30 October 2023

On 3 October 2023, the Income Tax (Amendment) Bill (“Bill”) was passed in Parliament. The Bill seeks to implement tax changes announced in Budget 2023 and to make changes arising from international tax developments and the Ministry of Finance’s (“MOF”) periodic review of Singapore’s tax system.

Notable changes that the Bill seeks to make include the new Enterprise Innovation Scheme and changes to the treatment of foreign-sourced income. 

Enterprise Innovation Scheme

First announced in Budget 2023, the Enterprise Innovation Scheme is a new scheme that encourages businesses to engage in research and development, innovation, and capability development activities. Available from Year of Assessment (“YA”) 2024 to YA 2028, the scheme will grant enhanced tax deductions and allowances for five key activities in the innovation value chain:

  • Research and development conducted in Singapore;
  • Registration of intellectual property (“IP”), including patents, trade marks, and designs;
  • Acquisition and licensing of IP rights;
  • Innovation projects carried out with polytechnics, the Institute of Technical Education or other qualified partners; and
  • Training via courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework.

For businesses that have yet to turn profitable or do not have sufficient profits to maximise the benefits from the tax deductions or allowances, the scheme allows eligible businesses to opt to convert 20% of their total qualifying expenditure on the above activities in each YA into a cash payout of up to S$20,000.

Treatment for foreign-sourced income

The Bill seeks to amend the tax treatment for foreign-sourced income to subject foreign-sourced disposal gains to tax under specific circumstances. Foreign-sourced disposal gains will be taxable when received in Singapore by entities of multinational enterprise groups that do not have economic substance in Singapore. Tighter rules will also apply to disposal gains arising from IP rights, due to the higher mobility of such assets. These changes are intended to address international tax avoidance risks relating to non-taxation of disposal gains in the absence of real economic activities.

It was explained in the speech delivered by Senior Minister of State for Finance Chee Hong Tat at the second reading of the Bill that the policy objective of this move is not to tax capital gains in Singapore. Rather, it is to align key areas of the tax regime with international norms. The new tax treatment is consistent with international standards, such as the rules against harmful tax practices agreed by the Inclusive Framework on Base Erosion and Profit Shifting (or BEPS), of which Singapore is a member, as well as the EU Guidance on Foreign-Sourced Income Exemption Regimes.

The new tax treatment is expected to apply to foreign-sourced disposal gains earned and received in Singapore on or after 1 January 2024.

Reference materials

The following materials are available on Singapore Statutes Online sso.agc.gov.sg and the MOF website www.mof.gov.sg: