29 November 2023

On 7 November 2023, the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill (“Bill”) was read the second time and passed in Parliament. The Bill seeks to amend the Economic Expansion Incentives (Relief from Income Tax) Act 1967 (“Act”) to provide for tax incentive changes which were introduced in Budget 2022 and Budget 2023.

The following is a summary of some of the changes.

Extend the Approved Foreign Loan scheme and enhance ministerial powers

The Approved Foreign Loan (“AFL”) scheme will be extended to 31 December 2028. Amendments will also be made to enhance the powers of the Minister for Trade and Industry (“Minister”) and the Minister for Finance.

Currently, an AFL incentive recipient incurs a debt payable to the Government if the recipient contravenes a condition of approval or section 34 of the Act by selling, transferring or disposing of equipment that was purchased and financed from an approved foreign loan, without the permission of the Minister. This debt arises even when the company has already delivered its economic commitments as part of the AFL support, or when the contraventions were unintentional, or when any decision to sell, transfer or dispose of the equipment was reasonable and not of wilful intent. To allow for debt liabilities to be imposed in a more targeted manner, the Act will be amended to enable the Minister to decide whether to revoke the approval for the loan where any relevant contravention has taken place. If the approval is revoked, a debt to the Government arises. However, the Minister for Finance may waive the debt in whole or in part if the Minister for Finance is satisfied that the recipient did not knowingly or intentionally contravene the condition or section 34.

Extend the Approved Royalties Incentive scheme and enhance administration approach

Amendments to the Act will be made to extend the Approved Royalties Incentive (“ARI”) scheme for five years to 31 December 2028 and enhance the administration of the ARI scheme by shifting from an agreement-based approach to an activity-based approach from 1 April 2023.

Under the agreement-based approach that was in place before 1 April 2023, companies were required to obtain Singapore Economic Development Board’s  approval for every addition of an agreement or variation of an agreement in the ARI certificate. However, as the use of intangible assets and intellectual property has become more pervasive, a more flexible approach is required to respond to companies’ investment interests. Under the activity-based approach, the scope of the approved activity is specified in the certificate. Companies will enjoy tax exemptions or concessionary withholding tax rates for royalties, fees or contributions payable under all agreements entered into for the purpose of the approved activity. Companies will not need to undergo the onerous administrative process of seeking new approvals each time a new agreement is reached or an existing agreement is varied.

Extend Pioneer Certificate scheme and Development and Expansion Incentive scheme

The Pioneer Certificate scheme and the Development and Expansion Incentive scheme will be extended by five years to 31 December 2028.

Extend Investment Allowance scheme for several qualifying activities and remove aircraft maintenance, repair and overhaul services as a qualifying activity

The Act will be amended to extend the Investment Allowance scheme by five years for certain qualifying activities. Further, the qualifying activity of aircraft maintenance, repair and overhaul services will be removed as it has been assessed to be no longer relevant and the power to approve such projects lapsed in 2015.

Discontinue the Integrated Investment Allowance scheme

The Integrated Investment Allowance (“IIA”) scheme was discontinued from 31 December 2022. Introduced in 2012, the IIA scheme was intended to incentivise manufacturers to adopt “twin” models of their operations between Singapore and Iskandar Malaysia in Johor, or the islands of Batam, Bintan and Karimun in Indonesia. However, administrative complexities of tax computation in different jurisdictions made it challenging to operationalise the scheme. To provide for the discontinuance of the IIA scheme after 31 December 2022, Part 9 of the Act will be deleted to remove references to the IIA scheme and with consequential amendments made to the Income Tax Act 1947.

Introduce a new provision to provide Minister retrospective revocation powers

The Act will be amended to provide the Minister with retrospective revocation powers across all incentives under the Act in two scenarios: (i) the removal of any activity, agreement, arrangement, product or other matter from a certificate or letter, and (ii) the revocation of any approval, certificate or letter. This amendment is aligned with the Income Tax Act 1947 and will allow the Government to respond proportionately when dealing with incentive breaches.

Reference materials

The following materials are available from Singapore Statutes Online sso.agc.gov.sg and the Ministry of Trade and Industry website www.mti.gov.sg: