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Singapore Budget 2007: Impact On Legal Practices
Posted on Thursday, February 15, 2007 - 06:00 PM

The Singapore Budget 2007 has some goodies specifically directed at the legal industry. To encourage international aribtration, approved law firms will be granted a 50% income tax exemption on qualifying incremental income derived from international arbitration work. This scheme will be available from 1 July 2007 to 30 June 2012. The incentive duration will be up to five years. The Ministry of Law will release further details by May 2007.

Singapore's Economy

In the budget speech, delivered for the first time by Second Finance Minister Tharman Shanmugaratnam on 15 February 2007, he said that in general, the Singapore economy has done well. It grew by 7.9% in 2006 with both the manufacturing and services sectors doing well. Overall, the Singapore economy is expected to grow by a healthy 4.5% to 6.5% for 2007.

The Minister further stated that the Budget is about preparing Singapore for the future and for the world. The Budget sets out key changes Singapore must make to:
(a) Build capabilities for the future;
(b) Strengthen the social security system;
(c) Reduce direct taxes and raise additional revenues, including GST;
(d) Provide Singaporeans with an offset package for the GST increase.

Impact On Legal Practices

On specific matters that touch on law practices & lawyers personally:-

(a) The government wants to develop Singapore as a centre for a range of “high-trust” services - from legal and financial services to highly specialised, niche services.

(b) For legal services, the government will position Singapore as a trusted centre for high-end arbitration work. The Minister said that Singapore has "the key ingredients in place to do so — efficiency, reliability and neutrality." The government has plans for an integrated dispute resolution complex and will complement these efforts by introducing a tax incentive that allows a 50% tax exemption for a law firm’s incremental qualifying income for international arbitration activities.

(c) The government plans to introduce a tax incentive scheme to give income tax exemption to Not-for-Profit Organisations (NPOs) that can bring economic value to Singapore. Among the targeted NPOs are those which have links to key clusters of Singapore's economy, such as the International Bar Association (IBA). The incentice will be administered by the EDB.

(d) The Government has decided to increase the employer's CPF contribution rate by 1.5 percentage points to 14.5%, starting from 1 July 2007.

(e) The corporate tax rate will be reduced from 20% to 18% with effect from year of assessment (YA) 2008.

(f) The threshold for Partial Tax Exemption (PTE) will be increased from S$100,000 to $300,000 with (i) 75% exemption of up to the first $10,000 of normal chargeable income (excluding Singapore franked dividend); and (ii) 50% exemption of up to the next $290,000 of normal chargeable income (excluding Singapore franked dividend). This tax change will take effect from YA2008.

(g) Section 15 Stamp Duty Relief on intra-group transfers will be extended to unlimited companies, Limited Liability Partnerships (LLPs) where all the partners are companies and Statutory Boards. IRAS will be issuing a guide on the new treatment in February 2007.

(h) Cess, that applies to F&B outlets, will be abolished.

(i) Road tax for passenger cars and motorcycles will be reduced by 8%. Details will be announced by Ministry of Transport.

(j) The monthly Foreign Domestic Worker Levy will be reduced by $30 from 1 July 2007. The Foreign Domestic Worker Levy Concession which currently only applies to those with young children and elderly parents, will be extended to employers with disabled family members, or who are themselves disabled and need additional care-giving support. This will take effect from 1 November 2007. More details on the qualifying criteria will be announced by the Minister for Community, Development Youth and Sports.

(k) The second tier foreign worker levy for the manufacturing and services sectors will be reduced from $310 to $280 with effect from April 2007.

(l) The GST rate will be increased from 5% to 7% with effect from 1 July 2007. The GST will be increased in one step while the economy is strong.

Other Highlights

Some other highlights of interest to businesses are:-

Financial Services

(a) Removal of the 80/20 rule in the tax exemption scheme for non-resident funds under section 13C of the Income Tax Act.

(b) Enhance tax exemption schemes for income of funds managed by local fund managers with effect from 15 February 2007: (i) Expand the list of designated investments to cover qualifying loans, physical commodities, and commodity derivatives; and (ii) Extend the schemes to Collaterised Debt/Loan Obligations.

(c) Enhance the Financial Sector Incentive (FSI) scheme, with effect from 15 February 2007, to include income earned from providing investment advisory services under fund management delegation arrangements with foreign fund managers.

(d) Expand scope of activities qualifying for the Finance and Treasury Centre (FTC) incentive scheme by allowing investments in qualifying unit trusts, with effect from 15 February 2007.

(e) Extend the existing tax exemption on over-the-counter (OTC) financial derivative payments by five years to 19 May 2012.

