Budget 2025 Tax Developments

A. Introduction

On 18 February 2025, Prime Minister and Finance Minister Lawrence Wong delivered Singapore's 2025 Budget Statement. In this client alert, we unpack key themes from the Minister's Budget Statement and highlight the pertinent tax changes introduced in this year's Budget Statement as well as their implications.

B. Budget speech takeaways

1. Fiscal position

On Singapore's current fiscal position, the Minister announced in the Budget Statement that Singapore is expected to close the Financial Year (FY) 2024 with a budget surplus of $6.4 billion (0.9% of GDP), with a similar surplus of $6.8 billion (0.9% of GDP) projected for FY2025. Notably, such surplus is primarily driven by higher Corporate Income Tax (CIT) collections, which have now become the largest contributor to total fiscal revenue. The Minister attributed this growth to industry-specific cyclical factors and shifting investment decisions of multinational enterprises (MNEs), as they seek stable and reliable hubs like Singapore to anchor high-value activities. The continued influx of capital-intensive investments of MNEs into Singapore despite heightened global political and economic uncertainties reaffirms and underscores Singapore's longstanding economic and political attractiveness.

2. Global Anti-Base Erosion Model Rules (Pillar Two)

In the Budget Statement, the Minister addressed uncertainties surrounding government revenue, particularly in relation to the Global Anti-Base Erosion Rules (Pillar Two) – Inclusive Framework on Base Erosion and Profit Shifting (BEPS), introduced by the Organisation for Economic Co-operation and Development (OECD) (Pillar Two). Effective 1 January 2025, Singapore has, by way of the enactment of the Multinational Enterprise (Minimum Tax) Act 2024 (MMT Act) and its associated regulations, imposed a minimum effective tax rate of 15% via a system of top-up taxes (being the Domestic Top-up Tax (DTT) and the Multinational Enterprise Top-up Tax (MTT), on any jurisdictional excess profits of low-taxed constituent entities of in-scope Multinational Enterprise groups. The Minister highlighted that while DTT may generate additional CIT revenue, the extent of revenue collection would ultimately depend on whether MNEs continue to view Singapore as an attractive investment hub.

With Pillar Two in full force in Singapore, relevant multinational groups should take proactive steps to ensure compliance with such legislation. Key areas of consideration would include an assessment of whether it is in-scope, filing obligations, entity characterization and classification, the availability of relevant safe harbors, and any relevant adjustments and elections required or permitted to be made to the constituent entity's GloBe Income and Covered Taxes.

It remains to be seen whether the implementation of Pillar Two would result in any meaningful reduction in foreign investments into the city-state. That said, Singapore's competitive tax regime has traditionally been only one of the many factors that contribute towards its attractiveness as an investment hub. Existing structural advantages in the form of strong legal and regulatory frameworks, robust intellectual property protections, access to global markets and a highly skilled workforce continue to reinforce Singapore's position as a premier investment destination.

3. Property tax

In the Budget Statement, the Minister outlined measures designed to preserve fairness and progressivity within the tax system. Specifically, the Minister spoke on the increase in property tax rates applicable to non-owner-occupied residential properties (primarily investment properties) and higher-value owner-occupied residential properties. To ensure more homes fell within bands with lower tax rates, adjustments were made to the AV bands for owner-occupier homes and property tax rebates were introduced to further mitigate potential impacts. The revised AV bands, initially declared in Budget 2024, took effect on 1 January 2025. Taken together, the Minister noted that this adjustment will allow all HDB owner-occupiers and over 90% of private residential owner-occupiers to benefit from lower property taxes this year while placing Singapore on a stronger fiscal footing.

C. Key highlights

1. Tax incentives to boost Singapore's capital market

In response to concerns of the Singapore Stock Exchange's (SGX) limited appeal for companies focused on domestic and Southeast Asian markets, the Government has established the Equities Market Review Group to propose measures designed to enhance SGX's attractiveness for both listings and investments. In line with the group's recommendations, the Minister confirmed that three new tax incentives will be introduced to encourage Singapore-based companies and fund managers to list on SGX and invest in Singapore-listed equities.

