SINGAPORE Law and Practice Contributed by: Yang Shi Yong, Drew & Napier LLC
• expanding or establishing the scope of activities in digital services, professional services and supply chain management; • expanding or establishing headquarters activities or centres of excellence; • carrying out R&D and innovation activities; • implementing solutions with decarbonisation objectives; and • setting up or expanding activities by commodity trading firms. 9.5 The Competitive Tax System Singapore has extensive tax incentive schemes to attract foreign investors to its shores. With the intro - duction of the BEPS Project, it remains to be seen whether Singapore will remove any of its tax incentive schemes. However, there are several notable changes to certain tax incentives in the 2025 Singapore Budg - et. For example, an additional concessionary tax rate tier of 15%, which is in line with the global minimum effective tax rate of 15% under Pillar Two, will be intro - duced under the Insurance Business Development (IBD) and Financial Sector Incentive (FSI). Under the IBD scheme, approved insurers are granted conces - sionary tax rates of either 10% or 15% on qualifying income. Similarly, under the FSI scheme, qualifying financial institutions will enjoy concessionary tax rates of 5%, 10%, 12%, 13.5% or 15% on their qualifying activities. In addition, Singapore does not tax the net wealth of individuals because of the practical difficulties in esti - mating wealth accurately, and because many forms of wealth are mobile. Nonetheless, Singapore taxes wealth in other ways, including through a property tax and stamp duties. The Singapore government also tries to lessen some of the wealth divergence through its home ownership policy. For example, the government has been heavily subsidising public housing so that occupants can gain from the increase in house prices. 9.6 Hybrid Instruments and BEPS Implementation Singapore does not have any legislation for dealing with hybrid instruments. Nonetheless, the Singapore tax authorities had, in 2019, published an updated
guide on the income tax treatment of hybrid instru - ments. Since Singapore is a BEPS Associate committed to implementing the four minimum standards, it is unlikely that BEPS Action 2 – neutralising the effects of hybrid mismatch arrangements – will be implement - ed in Singapore. 9.7 Interest Deductibility and Territorial Tax Regime BEPS Action 4 on limitation on interest deductions seeks to address BEPS risks arising from scenarios such as groups placing debts in high tax countries, or using intragroup loans to generate excessive inter - est deductions. One recommendation was to restrict an entity’s interest deductions to a fixed percentage (10%–30%) of its earnings before interest, taxes, depreciation and amortisation (“fixed ratio rule”). Singapore has a territorial tax regime. As a BEPS Associate, Singapore does not have any interest deductibility restrictions under BEPS Action 4. In Sin - gapore, interest is generally deductible if it is wholly and exclusively incurred in the production of income. As such, interest from non-income producing assets will not be deductible. While interest above the fixed ratio rule remains deductible in Singapore, BEPS risks are mitigated because Singapore is a low tax country. Additionally, any intragroup loans must be at arm’s length, otherwise the Comptroller may reduce the amount of deduction allowed. 9.8 Controlled Foreign Corporation Reform Singapore does not have any CFC rules. 9.9 Anti-Avoidance Rules Singapore’s DTAs have either a limitation on relief pro - vision or a principal purpose test provision. Limitation on Relief The limitation on relief provision restricts the DTA benefits a Singapore resident may receive in relation to foreign-sourced income received in Singapore. As such, Singapore investors have to repatriate profits from their foreign investments, regardless of the com - mercial reasons.
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