Publish Date
Feb 19, 2025
Asia Tax Update
Featured in Singapore Business Review
Singapore has once again demonstrated its economic resilience, achieving an impressive GDP growth of 4.4% over the past year. This growth is fascinating as the global landscape remains fraught with challenges, including ongoing trade and tariff wars and heightened geopolitical tensions. The Singapore government recognizes the need to remain vigilant and proactive in its strategies to mitigate these risks. By adopting a forward-looking approach, Singapore seeks to navigate these complexities and continue its trajectory of growth and development.
Keeping in mind these external pressures, the Singapore Budget 2025 announced by Prime Minister and Minister for Finance, Lawrence Wong, on 18 February 2025 focuses on strengthening the nation’s economic foundations in this SG60 year. Budget 2025 unveiled measures committed to supporting businesses to embrace technology and innovation, as well as increase productivity through the reskilling and upskilling of labour, and ensuring that every Singaporean has the opportunity to thrive in a rapidly changing world. By investing in key sectors and enhancing social safety nets, Singapore aims to build a resilient and inclusive economy. Budget 2025 also emphasizes the importance of investing in the future. This includes initiatives to support technology, innovation, enterprise system, education, healthcare, and infrastructure development. By prioritizing these areas, Singapore aims to ensure long-term sustainability and prosperity for its citizens.
In this article, we have highlighted some of the key tax measures announced together with our perspective on their impact to businesses. We have grouped the key changes into three categories: (1) General tax changes; (2) Tax changes relevant to financial institutions and fund management industry; and (3) Tax changes relevant to shipping industry.
For the Year of Assessment (YA) 2025, companies will benefit from a CIT rebate of 50% on their Singapore tax liability. Companies that employed at least one local employee in 2024 will qualify for a cash payout of S$2,000. The maximum total benefit a company can receive from both the CIT rebate and the cash payout is capped at S$40,000.
A&M’s take: This CIT rebate demonstrates the government’s responsiveness to the current economic challenges faced by businesses. It provides broad-based support while ensuring that SMEs, or those not making a profit, may still receive some assistance. With the support by the government, businesses could continue focusing on long-term productivity improvements and exploring new opportunities.
The M&A scheme, which provides tax benefits to Singapore companies making qualifying acquisitions, will be extended from its original expiration date of 31 December 2025, to 31 December 2030. This extension maintains the current benefits, including an M&A allowance based on 25% of up to S$40 million of qualifying acquisitions per YA, and a 200% tax deduction on transaction costs, capped at S$100,000 per YA (subject to meeting relevant conditions).
The DTDi scheme, which allows businesses a 200% tax deduction on qualifying market expansion and investment development expenses, will also be extended until 31 December 2030. This extension aims to continue supporting businesses in their efforts to expand internationally and develop new markets. EnterpriseSG is expected to release more detailed information about the extended scheme by the second quarter of 2025.
A&M’s take: While the extension of the M&A and DTDi schemes is a welcome move, businesses should also take into account commercial considerations such as strategic fit, potential synergies, and market access before pursuing any M&A or internationalisation activities. Perhaps the definition of qualifying transactions and expenses can be expanded under both schemes to allow more businesses to benefit from these schemes.
Businesses are currently allowed to claim tax exemption on gains from the disposal of ordinary shares of an investee company as long as it has held 20% of the shares of the investee company for a continuous period of at least 24 months prior to the disposal, subject to other conditions being met.
The following enhancements will be introduced for disposal gains derived on or after 1 January 2026:
A&M’s take: These proposed changes are a welcome development for businesses and investors, particularly with respect to extending the application of tax exemption to preference shares that qualify as equity. This is a sensible approach that recognizes that many companies have a share capital structure that allows for greater flexibility and investors will have more certainty regarding the tax treatment on exit gains derived from divestment of preference and ordinary shares. Removing the sunset clause also provides much-needed certainty and reinforces Singapore’s commitment to a stable and predictable tax regime. Overall, these enhancements make Section 13W more relevant and applicable, further enhancing Singapore’s reputation as an attractive investment hub.
