29 November 2023

The Income Tax Act 1947 (“Act”) has been amended by the Income Tax (Amendment) Act 2023 (“Amendment Act”) with the changes taking effect from various dates. Notable changes include the new Enterprise Innovation Scheme (“EIS”) and changes to the treatment of foreign-sourced income.

Enterprise Innovation Scheme

First announced in Budget 2023, the EIS is a new scheme that encourages businesses to engage in research and development (“R&D”), innovation, and capability development activities. Under the EIS, existing tax measures will be enhanced and a new tax measure will be introduced. In addition, eligible businesses may opt to convert up to S$100,000 of the total qualifying expenditure for each Year of Assessment (“YA”) into cash at a conversion rate of 20%.

Available from YA 2024 to YA 2028, the scheme will grant enhanced/new tax deductions and/or allowances for expenditure incurred on the following qualifying activities:

  • Qualifying R&D 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. The option to convert qualifying expenditure into a cash payout is available on an annual basis.

More information about the EIS can be found in the e-Tax Guide on the Enterprise Innovation Scheme published by the Inland Revenue Authority of Singapore.

Treatment for foreign-sourced income

A new section 10L providing for the tax treatment of gains from the sale of foreign assets will come into effect on 1 January 2024. The tax treatment for foreign-sourced income under the Act will be amended 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.

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.

Reference materials

The Income Tax (Amendment) Act 2023 is available from Singapore Statutes Online sso.agc.gov.sg.