in
this regard, this incentive is now
renamed EII.
Amendment
to Goods and Services Tax Act (Cap 117A)
Apart
from administrative changes, the Goods and Services Tax (‘GST’) Act has also
been revised to clarify the various matters relating to the supply of
international services which qualify for zero-rating of tax.
The
zero-rating international services provision pursuant to sections 21(3)(j), (k)
and (s) in the GST Act has been revised with a view to providing clarity on what
kind of services could qualify for zero-rated international services for GST
purposes. The former ‘for and to’ test is now replaced by two separate
tests, both of which must be satisfied for a service to qualify for zero-rating
of tax.
The
first test is the contract test — the services are supplied under a contract
with a person who belongs in a country outside
On
12 January 2005, the IRAS issued an e-Tax guide for the purposes of clarifying
the interpretation and application of the two expressions ‘directly in
connection with’ and ‘directly benefit’ used in the zero-rated
international services provisions under the GST Act. The following is a summary
of the important clarification made by the Inland Revenue Authority of Singapore
(‘IRAS’).
‘Directly
in connection with’
The
IRAS clarifies that the expression ‘directly in connection with’ is used to
describe the relationship between a supply of services and goods or land.
Generally, where services are supplied directly in connection with goods or land
situated outside
While
the GST Act specifically provides for certain situations where a supply will be
in direct connection with land, the IRAS provides some other possible
situations, including the following:
•
physical work done on goods or land in a way that changes or affects the
goods or land. Some of the examples listed include installation, alteration,
repair, cleaning, restoration or modification of goods;
•
physical contract or interaction with the goods or land. Some examples
listed include transportation of goods, security services for goods, warehousing
or storage services for goods;
•
the establishment of the physical attributes (such as quantity, size or
the value) of the goods or land. Some examples listed include testing/analysis
to ensure the safety standards of goods, stocktaking or valuation through
examination of goods;
•
affecting or protecting the nature or the value of goods or land. For
example fire insurance for goods and properties; and
•
affecting the ownership of the goods or land including any interest or
right over the goods or land. Examples provided are auctioning services, or
rights or options to buy goods.
The
e-Tax guide also provides two situations where a supply will not be considered
to be directly in connection with goods or land. Services supplied which do not
relate to goods or land at all (such as debt recovery or accounting and auditing
services) and services where there are no identifiable goods or land for which
the services are supplied (such as advisory or architectural services that
generally relate to properties) therefore lack the required clear and direct
nexus to qualify for zero-rating.
‘Directly
benefit’
The
expression ‘directly benefit’ is relevant for the purposes of determining
the connection between a person who benefits from a service and a service which
is supplied under contract. Generally, supplies made under contract with a
person outside
The
e-Tax guide seeks to clarify who would be considered as receiving the direct
benefit of services provided under a contract. Where the recipient of the
services is stipulated in a contract, the IRAS states that those stipulated (to
the exclusion of all others) will be considered as directly benefiting from the
services supplied. In this respect, care should be exercised when drafting a
contract for services to ascertain who should be stipulated in the contract as
the recipient(s) of the services.
If
a contact does not stipulate the recipient(s) of the services, the IRAS states
that a number of tests will be applied for the purposes of determining the
person(s) who directly benefit from the services. First, a person will be
considered to directly benefit from a service if he receives it without another
person having to first receive the service. Secondly, the magnitude of the
consumption of the service is not indicative of whether a person directly
benefits. The IRAS states that the supply of services ‘directly benefits’ a
person who receives the services even if it is shown that the person only
consumes a small proportion of the services relative to the other beneficiaries.
Apportionment
In
this e-Tax guide, the IRAS also states that it is prepared to allow
apportionment of the
value of the supply of services as an administrative concession so that a
taxpayer may be able to apportion the value of the supply of services between
local and overseas beneficiaries. A number of methods are detailed as
acceptable, including the prices of each portion of the services performed for
the local and overseas direct beneficiaries, the costs of making each portion of
the services and the amount of time taken to perform each portion of the
services. Although no prior approval is required from the IRAS in using any such
prescribed methods, readers should bear in mind that the onus as always lies
with taxpayers to prove that the adoption of any method has to be reasonable and
is consistent throughout all relevant transactions.
Attracting
High Net Worth Individuals to
For
some time, the
In
line with the drive toward attracting foreign wealth to
Existing
Investors’ Scheme for Permanent Residence
Currently,
the EDB administers the Permanent Residence for Investors’ Scheme (the
‘Investors’ Scheme’) which grants
Requirements
for the Investors’ Scheme are covered under two options. Option A requires the
investor to make deposits of S$1m for an approved activity through investment in
a Singapore-incorporated company. Option B requires the investor to make an
investment of at least S$1.5m into any Singapore-incorporated venture capital
funds, foundation or trusts approved by the EDB.
FIS for
The
FIS for Singapore Permanent Residence offers high net worth individuals an
opportunity to apply for permanent residence in
There
are two types of financial commitments under the FIS for Singapore Permanent
Residence. Option A requires the applicant to place in
Financial
assets include bank deposits, capital markets products, collective investment
schemes, premiums paid in respect of life insurance policies (although this
point is currently being clarified by MAS) and other investment products. Once
invested with a MAS-regulated financial institution (‘FI’), the financial
assets shall be held for a period of five years and held in designated accounts
with the FIs. No withdrawal of assets is allowed except for interest income and
dividend income in the current calendar year. Transfers of financial assets from
one FI to another FI at any time during the five-year period may be made provided
that only a maximum of three FIs are used (although once again, this point is
currently being clarified, so that the restriction may eventually apply to less
than three FIs) and the total value of the financial assets withdrawn are
transferred to the new FI.
The applicant must have minimum net personal assets of
S$20m, and those with less than S$20m would be considered on a case-by-case
basis. Applicants may include their immediate family members (spouse and
children below 21 years of age) in the same application for
Male applicants who are granted
Singapore permanent resident status will be exempt from
national service, unless they are ex-Singapore citizens or ex-Singapore
Permanent Residents. As applicants may include their immediate family members in
the same application, male children holding permanent residence status are,
however, liable for national service once they reach 16 years of age.
Compared
to EDB’s Investors’ Scheme, the applicant under
the FIS for Singapore Permanent Residence is not limited
to having his or her assets held under a Singapore-incorporated company with its
business activity, funds or trusts approved by
the EDB.
Application
Process for FIS for
The
application process for FIS for Singapore Permanent Residence is relatively
straightforward. An application form can be obtained from MAS, although
applications will only be accepted through FIs (as various declarations may be
required by the FI in support of the application). Together with Form 4 from the
Immigration and Checkpoints Authority (‘
The
approval of
Jack HM Wong and Dharshi Wijetunga
Baker & McKenzie.Wong & Leow
E-mail: [email protected] and [email protected]