1. CIT Rebate for Listings: To encourage companies to raise capital and grow their economic activities in Singapore, tax resident companies and registered business trusts that undertake a primary or secondary listing in Singapore will receive a 20% and 10% CIT rebate, respectively. This is subject to a five-year listing requirement, alongside commitments to incremental local business spending or fixed asset investments, and skilled employment growth. The rebate is capped at $6 million per Year of Assessment (YA) for entities with a market capitalisation of at least $1 billion, and $3 million per YA for those below this threshold.
2. Enhanced 5% Concessionary Tax Rate (CTR) for Fund Managers: To enhance Singapore's value proposition to fund managers seeking to scale up their activities via public fundraising and grow their investment activities in Singapore, a 5% CTR will be introduced for newly listed fund managers, provided the fund manager or its holding company secures and maintains a primary listing on SGX for five years, distributes a portion of profits as dividends, and meets minimum professional headcount and assets under management (AUM) requirements. This incentive will be introduced under the Financial Sector Incentive-Fund Management (FSI-FM) scheme.
3. Corporate Tax Exemption for Fund Managers Investing in SGX-Listed Equities: To support fund managers in launching and managing funds that invest substantially in Singapore-listed equities, a corporate tax exemption on income arising from qualifying funds will be introduced, provided they meet professional headcount and AUM thresholds. Additionally, qualifying funds must invest at least 30% of their AUM in SGX-listed equities, with existing funds required to maintain an annual net inflow of at least 5% of AUM from the preceding year. The tax exemption will apply to fees earned from fund management and investment advisory activities related to these funds. This incentive will be introduced under the FSI-FM scheme.

The Equities Market Review Group has published more details on its recommendations on the MAS website. Notably, the Equities Market Review Group set out the following measures which we summarise as follows:

Increase investor interest (demand)

• Launch of a $5 billion Equity Market Development Programme (EQDP) by MAS and the Financial Sector Development Fund (FSDP): MAS will invest with selected fund managers with capabilities to implement investment mandates with a strong focus on Singapore stocks. These strategies should be actively managed, invest in a range of companies and not just index component stocks, and over time draw in investments from other investors. MAS will start the process of evaluating eligible fund managers and strategies over the next few months.
• Adjustment to the Global Investor Programme (GIP) to support more capital inflows into Singapore: Currently, GIP applicants investing under the Family Office option have to establish a Single Family Office (SFO) with assets under management of at least S$200 million, of which at least S$50 million must be deployed into qualifying investment categories consisting of listed equities/REITS/business trusts, qualifying debt securities, Singapore-distributed funds and non-listed Singapore-based operating companies. Moving forward, for new GIP Family Office applicants, the qualifying investment categories will be narrowed to equities listed on approved Singapore exchanges.
• Corporate Tax Exemption for Fund Managers Investing in SGX-Listed Equities (explained above)

Improving attractiveness to quality listings (supply)

• CIT Rebate for Listings (explained above)
• Enhanced CTR for Fund Managers (explained above)
• Enhancement of support by for the development of local enterprises to provide a pipeline of potential companies for listing: This includes the new investment schemes announced at Budget 2025, which are administered by the Ministry of Trade and Industry, and Enterprise Singapore.

Separately, we also look forward to further updates on the Global Founder Programme (GFP) to be launched later this year by the Economic Development Board (EDB) which would encourage global founders to anchor and grow more new ventures in Singapore. It would be interesting to see how the GFP could potentially contribute to a pipeline of quality listings for instance.

2. Enhancements to Section 13W of the ITA

Another notable change outlined in this year's Budget is the enhancement of Section 13W of the Income Tax Act (ITA). Under the current regime, Section 13W exempts gains from the disposal of ordinary shares if the divesting company maintains at least a 20% shareholding in the investee company for a continuous period of at least 24 months prior to disposal (subject to certain other conditions and exceptions). The Budget introduces two key enhancements:

1. Expansion of Scope: Gains from the disposal of preference shares that are accounted for as equity by the investee company under the applicable accounting principles will now qualify for exemption under Section 13W; and
2. Group-Based Assessment: The 20% shareholding threshold will be assessed on a group basis.

The existing sunset date of 31 December 2027 for the Section 13W safe harbor will also be removed.

The expansion of the scope of the Section 13W safe harbor to include preference shares is a welcomed development, particularly for investment funds, given its growing popularity as a means of financing investments. Such a change will provide greater tax certainty that the disposal of such shares will be exempt from income taxes. That said, it should be borne in mind that the applicability of such exemption continues to remain subject to the provisions of Section 10L of the ITA in respect of any disposal of foreign assets.

In addition, the group-based assessment also enhances flexibility in structuring investments within corporate groups. Such developments are expected to enhance Singapore's tax competitiveness and aligns with Hong Kong's Tax Certainty Enhancement Scheme for onshore gains from equity disposals. We note that the Inland Revenue Authority of Singapore (IRAS) will provide further guidance by Q3 2025.

