Shanmugaratnam to simplify and reduce the taxation of foreign income
Singapore´s Finanace Minister Tharman Shanmugaratnam wants to simplify and reduce the taxation of foreign income, so as to support companies that are internationalizing and earning a larger share of their income overseas. Foreign tax credit (FTC) pooling is to be introduced to give businesses greater flexibility in their claim of FTCs, reduce their Singapore taxes payable on remitted foreign income (FI), as well as to simplify tax compliance.
Under the FTC pooling system, FTC is to be computed on a pooled basis, rather than on a source-by-source and country-by-country basis for each particular stream of income. The amount of FTC to be granted will be based on the lower of the pooled foreign taxes paid on the FI and the pooled Singapore tax payable on such FI. This will take effect from the 2012 assessment year.
Shanmugaratnam then said that, while Singapore is making good progress to becoming a location of choice in Asia for global companies as well as a launch-pad for Asian enterprises to internationalize, he has made other tax changes in strategic business sectors to enhance its overall competitiveness as such a hub.
With effect from June 1, 2011, existing maritime incentives will be streamlined and enhanced. New tax benefits, such as certainty of WHT exemption for interest payments on loans to build or buy ships, will be introduced to further entrench international ship operators and encourage the growth of the shipping-related services sector in Singapore
For example, to facilitate access to a wider range of funding sources for their lending business and strengthen Singapore’s position as a regional funding centre, enhancements will be made to the withholding tax exemption (WHT) exemption regime for finance companies, banks and investment banks with effect from April 1, 2011. WHT exemption will be granted on interest payments made to all non-resident persons (including funding from non-bank sources, such as hedge funds and insurers).
There will also be a package of individual income tax benefits for all Singaporeans. All resident individual taxpayers will be given a one-off personal income tax discount of 20%, capped at SGD2,000 per taxpayer, in 2011/12, and a new personal income tax rate structure will take effect from 2012/13. Marginal tax rates will be reduced for the first SGD120,000 of chargeable income. While all taxpayers benefit, middle-income earners will enjoy the largest percentage reduction in taxes under the new rates.
After factoring in the various tax and other measures announced in his budget, he still expected a basic fiscal deficit of only SGD2.2bn, or about 0.7% of GDP, in 2011/12.
Shanmugaratnam disclosed that the government will continue to review Singapore’s top personal income tax rate, but saw no pressing competitive need for it to be reduced at present.
