On June 15, 2020, the Economic Expansion Incentives (Income Tax Relief) (Amendment) Act 2020 came into force. Among other legislative changes, the Key Changes provide a means for previously approved Pioneer Industry, Pioneer Service and Development and Expansion Incentive rewards granted to one company to be transferred to another company, subject to approval. In addition, investment allowances can now be granted to a partnership.
Key points to remember
As part of the Singapore government’s regular review of tax incentives, the following key provisions have been introduced in the Economic Expansion Incentives (Income Tax Relief) Act 2020 (Amendment) :
- The Pioneer Industry Award, Pioneer Service Award and Development and Expansion Incentive Award previously approved and awarded to one company may be transferred to another company, subject to the approval of the Minister of Trade and Industry.
- The investment allowance regime can now be granted to partnerships and the allowance allocated to its partners.
- An investment allowance is available for capital expenditure incurred in the construction and operation of a submarine cable system with one or more landing stations in Singapore.
- A company that has already obtained a foreign loan to purchase production equipment can still apply for this loan to be an approved foreign loan.
More in detail
Award transfer Pioneer Industry, Pioneer Service and Development and Expansion Incentive
The Pioneer Industry, Pioneer Service and Development and Expansion Incentive (âDEIâ) awards are intended to encourage companies to develop their capabilities and conduct new or expanded business activities in Singapore. Eligible income from companies awarded the Pioneer Awards are tax exempt, while eligible income from companies awarded with the DEI may benefit from preferential tax rates of 5% or 10%.
The Pioneer and DEI awards are awarded specifically to a company. Prior to these legislative changes, when there was a business transfer from one company to another, the ceding company had to apply to the Singapore Economic Development Board (âEDBâ), the economic agency administering these tax incentives, to discuss and request the “transfer” of the incentive. When the “transfer” is approved, the transferee company will receive a new letter of inducement, which will not necessarily be a continuation of the incentive bonus previously granted to the ceding company.
As a result of the Economic Expansion Incentives (Income Tax Relief) (Amendment) Act 2020 (âAEIA (Amendment) Act 2020â), it is now possible for a company (called a âceding company â) To transfer all or part of its Pioneer or DEI attributions to another company (known as theâ transferee company â).
In the second reading of the Economic Expansion Incentives (Income Tax Relief) (Amendment) Bill 2020, Chief State Minister for Trade and Industry Chee Hong Tat , said that “When companies merge, merge or undergo a corporate restructuring, there may be a need to transfer their existing rewards to the new entity. To clarify that a company resulting from the merger is also eligible for the transfer of incentive bonuses, it is provided that a transferee company “includes a company resulting from a merger or a merger involving the ceding company”. The law does not expressly require that the ceding company and the transferee company be related entities. That said, related entity transfer requests would probably be the most common scenario.
The legislative changes make it clear that the transferee company effectively takes the place of the transferor company, subject to the discretion of the Minister of Trade and Industry (âMinisterâ) to impose or vary conditions, as the case may be.
A ceding company must apply in writing to the Minister, in the prescribed form with the specified details, to transfer all or part of its incentive bonus to the transferee company. The Minister may approve the request if he is satisfied that:
- due to the transfer of the business from the ceding company to which the incentive premium relates, the transferee company manufactures or will produce the pioneer product as part of its pioneer industry premium or, is or will engage in the activity eligible under the Pioneer Service Award or DEI Award; and
- it is in the public interest to approve the transfer.
In approving the request, the Minister may impose the following conditions:
- The Minister may impose any conditions on the transferee company. They may be the same as those previously imposed on the ceding company or different from them.
- If the ceding company continues to produce a pioneer product as part of its Pioneer Industry award, or engages in an eligible activity for the purposes of its Pioneer Service or DEI award, the Minister may add new conditions, modify or remove any conditions. imposed on the ceding company. .
- For an IED, the Minister can:
with regard to the transferee company, specify its basic income for the qualifying activity for the tax year for which approval is given and the following tax years. This may be (i) the basic income of the ceding company for the relevant activity immediately before a specified date; or (ii) any other amount that the Minister considers appropriate.
with regard to the ceding company, substitute, from the taxation year for which authorization is given and the following taxation years, its basic income by any amount that the Minister considers appropriate, for any eligible activity that it continues to carry out.
Upon approval of a request by the Minister, the transferee company effectively takes the place of the transferring company for the remainder of the tax relief period for the incentive premium transferred to the transferee company. The EEIA (Amendment) Act 2020 sets out the following consequences arising from the approval:
- On the date indicated, the ceding company ceases to be a pioneer company for the relevant pioneer product, or a pioneer service company or DEI company for the relevant eligible activity, as the case may be.
- From the date specified, the transferee company is considered to have been approved as a pioneer company for the relevant pioneer product, or a pioneer service company or DEI company for the relevant eligible activity, as the case may be.
- The production day of the transferee company for its Pioneer Industry price or the start day of its Pioneer Service or DEI price is the same as that of the ceding company for the purposes of determining its tax relief period.
- For a DEI allocation, the transferee company is considered to have the same preferential tax rate for each part of the tax relief period as that of the ceding company, if the ceding company had remained a DEI company for the eligible activity. concerned.
- The Minister will amend or revoke the certificate issued to the ceding company for the incentive premium as required, and issue a certificate to the transferee company for the incentive premium transferred.
Note that instead of approving a request to transfer the relevant incentive, the Minister may require the transferee company to request a new Pioneer Industry, Pioneer Service Award, or DEI, as applicable.
Companies considering an incentive transfer as a result of restructuring (including a business transfer or merger) should approach the EDB and request the transfer, if applicable, prior to the proposed restructuring. This is to ensure that there is sufficient time to discuss and finalize the transfer of the incentive and any relevant changes to conditions required by the Minister.
Investment allowance extended to partnerships
The investment deduction regime provides for a deduction in addition to the normal capital deduction (ie years in which the property is acquired on hire-purchase. It is currently only available to companies.
On second reading of the Economic Expansion Incentives (Income Tax Relief) (Amendment) Bill 2020, Mr. Chee noted that “companies are increasingly co-owning assets. with other businesses, including through corporate partnerships â. The extension of the investment bonus system to corporate partnerships therefore aims to âbetter respond to changes in the business environmentâ.
The changes to primary legislation allow for regulations to be made to apply the relevant provisions of the investment allowance, to allow the investment allowance to a partnership and to distribute this allowance granted to the partnership to his partners. In this regard, general partnership is defined as “a partnership, limited liability partnership or limited partnership composed only of partners which are corporations”. Details allowing implementation will be prescribed in subsidiary legislation.
Extension of investment allocation to include capital expenditure on submarine cable systems landing in Singapore
In an effort to encourage companies to invest in submarine cable systems landing in Singapore, the Minister of Finance announced in the 2018 budget that the investment allocation for production equipment would be extended to include expenses. in capital committed on newly constructed submarine cable systems landing in Singapore.
The budget announcement is now enshrined in law. Subject to the approval of the Minister and compliance with all prescribed conditions, an investment allowance may be claimed for capital expenditures incurred to construct and operate any submarine cable system with one or more landing stations. in Singapore, and any such landing station.
Foreign loans approved for productive equipment to include loans already obtained
In accordance with the EEIA (Amendment) 2020 law, a company that has already obtained a foreign loan of at least SGD 20 million for the purchase of production equipment for its trade or business can apply to the Minister for the loan to be an approved foreign loan. . An approved foreign loan benefits from lower withholding tax rates. Previously, an application could only be made before obtaining the loan.
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