To encourage collaborative innovation activities, with effect from 19 February 2025, companies will be able to enjoy 100% tax deduction on payments made under approved CSAs for innovation activities, even if these activities do not meet the definition of “research and development” under the Singapore Income Tax Act. EDB will provide more details on this initiative by Q2 2025.
A&M’s take: This new measure significantly broadens the scope for tax deductions on innovative activities, offering valuable opportunities for companies to engage in collaborative innovation. It is a positive development that could incentivize more businesses to invest in innovation, even if their activities fall outside the conventional R&D definition. This should potentially lead to an increased competitiveness and advancement in the application of innovative processes, tools and techniques for business expansion.
Under the EEBR Scheme, businesses are currently allowed to claim a tax deduction for treasury shares of the company (or holding company) that are transferred to employees. The Scheme has now been enhanced to allow a tax deduction on payments to the holding company or a special purpose vehicle for the issuance of new shares of the holding company.
A&M’s take: This should be seen as a positive development that aligns with the government’s policy intent of encouraging long-term business growth and talent retention. The enhancement to the EEBR Scheme recognizes that equity-based compensation regimes are often complex and can involve various entities in a particular group structure. With the scope of tax deductions on equity-based compensations broadened (to encompass payments made to a SPV), this offers businesses the opportunity to manage share issuance more effectively and obtain certainty from a Singapore tax perspective.
Singapore continues to place emphasis on the growth of its financial sectors. To strengthen the attractiveness of our asset and wealth management sector, the government has set up the Equities Market Review Group which has developed its first set of tax measures to encourage more investments in our capital markets.
In Budget 2025, the Prime Minister unveiled the following tax incentives, with more details to be shared by the Review Group after Budget 2025:
(A) Listing CIT Rebate for new corporate listings in Singapore
Qualifying entities such as companies and registered business trusts that are tax resident in Singapore may apply for a 10% or 20% listing CIT Rebate (primary or secondary listings respectively) for new corporate listings in Singapore. The listing CIT Rebate allowed is capped at S$6 million per YA for qualifying entities with market capitalization of at least S$1 billion or S$3 million per YA for those with less than S$1 billion, subject to certain conditions being met (e.g. primary or secondary listing on the Singapore exchange, minimum listing period of 5 years, commit to incremental local business spending / fixed asset investment and incremental skilled employment by end of award tenure).
The listing CIT Rebate is granted for a non-renewable period of 5 years and the above scheme is open for award until 31 December 2027.
Prior approval is required from EDB or EnterpriseSG to enjoy the listing CIT Rebate.
(B) Enhanced corporate tax rate for new fund manager listings in Singapore
The Financial Sector Incentive – Fund Management (FSI-FM) Scheme currently accords concessionary tax rates of 10% on income derived from the management or advisory of a qualifying fund (“qualifying income”) derived by a qualifying Singapore fund manager. An enhanced corporate tax rate tier of 5% on qualifying income will be introduced under the FSI-FM Scheme for qualifying newly listed fund managers that satisfies the following (noting that the minimum conditions are subject to further details from the Review Group):
Enhanced FSI-FM awards are granted on a 5-year non-renewable basis and the above scheme is open for award until 31 December 2028. Prior approval is required from the MAS to enjoy the reduced tax rate of 5% under the enhanced FSI-FM Scheme.
(C) Tax exemption on fund managers’ qualifying income arising from funds investing substantially in Singapore-listed equities
The FSI-FM Scheme will be further enhanced to introduce a corporate tax exemption for management / advisory fees derived by a qualifying fund manager from the management / advisory of a qualifying fund that meets the following additional criteria:
Fund managers must also meet the existing minimum requirements for professional headcount and AUM, as currently required of existing FSI-FM companies, in order to apply for the above award.
The award is granted for a non-renewable period of 5 years per fund and the above scheme is open for award until 31 December 2028.
Prior approval is required from the MAS to enjoy the above tax exemption under the enhanced FSI-FM Scheme.
