SINGAPORE - Corresponding tax measures and some non-tax advantages will keep Singapore competitive for foreign investments even after the new corporate taxes announced in Budget 2024 are imposed on multinational enterprises (MNEs), experts said.
The new taxes, which are aligned with a global initiative to discourage MNEs from shifting profits from higher-tax jurisdictions to lower ones, may boost tax revenues but have also raised uncertainty about whether MNEs will start to shift some of their activities to other jurisdictions in response to the new business environment.
The new corporate taxes are the Income Inclusion Rule, which will subject MNEs parented in Singapore to a minimum effective tax rate of 15 per cent on the profits made by their overseas subsidiaries; and the Domestic Top-up Tax, which will apply the same tax rate to profits made in Singapore by MNEs parented in a different jurisdiction.
The global minimum tax rate will apply only to large MNEs – those with consolidated annual revenues of €750 million (S$1.09 billion) or more.
Both the taxes, which will become effective from Jan 1, 2025, are part of the global Base Erosion and Profit Shifting (BEPS) 2.0 initiative – a set of rules and standards established by the Organisation for Economic Co-operation and Development and subsequently supported by 140 countries worldwide.
Ms Irene Tai, partner for corporate tax at PwC Singapore, said the global minimum tax will nullify any traditional tax incentive an MNE is enjoying now. However, there are other schemes, including one announced in the Budget 2024, which should be able to lessen the tax burden.
She was referring to the new refundable investment credit (RIC), which will support up to 50 per cent of qualifying expenditures. The credits will be offset against the payable corporate income tax. Any unused tax credits will be refunded to the company as cash within four years from when the company satisfies the conditions for receiving the credits.
The RIC will support high-value manufacturing, innovation and research and development activities. Some green transition activities will also qualify for it. More details are expected by the third quarter of 2024.
“It (RIC) is really useful,” said Ms Tai. “Actually, this RIC came out of a lot of business consultations that the Government has been having with the business community. So, this is something that the business community has been asking for.”
She said the refundable credits are aligned with the BEPS 2.0 rules and regulations and other countries have also announced similar tax credits.
Ms Tai said companies should look at RIC together with other existing tax incentives and benefits – such as the National Productivity Fund, which was topped up by $2 billion – to see how they can make the most of it.
Mr Kok Ping Soon, chief executive officer of the Singapore Business Federation, said notwithstanding the impact of the BEPS-related taxes, Singapore should not rely on tax incentives to attract foreign investments.
“Tax incentives can no longer be the reason for companies to set up here,” he said. Instead, Singapore’s competitive advantages, such as strong connectivity, good infrastructure, talent and living environment, should attract investments.
Associate professor of economics Walter Theseira at the Singapore University of Social Sciences said the whole point of BEPS is to stop this feature of economies racing to the bottom in terms of offering tax breaks to companies to situate themselves in low-tax jurisdictions.
“So, I think it’s a good thing that, globally, we have agreed on this so that we can actually recover more of corporate profits into our tax bases in any country in the world.”
