Understanding how Singapore’s Budget 2015 will Affect Your Business
SINGAPORE – On Monday, February 23rd, Singapore’s Finance Minister and Deputy Prime Minister, Tharman Shanmugaratnam, announced the release of the country’s Budget 2015, which, among welfare benefits for senior citizens, will have a number of important consequences for businesses.
According to the Deputy Prime Minister, the nation is currently at a crossroads: Singapore needs to focus on innovative growth as well as on creating an equal society that looks after the elderly and weak. During the previous few years, the social and economic gap has continued to widen. As a result, Prime Minister Lee Hsien Loong may call for elections in 2015 in order to bolster support for the government.
Under the new budget, individuals will profit from a wide range of measures like an increase in the amount of GST Vouchers given and in the number of waived exam fees for students. However, in order to help pay for such largesse, high-earning individuals will face increased taxes. The top five percent of earners, those with an income of SG$320,000 and above, will see their income taxed at a rate of 22 percent, instead of the previous rate of 20 percent. Below we highlight some of the key areas where Singapore’s Budget 2015 will affect your company.
Rising labor costs
If your company employs foreign labor, you should be aware of the increase in costs, which will result from the government’s measures to reduce Singapore´s reliance on foreign manpower.
According to the Deputy PM, “The government will refine the pace of increase in foreign-worker levies since foreign-worker inflows have slowed down markedly.”
In Singapore, any business employing foreign manpower is required to pay a foreign-worker levy (FWL) every month. This control mechanism is designed to regulate the demand for foreign workers. However, this increase in FWL won´t affect the maid levy for private households, which will see a reduction in order to ease the burden on families.
Furthermore, workers aged 50 to 55 will see their Central Provident Fund (CPF) contribution go up by two percent (one percent will be covered by the employer). The Temporary Employment Credit will also be extended by two years in order to help companies defray the cost increase. Currently, employers of Singaporeans and Singapore Permanent Residents earning up to SG$5,000 per month receive a one-year offset of 0.5 percent of wages. This will be raised to one percent.
Future, Productivity and Innovation
The new budget also attempts to lay out a number of schemes aimed at building worker competence. Through the SkillsFuture Program, every Singaporean above age 25 will receive an initial SG$500 of SkillsFuture Credit. The credit can be accumulated, won’t expire, and can be used for Government-supported courses. Employers will thus be able to benefit from their employees being able to upgrade their skills via mid-career learning.
Additionally, many businesses may qualify to take advantage of the PIC (Productivity and Innovation Credit) Bonus scheme, which is intended as a transitional measure to spread the culture of productivity among SMEs and to encourage them to make use of the PIC scheme. During the years 2013 to 2015, the PIC Bonus scheme gave certain businesses a dollar-for-dollar matching cash bonus, subject to a cap of SG$15,000 (for all three business years combined), on top of the existing benefits of the PIC scheme. By offering 400 percent tax deductions/allowances and/or a 60 percent cash payout on qualifying activities, the PIC scheme helps to cover the rising operational costs in order to boost innovation among SMEs. The PIC scheme will be available until 2018.
Tax benefits, subsidies and going global
In other good news for businesses, all charitable donations made from January 1st to December 31st will enjoy a tax deduction of 300 percent. This means that for every SG$1 donated, SG$3 will be deducted from the company´s taxable income for 2015. To qualify for a tax deduction, donations have to name either Institutions of a Public Character (IPC), and/or their facilities and events, or approved beneficiaries. The government clearly states that donations can’t have an advertising character (ex. display of logos or collaterals of the beneficiary).
The new budget will also extend the Wage Credit Scheme (WCS), which was originally set to expire this year. Employers will now be able to profit from the WCS for two more years, although at half the rate of the current subsidy. To help businesses that are facing rising wage costs, the government will co-fund 20 percent of wage increases given to Singaporean employees earning a gross salary of up to SG$4,000.
Additionally, the 30 percent Corporate Tax Income (CIT) rebate has been extended until 2017. The rebate is given to all companies, including:
- Registered business trusts
- Companies that are not tax resident in Singapore
- Companies that receive income taxed at a concessionary rate
Exceptions to the above are non-resident companies that are subject to final withholding tax. The cap lies at SG$20,000 per year.
The Singapore government will also be implementing three schemes aimed at encouraging local companies to internationalize and grow their revenue. These measures, which are expected to cost around SG$240 million, consist of the following:
- For SMEs performing activities under the International Enterprise Singapore grant scheme, the government will raise its support level from 50 percent to 70 percent until 2018.
- By enhancing the Double Taxation Deduction for Internationalization scheme, the government will cover salaries arising from Singaporean manpower posted abroad.
- The government will introduce the International Growth Scheme (IGS), which will provide qualifying companies a 10 percent concessionary tax rate on their incremental income, if the activity the income arises from qualifies. This scheme is set to expire in 2020.
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