A&M’s take: Whilst these new incentives present opportunities for clients to optimize their tax positions while considering Singapore as a strategic location for listing and investment, fund managers should consider the legal, regulatory as well as commercial implications of a listing against the tax savings obtained. Although the liquidity of Singapore Stock Exchange (SGX)-listed equities may be somewhat improved with the launch of Singapore-listed equities focused funds or through the adjustments made by existing funds to their investment strategy Singapore-listed equities, the measures are unlikely to move the needle in terms of encouraging more listings on the SGX as corporate listings by fund managers are not common and the tax rebates may encourage only a limited number of fund managers to list in Singapore. It will be interesting to see what further details will be shared by the Review Group after Budget 2025.
To continue promoting the listing of REITs in Singapore, the following tax measures will be enhanced or introduced:
A&M’s take: S-REITs are a key part of Singapore’s stock market, making up over 12% of the SGX’s total market capitalization. It is a popular investment for institutions and individuals who intend to derive stable income. The above measure should contribute towards bolstering the Singapore capital markets.
Whilst global private credit markets have been gaining momentum, the government recognizes that few private credit funds focus on Asia (including Singapore).
To plug the gap, the government is proposing the introduction of a new S$1 billion Private Credit Growth Fund which seeks to provide alternative financing options for high-growth local enterprises.
A&M’s take: Singapore’s move is in line with similar Sovereign Wealth Funds which have graduated from direct Private Equity investing to Private Credit partnerships with Global Fund Houses. The Budget was silent on the implementation of the Private Credit Growth Fund. We will have to wait and see whether the government will appoint third-party fund managers to manage said Private Credit Growth Fund which would be helpful to support the growth of the asset management ecosystem in Singapore.
In any case, the introduction of the Private Credit Growth Fund should be welcoming for such high-growth local enterprises who are unable obtain traditional financing from financial institutions.
To ensure that our tax incentives remain relevant, the VCFI and the FMI will be allowed to lapse after 31 December 2025. The VCFI Scheme provides tax exemption for income from funds that meet the scheme’s requirement to invest into unlisted Singapore-based companies, while FMI offers fund management companies managing the associated S13H-approved funds a concessionary tax rate of 5%.
The government will continue to support the venture capital sector through a holistic suite of policies and initiatives.
A&M’s take: The VCFI and FMI schemes may have been lapsed due to the limited take-up. Funds can consider relying on the Section 13D/O/U Tax Incentive Scheme which provide a wider scope of qualifying investments.
With effect from 19 February 2025 (inclusive), the ASFA Award provides for withholding tax exemption on the following:
Prior approval is required from the Maritime & Port Authority of Singapore (MPA) to enjoy the ASFA Award, with more details to be provided by the MPA by Q2 2025.
A&M’s take: This incentive enhances Singapore’s attractiveness as a maritime hub, and businesses should closely monitor the MPA’s forthcoming details to ensure compliance and maximize the benefits of this scheme, optimizing their tax positions and reducing financing costs.
The Maritime Sector Incentive (MSI), which provides various tax concessions to ship operators, maritime lessors and providers of shipping related support services, will be extended till 31 December 2031. In addition, the withholding tax (WHT) exemption granted on qualifying payments made by qualifying MSI entities to non-tax residents in respect of qualifying financing arrangements entered into on or before 31 December 2026 to finance construction or purchase of qualifying assets has been extended to on or before 31 December 2031.
The MSI is being updated to remain relevant. Key changes include expanding the scope to cover emission management services, subsea distribution of renewable energy generated onshore, and maritime technology services. The updates also allow for recognition of certain leased assets as qualifying assets. These changes will be effective from 19 February 2025, with further details to be provided by MPA in Q2 2025.
A&M’s take: The expanded scope, particularly in areas like emission management and renewable energy, aligns with global sustainability trends and offers valuable tax incentives for companies investing in these forward-looking technologies and services.
As Singapore moves forward, the government remains committed to building a resilient, inclusive, and forward-looking nation. The Budget 2025 reflects this commitment, addressing both current challenges and future opportunities.
If you wish to deep dive on any aspects of Singapore’s 2025 Budget Statement or discuss opportunities of doing business in Singapore, please contact the listed authors.
https://www.alvarezandmarsal.com/insights/deep-diving-salient-tax-measures-singapore-budget-2025
