Concessionary tax rates will be extended for five years to Dec 2018
THE government has extended concessionary tax rates for financial services to ensure that Singapore remains an attractive financial centre.
It also gave boosts to the bond market and offshore specialised insurance sector.
The financial sector incentive (FSI) scheme, which comprises concessionary tax rates of 5 per cent, 10 per cent and 12 per cent, will be extended for five years to Dec 31, 2018, except for Islamic finance activities. Normal corporate tax rate is 17 per cent.
The FSI scheme, which covers a whole range of activities carried out by banks, fund managers, brokerages and other financial institutions, will be broadened.
But the 5 per cent rate for Islamic finance activity which has not taken off will be allowed to expire on March 31, 2013. Islamic finance activities will fall under the 12 per cent standard tier rate.
Also allowed to expire is the 5 per cent rate on Islamic insurance and reinsurance business. Insurers who conduct these activities may apply for the existing 10 per cent offshore insurance business scheme.
"I guess the take-up rate (for Islamic finance) was low," said Larry Sim, KPMG tax partner, financial services.
"Practically, the writing of onshore Islamic insurance is rather limited - requiring special rules and skills, for example Islamic scholars," said Yip Yoke Har, PwC Services, partner.
"Hence, to compete for a slice of the offshore Islamic insurance is always going to be difficult with major players in the region like Malaysia and Indonesia around us," said Ms Yip.
While tax consultants were ho-hum on the FSI extensions, they expect the extension and easing up on compliance to qualify for debt securities concessions to boost the bond market.
Bankers said they expect more companies to come to Singapore to issue debt with compliance easing.
The qualifying debt securities (QDS) and QDS-plus schemes will get the five- year extensions, the government said.
In addition the requirement that the QDS has to be substantially arranged in Singapore will be rationalised to ease compliance for issuers.
"The extension of the QDS tax incentive is important for the continued development of the Singapore bond market," said Kang Choon Pin, Ernst & Young, partner, financial markets.
"The tax regime is an important factor in the decision by the foreign company to use its Singapore subsidiary to issue bonds," said Mr Kang.
Said Clifford Lee, DBS head of fixed income: "Easing a requirement that the debt issue has to be substantially arranged in Singapore to qualify for the QDS scheme further opens up Singapore to regional and global players."
"This scheme will continue to attract more issuers and investors into the market, thus keeping the overall level of activity high," Sim Buck Khim, OCBC Bank co-head of capital markets.
The specialised insurance sector will get tax exemption for underwriting catastrophe risks while the offshore insurance broking business will get a five-year extension for their 10 per cent concessionary tax rate.
The favourable tax treatments should lead to more tax specialists coming here, said consultants.
To encourage the underwriting of severe and volatile catastrophe risks from Singapore, tax exemption will be given on qualifying income from offshore catastrophe excess of loss (XOL) reinsurance layers.
Under the tax incentive, an approved reinsurer will enjoy zero tax from existing 10 per cent on profits earned from writing offshore catastrophe XOL reinsurance risks that provide coverage for more than one risk arising from a single event and against natural perils, said PwC's Ms Yip.
The introduction of the risk incentive is timely given the increasing frequency of natural disasters, she said.
In 2011, there were the Thai floods, the Japan earthquake/tsunami, the Queensland floods, the New Zealand earthquake, to name a few and stark reminders that they occur in Asia, she said.
"The government's move to encourage the writing of catastrophe risks in Singapore will create capacity in Singapore and develop needed expertise here. It would make Singapore an attractive alternative location compared to traditional locations like Bermuda," said Ms Yip.
The maritime industry also got something. International shipping companies which base their operations in Singapore get tax exemption for 10 years, with renewal up to a maximum of 30 years. The government will increase the maximum tenure to 40 years.
Several corporate tax schemes were rationalised in this year's Budget including the start-up tax exemption for property companies.
The government said the start-up tax exemption was introduced in 2004 to encourage entrepreneurship.
"The start-up tax exemption for encouraging entrepreneurship is not intended for such companies," it said.
Under the scheme, the first $100,000 taxable income for the first three years could claim full tax exemption.
"It was more generous than envisaged," said Mr Kang.
Key points
- Concessionary tax rates for financial sector extended for five years
- Concessionary tax rates for debt securities extended for five years and compliance will be eased for issuers
- Enhancing the tax exemption scheme for offshore specialised insurance risks
'This is truly a Singaporean Budget, addressing the immediate needs of Singaporeans and SMEs. It focuses on narrowing the income gap in the nation, improving productivity and reducing the reliance on the foreign workforce, as well as providing the much-needed support to the elderly and lower income group.'
- Toh Boon Ngee, Partner, Tax, KPMG in Singapore
'The Budget has shown to be responsive to feedback and really speaks to Singaporeans.'
- Cheong Choy Wai, Partner, Tax Services, Ernst & Young Solutions LLP
Source: Business Times ? Singapore Press Holdings Ltd. Permission required for reproduction.
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