SINGAPORE - Singapore will impose new corporate taxes in 2025 to abide by a global initiative aimed at tackling tax avoidance by multinational enterprises (MNEs).
The initiative aims to ensure a global minimum effective tax rate of 15 per cent for large MNEs.
To do its part under the Base Erosion and Profit Shifting (BEPS) 2.0 initiative, Singapore will introduce the Income Inclusion Rule (IIR). This will subject MNEs parented in Singapore to a minimum effective tax rate of 15 per cent on the profits made by their overseas subsidiaries.
Singapore is also moving ahead with the Domestic Top-up Tax (DTT), said Deputy Prime Minister Lawrence Wong, who is also Finance Minister, in his Budget speech on Feb 16. This applies to the Singapore profits of MNE groups operating here.
“Without this tax, these MNE groups would have had to pay their parent jurisdictions the effective tax rate of 15 per cent on their Singapore profits,” said Mr Wong. “Therefore it is in our interest to implement the DTT, so that we collect the tax rather than have it go elsewhere.”
Mr Wong said the IIR and DTT will take effect for a company’s financial year starting on or after Jan 1, 2025, and will apply to MNEs with global revenue of at least 750 million euros annually.
The intent to implement taxes related to BEPS 2.0 was flagged in Budget 2023. Since then, several countries have moved to impose the taxes.
Mr Wong said the European Union, United Kingdom, Switzerland, Japan and South Korea are implementing BEPS 2.0 rules from 2024, while Hong Kong and Malaysia have announced plans to do so in 2025.
The minister said there was another component of BEPS 2.0 called the Undertaxed Profits Rule. However, this rule will be considered at a later stage, after the smooth rollout of the planned tax rule changes.
In the short-term, the new tax measures will provide additional revenues. But it is uncertain how much this will be and how long it will last, said Mr Wong.
“We may even see a reduction in our tax base, should MNEs shift some of their activities to other jurisdictions in response to the new business environment,” Mr Wong said.
He said initiatives like the Refundable Investment Credit, announced separately in the Budget, may support new investments, research and innovation activities.
“Overall, given significant spending required to stay competitive, at this point, I do not expect the new moves to generate net revenue gains for Singapore on a sustained basis.”
Mr Harvey Koenig, a partner at KPMG Singapore, said the Refundable Investment Credit scheme is very timely in light of Singapore’s plan to implement the BEPS tax rules from next year.
“This will enable Singapore to remain competitive amidst global competition for investments,” said Mr Koenig.
