The Budget 2012 tax changes apply to individuals, sole proprietors, partnerships, companies, and business trusts. The general goal of the Budget 2012 tax changes is to advance Singapore’s competitiveness in the global market in the face of a persistent global economic slowdown. For this reason, the revisions provide cash grants, encourage productivity and innovation, promote renovation and refurbishment of premises, enhance mergers and acquisitions and simplify write downs for low value assets in addition to other changes.
The Inland Revenue Authority of Singapore (IRAS) is still preparing detailed instructions on the implementation and application of these changes. The details are expected to be issued by 30 June 2012.
A brief outline of 5 of the major tax changes to benefit SMEs is described in the following sections.
SME Cash Grant for Companies
For the Year of Assessment 2012, small and medium enterprises (SMEs) can receive a one-off, non-taxable SME Cash Grant to help offset high costs.
The SME Cash Grant is figured at 5% of total revenue for the YA 2012 per the following rules:
- Company must have made Central Provident Fund (CPF) contributions for at least one employee and the employee cannot be a shareholder during YA 2012
- Grant is capped at $5,000
- Grant is paid after YA 2012 income tax return is filed
Enhancement of the Productivity and Innovation Credit (PIC) Scheme
The Productivity and Innovation Credit (PIC) has been in existence since Budget 2010 but was revised in Budget 2011 and now in Budget 2012. The current revisions will be effective through YA 2015. The PIC scheme is designed to provide tax benefits for certain qualifying investments including acquisition of intellectual property rights or PIC automation equipment, research and development (R&D), registration of patents and trademarks, employee training and investment in approved design projects.
PIC allows for higher deductions and allowances for the qualifying activities and has two parts – 400% tax deduction/allowances and cash payout option. Budget 2012 revised the cash payout option to help small businesses with cash flow and to encourage innovation and increased productivity. The cash payout option rule changes include to the following:
- Increase of cash payout rate from 30% to 60% up to $100,000 of qualifying expenditures for years YA 2013 to YA2015
For YA 2013 to YA 2015 cash payout can equal up to $100,000 x 60% or $60,000 - Eligible businesses include sole proprietorship, partnerships and companies that are entitled to PIC during the qualifying YA , has active business operations and employs at least 3 local employees
- Can be claimed after end of each financial quarter but no later than date income tax return is due
- Certification on in-house training courses not required on up to $10,000 of training expenditures per YA
- R&D cost sharing agreements are eligible
- Multiple sales requirement for software development is removed to promote in-house development software except where software is developed for internal routine business administration
- Investment in automation equipment qualifies even when repayment covers 2 or more years
Enhancing the Renovation and Refurbishment (R&R) Deduction Scheme
The Renovation and Refurbishment deduction scheme applies to businesses that need to renovate or refurbish their premises and incur qualifying expenditures. Currently, the capital expenditures for R&R are not tax deductible, nor do they qualify for capital allowances in most cases. The Budget 2012 is designed to help SMEs by allowing a tax deduction for qualifying online R&R expenditures incurred on or after 16 February 2008.
Most renovation expenses are allowable. These expenses include: electrical, lighting, water systems, doors, ceilings, floors, windows and many others. No deduction is allowed for professional fees, antiques or fine art.
The expenditure cap for R&R tax deductions is $150,000 for an applicable 3-year period starting with the initial year costs that are incurred. Budget 2012 doubles the allowable deduction to $300,000 for the applicable 3 year period starting with YA 2013.
Enhancing the Merger & Acquisition Scheme
The original Budget 2010 Merger & Acquisition (M&A) Scheme was designed to encourage business mergers and acquisitions. Transaction costs incurred 1 April 2010 to 16 February 2012 were not deductible. Budget 2012 changes that restriction and allows a 200% tax allowance for transactions costs up to $100,000 incurred during the time period 17 February 2012 to 31 March 2015. It is a one year deduction.
The M&A must meet certain requirements to qualify for the M&A Scheme. However, the original definition has been extended to include cases where the acquiring company goes through multiple tiers of wholly owned subsidiaries to gain shares of the target company. It was also extended to situations where qualifying M&A conditions must be met by the target company and can be met by any of the multiple tiers of its wholly owned subsidiaries.
One other change applies to existing Headquarter schemes on a case-by-case basis.
Simplifying Capital Allowance Claims for Low-Value Assets
There are several methods for calculating a capital allowance. This allowance includes a100% write-off of qualifying assets over 1 to 3 years or over the life of the asset. Budget 2012 says:
- Raises the cost threshold from $1,000 to $5,000 for full asset cost to be written off in one year
- Keeps the aggregate cap of $30,000 per YA the same
- Effective YA 2013
Additional Changes
There are additional changes instituted in Budget 2012 covering topics such as: the Integrated Investment Allowance, the Double Tax Deduction for Internationalization Scheme, and Tax Transparency for Real Estate Investment Trusts. Though, the many changes all have one goal to make it more lucrative to do business in Singapore. This has been a brief discussion of Budget 2012 changes. An accountant can provide in-depth explanations and ensure businesses will take the new allowable deductions or submit necessary reports to claim cash grants.
