PwC Budget Seminar 1 March 2013...Productivity and Innovation Credit PIC bonus • YA 2013 to 2015...

Striking the right balancePwC Budget Seminar1 March 2013

www.pwc.com/sg

Corporate tax changes

Agenda

• 3-year Transition Support Package

― Corporate income tax rebate― Corporate income tax rebate

― Wage Credit Scheme

― Productivity and Innovation Credit (PIC)

• Land Productivity Grant

• Maritime sector incentives

• Other changes

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3-year Transition Support PackageCorporate income tax (CIT) rebate

Previously... in YA 2011

• CIT rebate - 20% of tax payable, capped at $10,000• CIT rebate - 20% of tax payable, capped at $10,000

• Companies receive higher of CIT rebate or SME cash grant (5% ofrevenue, capped at $5,000)

Now... CIT rebate restored and revitalised

• 30% of tax payable, capped at $30,000 per YA, for YAs 2013 to 2015

• ECI for YA 2013 / YA 2014 – re-file ECI to get rebate refunded earlier

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• ECI for YA 2013 / YA 2014 – re-file ECI to get rebate refunded earlier

3PwC Budget Seminar 2013

A company with S$500,000 of taxable income will have aneffective tax rate of no more than 8.27%

3-year Transition Support PackageWage Credit Scheme

Wage Credit Scheme

• Co-funding of 40% of wage increases for Singaporean employees withgross monthly wage of ≤ $4,000

• For increases given in years 2013 to 2015

• Available to all businesses

• Automatic annual payouts (1st in Q2 2014 and last in 2016)

• Taxable (effective funding 33%)

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• Taxable (effective funding 33%)

• Employee must be on payroll for at least 3 months

• Not applicable to wages paid to directors who are also shareholders


3-year Transition Support PackageWage Credit Scheme

Illustration of Wage Credit Scheme

GrossMonthlyWageIncrease $500 $500

$500

$500

$500

$500


2013 2014 2015

Govt co-funds 40% $200 $400 $600

3-year Transition Support PackagePoll question

Do you think the Wage Credit Scheme will be utilised by yourorganisation?

1. No, all 0ur people are extremely highly paid

2. No, we wouldn’t dream of employing a Singaporean

3. Yes, we will hire new staff - monthly salary $51, staggered payincrement over three years up to $3,949, train them, claim PIC ontraining costs and claim the wage credit for funding on 40% of theincrement for 3 years

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increment for 3 years

4. Yes, we will share our productivity gains with Singaporean employeesthrough wage increment

5. Not sure


3-year Transition Support PackageProductivity and Innovation Credit

PIC bonus

• YA 2013 to 2015 – Businesses that incur at least $5,000 in PIC-• YA 2013 to 2015 – Businesses that incur at least $5,000 in PIC-qualifying expenditure per YA will receive a dollar-for-dollarmatching cash bonus

• Can be combined up to $15,000 for all 3 YAs

• Active business operations and at least three local employees

• Taxable

• No separate application required

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• No separate application required

• In addition to existing PIC benefits (i.e. additional 300% deduction /allowances or 60% cash payout)



Illustration of PIC bonusCash Option

Automationequipment$15,000

PICbonus

$15,000

PIC cash payout $9,000 $24,000

+

CA $15,000 PIC $45,000+

OR

Automation PICCA $37,500 PIC $112,500+


Paying full taxes? Take PIC. Not paying taxes? Take some cash.

Automationequipment$37,500

PICbonus

$15,000 $37,500+

CA $37,500

PIC cash payout $22,500

OR


IP in-licensing

• Existing – acquisition of intellectual property rights (IPR) qualifies• Existing – acquisition of intellectual property rights (IPR) qualifiesfor enhanced allowances under PIC

• From YA 2013 to YA 2015, inclusion of IP in-licensing as qualifyingactivity

• Renamed “Acquisition and In-Licensing of IP”

• Qualifying expenditure eligible for enhanced allowance / deductions,up to a cap of $400,000 per YA

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• In-licensing does not include franchising

• Unclear if there are other conditions (e.g. valuation requirement)

• IRAS to release further details in April 2013



IP in-licensing (Cont’d)

With existingWith existingrules…. SG co

• Acquires IPR• R&D• 400% deduction and PIC

bonus up to $15k for SG co

• WHT

• FTC pooling

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Foreignsubsidiaries

Royalties

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IP in-licensing (Cont’d)

With new rules….SG co

• Acquires IPR

400% deduction& PIC bonus upto $15KWith new rules….

possible planning?• Acquires IPR

• R&D

SG Newco 1IP in-licensing

to $15K

SG Newco 2IP in-licensing

• Segregate and house differentbusinesses at SG Newco level

• Royalties taxable in SG co

• Potential net tax benefit:

(i) 300% deduction and PICbonus up to $15k at SG

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Foreignsubsidiaries

SUBSTANCE REQUIREMENTS !