3. Tax deduction for payments under an approved cost-sharing agreement

The government's commitment to supporting collaborative innovation activities is further evident from the introduction of a tax deduction for payments made under an approved cost-sharing agreement (CSA) for innovation activities. As it stands, payments under a CSA are granted a tax deduction pursuant to sections 14C and 14D of the ITA, which requires demonstration that such expenditure is in connection with a "research and development" project. In practice, the satisfaction of such condition can be challenging, as the taxpayer is required to substantiate and satisfy IRAS (via proper contemporaneous documentation) that the underlying project satisfies the condition of "research and development" (as per section 2 of the ITA). Such an introduction appears to be supplementary to the existing CSA payment deduction regime, which requires expenses to meet the R&D criteria. This is a welcomed change, as it further underscores the importance of technological innovation in Singapore and highlights Singapore's destination as a global hub for intellectual property. At the moment, it is unclear what "collaborative innovative" activities entail. Further details will be provided by the EDB in Q2 2025.

4. Tax deduction on payments to holding company or SPV for issuance of holding company shares under Employee Equity-Based Remuneration Schemes

In Budget 2025, a new tax deduction was introduced on payments to the holding company or a special purpose vehicle (SPV) for the issuance of new shares of the holding company under Employee Equity-Based Remuneration (EEBR) schemes, subject to certain conditions. Historically, such deductions were only allowed for treasury shares or previously issued shares of the company or the holding company that are transferred to employees under EEBR schemes. Such change accords enhanced flexibility for companies in structuring their equity-based remuneration packages.

Further details on the scheme will be provided by IRAS in Q3 2025.

5. Other notable tax changes

In addition, the Budget 2025 introduces several notable tax changes aimed at enhancing business flexibility and competitiveness:

1. CIT Rebate: Recognizing that higher prices affect businesses struggling with higher rent and labour costs, the Government will provide a 50% CIT Rebate for YA 2025 to support companies' cash flow needs. Companies that are active and have employed at least one local employee in Calendar Year (CY) 2024 will receive a minimum benefit of $2,000 in the form of a CIT Rebate Cash Grant. However, this measure is expected to have limited impact on MNEs and UHNW individuals as the maximum benefit (i.e., sum of CIT Rebate and CIT Rebate Cash Grant) a company can receive under is $40,000.
2. Enhancement to the Land Intensification Allowance (LIA) scheme: The LIA scheme allows qualifying companies to claim for qualifying capital expenditure incurred on the construction of a qualifying building or structure. One of the requirements of the scheme is that at least 80% of the gross floor area of the qualifying building must be used by the approved recipient or its related users. Previously, to be considered related, the users must have "at least 75%" of their shareholdings held in common whether directly or indirectly. The shareholding requirement will now be lowered to "more than 50%", encouraging greater land use efficiency. Further details will be provided by the Building Construction Authority (BCA) and EDB by Q3 2025.
3. Introduction of additional CTR tier of 15% for schemes: Budget 2025 saw the introduction of an additional CTR tier of 15% for several schemes, namely the Financial Sector Incentive (FSI), Insurance Business Development (IBD), IBD-Captive Insurance (IBD-CI) and IBD-Insurance Broking Business (IBD-IBB) schemes. The additional CTR tier would likely come with reduced economic commitments and may be available to prospective recipients who previously were not eligible for the existing CTR tiers. This affords greater flexibility in tax structuring and allows businesses to mitigate DTT exposure under Pillar Two. Further details will be provided by the Monetary Authority of Singapore (MAS) by Q2 2025.

Extensions and lapses of schemes

Budget 2025 saw the extension of several incentives which were due to reach their sunset date, including the following:

General Tax Schemes

• Double Tax Deduction for Internalization (DTDi) scheme;
• Mergers and Acquisitions (M&A) scheme;
• LIA scheme;
• IBD scheme; and
• Certain tax incentive for Project and Infrastructure Finance

Industry-Specific Schemes

• Incentives relating to Real Estate Investment Trusts listed on the Singapore Exchange (S-REITs) (see table below); and
• Incentives relating to the maritime industry (see table below).

Other incentives will be allowed to lapse upon reaching their respective sunset dates, including the exemption of qualifying income from qualifying project debt securities (QDPS), the Venture Capital Fund Incentive (VCFI) and the venture capital Fund Management Incentive (FMI) schemes.

Lastly, pertaining to industry-specific incentives, we outline a summary of the key changes impacting S-REITs and the maritime sector in the table below:

D. Conclusion

As demonstrated by the changes introduced in the 2025 Budget, tax policy remains one of the key tools in Singapore's strategy to attract investments, particularly for industries that are unaffected by Pillar Two, such as shipping, investment funds, and REITs – a focus that is also reflected in efforts to boost Singapore equities listings. Additionally, Singapore continues to refine its existing tax schemes to maintain its investment competitiveness, including the expansion and enhancements of the tax deduction regime pertaining to CSA payments and EEBR and the LIA scheme. That said, with the implementation of Pillar Two, it is increasingly important for Singapore to leverage its non-tax strengths to sustain its competitive edge within a complex global landscape.

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