(f) Enhance the Qualifying Debt Securities (QDS) scheme to include prepayment fees, redemption premium and break cost which are paid to holders of qualifying debt securities issued on or after 15 February 2007. MAS will release details of the above tax changes by May 2007.

Transport & Logistics Services

(g) The incentive period for the Approved Shipping Logistics Enterprise Scheme will be extended from five years to ten years from 15 February 2007.

(h) Enhance the Aircraft Leasing Scheme (ALS) for the period of 1 March 2007 to 29 February 2012 by: (i) Offer an additional 5% concessionary tax rate category on qualifying leasing incomes; (ii) Extend the scheme to aircraft financing structures; and (iii) Expand the list of qualifying lease incomes to cover incomes from onshore leasing and leasing of aircraft engines. EDB will release details by May 2007.

(i) Zero-rate GST for expenses incurred to service, buy, or lease containers in the international transport of goods with effect from 1 April 2007. Details will be released by IRAS in March 2007.

Start-Ups & SMEs

(j) Removal of the expiry date for the corporate tax exemption scheme for start-ups, which exempts the first $100,000 of chargeable income.

(k) Qualifying SMEs will be given cash rebates on the first $80,000 of total employer and employee CPF contributions over two years. In the first year (1 July 2007 – 30 June 2008), the rebate is 2% of the first $40,000 of total CPF contribution and 1% of the next $40,000 of total CPF contribution. In the second year (1 July 2008 – 30 June 2009), the rebate is 1% of the first $40,000 of total CPF contribution and 0.5 % of the next $40,000 of total CPF contribution. Further details of the application process for rebates and the eligibility criteria will be released by 1 May 2007.

(l) Provide a grant for SMEs voluntarily registering for GST (capped at $5,000 per SME) to support up to 50% of GST registration-related costs, such as hardware, software, Internet connection and IT implementation consultancy and training.

Philanthropy Services

(m) Grant income tax exemption to all registered charities without requiring them to spend at least 80% of their annual receipts in Singapore within two years.

(n) Relax the 80/20 spending rule under the fund raising permit for foreign charitable causes for donations raised from private donors and not from the general public.

(o) Allow double tax deductions for donations to foundations and grantmakers as long as the donations are channelled to charities with Institution of a Public Character (IPC) status within a specified time frame. Details will be released by September 2007.

Others

(p) Tax deductions will be allowed from YA2008 for specified borrowing costs that are paid as a substitute for interest expense. IRAS will release details by May 2007.

(q) The concession permitting writing down allowances for acquired intellectual property will be extended from 31 October 2008 to 31 October 2013.

(r) The qualifying period for the investment allowance incentive will be extended from five to eight years, for assets acquired on hire-purchase basis. This will be effective for assets purchased on hire-purchase terms from 15 February 2007.

GST Off-Set Package

Details of the much anticipated 'off-set package' was also announced. They include:-

(a) GST Credits, basically it is a cash refund over 4 years. The GST Credits will vary depending on (i) a person's assessable income (AI); and )ii) the annual value (AV) of his/her home.

(b) Senior Citizens' Bonus targeted at Singaporeans aged 55 and above. The quantum will depend on their income and the annual value of their homes. Two-thirds of the Senior Citizens' Bonus will be given in cash and one-third credited into their Medisave Accounts.

(c) Top-ups to Post-Secondary Education Accounts for all Singapore citizen children aged from seven to twenty.

(d) Utilities-Save (U-Save), Service and Conservancy Charges (S&CC), and Rental Rebates extended for five years, from 1 April 2007 to 31 March 2012.

(e) A one-off property tax rebate of up to $100 per year in 2008 and 2009, ie $200 in total, for all owner-occupied residential properties.

(f) To increase financial assistance for kindergarten and childcare to help lower-income families with young children. The Kindergarten Financial Assistance Scheme (KiFAS) subsidy will be increased from 75% of kindergarten fees to 90%, ie a subsidy of about $80 a month. Subsidies for the Centre-Based Financial Assistance Scheme for ChildCare (CFAC) will be increased by between $20 and $40 a month for each child.

(g) For pensioners, the Singapore Allowance will be further increased by $20 per month, and the gross pension ceiling will be raised from the current $1,100 to $1,150 per month.

(h) A commitment of $10 million to a Public Transport Fund (PTF) in October 2007 to be given out over three years to qualifying lower-income households.

Workfare Income Supplement

The Workfare Income Supplement (WIS) scheme, introduced in Budget 2007 as a temporary measure, will be made permanent as a key social safety net for lower-income Singaporeans. The WIS scheme will be administered through the CPF system.

Overall

The estimated FY2007 Overall Budget Balance is a deficit of $0.7 billion. This compares favourably with an estimated budget deficit of $1.3 billion for FY 2006.

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