In a speech to parliament proposing amendments to the Economic Expansion Incentives Act (EEIA), Trade and Industry Minister Lim Hng Kiang said that the changes seek to stimulate more economic activities in Singapore, and also reflect the government’s commitment to keep its tax incentive regime competitive.
The proposed legislation comprises two corporate income tax changes, originally announced in the 2012 Budget Statement, as well as other amendments to the EEIA for improving tax administration arising from the regular review of the tax incentive regime.
Firstly, the Integrated Industrial Capital Allowance (IICA) scheme is to be replaced with an Integrated Investment Allowance (IIA).
The IICA scheme was introduced in 2003 in recognition that many companies site their operations across geographical boundaries. It allows a Singapore-based company, which carries out an approved project, to claim a capital allowance for qualifying equipment that it leases to a wholly-owned subsidiary outside Singapore, provided that the equipment is used solely in connection with the Singapore business.
The IIA scheme was introduced in the 2012 Budget to replace the IICA scheme and ensure that Singapore’s tax incentive scheme keeps pace with the evolving business environment. Compared to the IICA, the IIA provides an additional allowance on top of the capital allowance for qualifying equipment.
Furthermore, the equipment placed overseas need not be leased to a wholly-owned subsidiary of the Singapore-based company. This allows companies more flexibility in how they structure their overseas operations to support the activities they carry out in Singapore.
Secondly, the proposed bill extends the tax relief period of the Development and Expansion Incentive (DEI), which is meant to encourage companies which engage in high value-added activities to operate in Singapore, and which, introduced in 1996 via the EEIA, currently stipulates a maximum DEI period of 20 years.
To further incentivize companies to continue to grow in Singapore and to use Singapore as the home to expand their activities regionally or globally, the government is to lengthen the maximum possible incentive period from 20 years to 40 years. It is hoped that this will allow agencies greater flexibility to calibrate the DEI incentive period to be commensurate with the scale and scope of companies’ incremental commitments and activities in Singapore.