Royalties

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bonus up to $15k at SGNewco 1 and SG Newco 2level

(ii) Group relief


Liberalising scope of PIC automation equipment w.e.f. YA 2013

Current

• Automation equipment

• Enhanced CA on acquisition /leasing of automation equipmentif within prescribed list

• Apply on case-by-case basis if

Proposed

• IT and automation equipment

• Enhanced CA on acquisition /leasing of automation equipmentif within updated prescribed list

• Apply on case-by-case basis if


• Apply on case-by-case basis ifequipment not on list

• Restrictive assessment criteria(e.g. must automate core workprocesses)

• Apply on case-by-case basis ifequipment not on list

• Assessment based on liberalisedconditions (e.g. includes non-corework processes)


Liberalising scope of PIC automation equipment (Cont’d)

Liberalised conditions

• Automates or mechanises the work processes (whole or in part, coreor non-core);

• Enhances productivity of the business (e.g. reduce man hours, moreoutput); and

• If it is a basic tool, qualifies if it increases productivity compared to

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• If it is a basic tool, qualifies if it increases productivity compared tothe existing equipment or has not been used in the business before


3-year Transition Support PackagePoll question

What is your favourite phrase in the Minister’s 2013 Budgetspeech?

1. “Ang hoon” (again?)

2. “Scissor lift” (what?)

3. “… businesses being winnowed out” (sigh…)

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4. “Property tax cannot be avoided through tax planning” (shucks)

5. Don’t know – I didn’t listen in nor read. That’s why I’m here (oops)




Scissor liftScissor lift




Spider lift


Land Productivity Grant


• For companies restructuring operations which result in landintensification / savings of at least 0.1 hectares (i.e. 1,000 sqm) inintensification / savings of at least 0.1 hectares (i.e. 1,000 sqm) inSingapore

• 1,000 sqm – approx 1 to 1.3 times of a football field

• Grant supports consultancy fees and / or relocation costs

• Core functions should be retained in Singapore

• Taxable?

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• SMEs and MNCs may apply. Scheme runs till 31 March 2017

• Application through EDB. Further details to be released.



Land Productivity Grant (Cont’d)

Typical Principal Structure- HQ functions- Supply-chain control

ContractManufacturer(e.g. Iskandar)

Singapore PrincipalCompany

Contract manufacturingservices

- Supply-chain controltowers

- IP ownership & mgmt- Treasury functions,

etc.

Sale of products


Distributors

Actual Product Flow

Maritime sector incentives – extendedApproved International Shipping award

Maritime Sector Incentive – Approved International Shipping(MSI-AIS) award(MSI-AIS) award

Current

• MSI-AIS award grants taxexemption for qualifying incomefrom operating foreign-flaggedships in international waters

Proposed and Impact

• MSI-AIS can be renewed for upto max of 40 years

• Anchors pioneer MSI-AISawardees


• Companies are granted the MSI-AIS award for a 10-year period

• Can be renewed for up to a max of30 years

awardees

• 1st time SG tax incentive with fulltax exemption is extendedbeyond 30 years

Other changesStart-up tax exemption scheme

Existing scheme

• 1st three YAs - full tax exemption for 1st $100K of• 1 three YAs - full tax exemption for 1 $100K ofnormal CI, 50% tax exemption on the next $200K

• SG incorporated & SG tax resident• ≤20 shareholders

― all individuals; or ― at least one individual with min. 10%

shareholding

CorporateShareholdersIndividual

Min. 10%shareholding


After 25 Feb 2013

• Exemption will not apply to property developersand investment holding companies incorporatedafter 25 Feb 2013

• Partial tax exemption still applies

SG co

Other changesSchemes phased out

Schemes Withdrawn / expire on

Overseas enterprise incentive scheme 25 February 2013Overseas enterprise incentive scheme 25 February 2013

Approved cyber trader scheme 25 February 2013

Deduction scheme for expensesincurred in relocation or recruitmentof overseas talent

30 September 2013

Offshore insurance business schemefor Islamic insurance and reinsurance

31 March 2013


Deduction scheme for upfront landpremium

28 February 2013

Tax incentive scheme for family-owned investment holding companies

31 March 2013

Other changesProgressive property tax structure

- Increase in property tax rates for high-end residential properties

- Changes phased in over 2 years, from 1 Jan 2014

Current

Owner-occupied residential• 0% to 6%, depending on AV• 0% band - 1st $6K of AV

Non-owner-occupied residential

Proposed

Owner-occupied residential• 0% to 16%, depending on AV• 0% band - 1st $8K of AV

Non-owner-occupied residential

- Changes phased in over 2 years, from 1 Jan 2014


Non-owner-occupied residential• 10% (flat rate)

Non-residential• 10%

Non-owner-occupied residential• 10% to 20%

Non-residential• 10% (no change)


Property tax on owner-occupied residential properties

Annual Example of Property Property tax PercentageAnnualValues

Example oftype ofproperty

Propertytax undercurrentstructure

Property taxunder newstructure

Percentageincrease inproperty tax

$12,000 5-room HDB $240 $160 -33%

$35,000 Suburbancondominium

$1,160 $1,080 -7%

$70,000 Condominiums in $2,660 $2,780 5%


$70,000 Condominiums incentral locations

$2,660 $2,780 5%

$150,000 Landed propertyin centrallocations

$7,460 $12,580 69%


Property tax on non-owner-occupied residential properties

Annual Example of Property Property tax PercentageAnnualValues

Example oftype ofproperty

Propertytax undercurrentstructure

Property taxunder newstructure

Percentageincrease inproperty tax

$12,000 5-room HDB $1,200 $1,200 0%

$35,000 Suburbancondominium

$3,500 $3,600 3%

$70,000 Condominiums in $7,000 $8,500 21%


$70,000 Condominiums incentral locations

$7,000 $8,500 21%

$150,000 Landed propertyin centrallocations

$15,000 $24,000 60%

Concluding thoughts……..


Thank you


Florence Loh+65 6236 [email protected]

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PwC Budget Seminar 1 March 2013...Productivity and Innovation Credit PIC bonus • YA 2013 to 2015...

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