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As a global leader in business-friendly policies, Singapore continues to attract international investment with its robust regulatory framework. To address global tax reform and curb profit shifting by multinational corporations (MNCs), the Singapore Government recently passed the Multinational Enterprises (Minimum Tax) Bill and the Income Tax (Amendment) Bill during the parliamentary session on October 14, 2024. These significant legislative measures, explained in detail by Minister Indranee Rajah, aim to align Singapore’s tax system with international standards while fostering economic growth. SIG will now provide an analysis of the details and impacts of these bills.

（Source: MOF）

As a global financial hub and a key node for multinational enterprise activities, Singapore faces challenges posed by base erosion and profit shifting. To effectively address this issue, Singapore’s strategy of introducing a minimum tax ensures that multinational enterprises operating within its jurisdiction bear a tax burden no less than the global standard.

Multinational Enterprises (Minimum Tax) Bill

The Multinational Enterprises (Minimum Tax) Bill introduces two new tax measures, namely Domestic Top-up Tax and Multinational Top-up Tax, primarily targeting large multinational enterprises with global annual revenues of at least €750 million (approximately SGD 1.0867 billion). As a key component of the Base Erosion and Profit Shifting (BEPS 2.0) Initiative’s Pillar Two, these measures will take effect from January 1, 2025.

The Domestic Top-up Tax applies to large multinational enterprises operating in Singapore. If their effective tax rate in Singapore falls below 15%, the Domestic Top-up Tax will make up the shortfall to reach the 15% threshold.

The Multinational Top-up Tax applies to multinational enterprises headquartered in Singapore. If the effective tax rate of any overseas entity is below 15%, the Multinational Top-up Tax will be imposed to ensure their overall tax rate reaches 15%.

To comply, enterprises must submit relevant filings within 60 days after the end of each fiscal year for evaluation by the tax authorities. The tax authorities will establish transparent audit mechanisms to ensure compliance and take corresponding legal actions against enterprises that violate regulations.

This move not only prevents base erosion but also ensures that Singapore’s multinational enterprises, when operating across multiple countries, do not evade taxes by exploiting low-tax regions, thereby securing Singapore’s rightful tax revenue.

Income Tax (Amendment) Bill

Simultaneously, the Income Tax (Amendment) Bill introduces a Refundable Investment Tax Credit (RIC) scheme, bringing positive changes to Singapore’s corporate income tax policies. This initiative aims to encourage new investments in high-value and substantive economic activities in Singapore.

Enterprises making new investments in Singapore can enjoy up to 20% refundable investment tax credit. If the tax credit exceeds the payable tax amount, the surplus will be refunded to the enterprise in cash over the next four years.

This measure effectively alleviates liquidity pressures on enterprises and incentivizes them to undertake more investment activities. For companies in their early growth stages, this policy is particularly valuable, as these startup-type enterprises often have not yet achieved profitability and face tighter cash flow. Such tax incentives act as timely support for their growth and development.

Currently, countries such as the United States, Germany, and Japan have set up dedicated funding to support investments in the semiconductor industry. Although Singapore cannot directly compete with these economic powers in terms of fiscal scale, these countries’ practices of establishing specialized funds to support semiconductor industry investments provide a model for Singapore. Through tax credits and cash refunds, the Singapore Government plans to attract more enterprises to invest, creating high-quality employment opportunities and promoting green transition and sustainable development.

Which Activities Are Supported by RIC?

RIC will support activities such as:

1. Establishing new production capacities, e.g., building new manufacturing plants or expanding production capabilities.
2. Expanding digital services, e.g., broadening or creating new scopes of digital service activities to drive technological innovation.
3. Setting up headquarters, e.g., attracting multinational companies to establish or expand their headquarters in Singapore.
4. Supporting commodity trading company activities, e.g., the establishment and expansion of commodity trading firms.
5. Encouraging research and innovation to foster technological progress.
6. Promoting green transformation, e.g., projects and activities related to environmental sustainability.

Minister Indranee emphasized during the parliamentary debate that the refundable investment tax credit amount would correspond to the scale and quality of a company’s contribution to Singapore’s economy. In other words, enterprises with higher or higher-quality investments will receive greater tax credits.

How RIC Works

For each qualifying expenditure category, companies can receive up to 50% support. The total RIC amount an enterprise qualifies for will be determined by the Economic Development Board (EDB) or Enterprise Singapore (ESG), with an eligibility period of up to 10 years.

Eligible expenditure categories may include:

1. Capital expenditures (e.g., buildings, civil and structural engineering, plants and machinery, software);
2. Personnel costs.
3. Training expenses.
4. Professional fees.
5. Intangible asset costs.
6. Costs for outsourced work in Singapore.
7. Materials and consumables.
8. Freight and logistics costs.

Important Considerations

It should be noted that qualifying expenditures for one project cannot be used to claim dual tax incentives. For instance, research and development expenses that have already benefited from enhanced deductions under tax law cannot also be claimed as eligible RIC credits or other tax incentives. Taxpayers should evaluate their specific circumstances, and business needs to choose the most advantageous option, considering RIC’s benefits relative to existing tax incentives and subsidies.

Furthermore, addressing concerns about penalties for failing to comply with new rules, Minister Indranee stated that the Inland Revenue Authority of Singapore (IRAS) would adopt a lenient approach in the initial years of the new laws. As long as multinational enterprises can demonstrate reasonable efforts to comply, penalties may be mitigated.

Conclusion

With the continuous release of policy benefits, Singapore will not only attract more international capital and high-end talent to explore business opportunities together but also provide enterprises investing here with a fairer, more transparent, and efficient tax environment, as well as richer and more flexible subsidies and incentives. This will effectively reduce operating costs and enhance market competitiveness. In the future, Singapore will become the preferred destination for more enterprises and talent seeking international development and innovative breakthroughs.