Singapore Issues Draft Income Tax (Amendment) Bill 2023

On 6 June 2023, the Ministry of Finance (MOF) issued the draft Income Tax (Amendment) Bill 2023 for public consultation. 

The annual Income Tax (Amendment) Act contains legislative amendments to the Income Tax Act 1947 (ITA) to effect tax measures announced in that year’s Budget as well as non-Budget changes arising from international tax developments and the government’s periodic review of Singapore’s tax system.

Some of the more notable non-Budget changes introduced in this year’s draft Bill are summarized below.

The government is proposing to tax gains from the sale of foreign assets that are received in Singapore by businesses without reasonable economic substance in Singapore. Foreign assets refer to immovable or movable property situated outside Singapore.

Taxpayers and Transactions Affected

The proposed tax will apply:

• to gains that would not otherwise be treated as income, or
• if the gains would otherwise be exempt from tax under the ITA.

The proposed amendment will only apply to an entity that is part of a multinational group and that does not have reasonable economic substance in Singapore, based on (among other things):

• the number, qualifications and experience of its employees
• the amount of business expenditure incurred in Singapore by the entity, and
• whether its key business decisions are made in Singapore.

The proposed amendment will not apply to:

• a group of entities that only have business operations in Singapore
• any sale or disposal of foreign assets by financial institutions or entities under certain tax incentive schemes, or
• gains received in Singapore by individuals.

Amount of Gains Subject to Tax 

Only the net amount of gains (after deducting relevant expenditure) that are received in Singapore or deemed to be received in Singapore is taxable.

Where the sale of the foreign asset is at a price less than the open market price of the foreign asset, the Comptroller of Income Tax may treat the open market price of the foreign asset as the amount of gain received in Singapore.

Effective Date

The proposed change will apply to gains from the sale of foreign assets that occurs on and after 1 January 2024.

Objective 

The proposed tax change will align the tax treatment of gains from the sale of foreign assets to the European Union (EU) Code of Conduct Group guidance, which aims to address international tax avoidance risks. 

Our Observations

Currently, Singapore does not impose tax on capital gains. The proposed change will subject certain capital gains arising from the sale or disposal of foreign assets to tax at the corporate tax rate if the gains are received in Singapore.

It should be noted that no absolute thresholds are being prescribed to determine whether an entity possesses reasonable economic substance in Singapore. It remains to be seen how the qualitative criteria outlined will be applied once the proposed legislation is passed and becomes effective.

The proposed change reflects the government’s commitment to participate in international efforts to combat tax avoidance, even if such international initiatives are not legally binding on Singapore. It is also in line with the government’s focus on anchoring substantive economic activities in Singapore. 

Submission of Income Information by Intermediaries for Self-Employed Persons

The government is proposing to mandate the collection and retention of income information of self-employed persons (SEPs) by identified intermediaries. These intermediaries refer to persons with whom the SEP entered into an agreement or arrangement for carrying on any trade, business, vocation or profession for which the SEP derives chargeable income. Examples of such intermediaries may include commission-paying agencies and taxi/platform operators.

Taxpayers Affected

The proposed amendment will apply to identified intermediaries for SEPs. The classes of identified intermediaries may be expanded from time to time by rules made by the Minister for Finance.

Effective Date

A phased implementation approach will be adopted based on the readiness of the industries, starting with commission agents in Year of Assessment (YA) 2024. The proposed amendments will take effect from YA 2024.

Objective

The proposed change will facilitate the income tax assessment of certain classes of SEPs by transmitting their income directly from the intermediaries to the Inland Revenue Authority of Singapore (IRAS), as well as the administration of schemes that cover SEPs, and allow the government to roll out SEP schemes more quickly and effectively going forward.

Our Observations 

The proposed change will shift the burden of income tax reporting and record keeping from SEPs to their intermediaries. Such intermediaries are likely to come from the real estate agency, financial advisory, securities and derivatives, insurance, taxi service sectors, etc. With accounting and human resource systems already in place, the intermediaries may be in a better position to collect income and expense information of SEPs, keep records and file such information to the IRAS. In effect, the proposed change will impose a responsibility on an intermediary that is similar to that of an employer. Currently, employers with five (5) or more employees are required to submit their employees’ employment income information to the IRAS electronically under the Auto-Inclusion Scheme (AIS) for Employment Income. It is possible that intermediaries for SEPs may eventually be required to participate in a similar scheme. 

Prosecution and Composition of Automatic Exchange of Information Offences

The government is proposing to allow the Comptroller of Income Tax to:

• authorise the commencement of the prosecution of Automatic Exchange of Information (AEOI) offences (which can currently only commence with the authorisation of the Public Prosecutor), and
• authorise officers to compound AEOI offences that are compoundable (which the Comptroller currently does not have the power to authorise).

Taxpayers Affected 

The proposed amendment will affect persons who fail or neglect to comply with:

• section 105L(1) of the ITA, relating to the provision of information to the Comptroller under international agreements to improve tax compliance, and
• any regulation made under section 105P of the ITA to implement international tax compliance agreements, etc, that requires the person to apply to the Comptroller for registration or report any information to the Comptroller.

Effective Date 

The proposed amendments will take effect from the date the Amendment Act is published in the Gazette.

Objective 

The proposed changes will help to streamline work processes for the prosecution and composition of AEOI offences.

Our Observations 

With its implementation of the Standard for Automatic Exchange of Financial Account Information in Tax Matters, also known as the Common Reporting Standard, Singapore has already made several changes to its income tax legislation to enable compliance with the Standard. The latest proposed changes will facilitate the prosecution and composition of AEOI offences by removing the need for the Comptroller to apply to the Public Prosecutor for consent to commence the prosecution of AEOI offences and by allowing the Comptroller to authorise the compounding of AEOI offences.

Simplify Taxation of Estates 

Currently, the ITA provides a concession where the income of an Estate Under Administration (EUA) may be assessed at the beneficiary level if the income is distributed to the beneficiary within a period of up to 27 months. The government is proposing to shorten the concession period from up to 27 months to within the same year of receipt or a period which the Comptroller is satisfied with.

The proposed amendments will also accord a resident beneficiary of an EUA with the same concessions, exemptions and foreign tax credits as a resident beneficiary of an Estate Held in Trust (EHT), as follows:

• exemption: any share of the statutory income of an EUA received by, distributed to or applied to resident beneficiary will be exempt from tax, if the income would have been exempt from tax had it been derived or received directly by the beneficiary. The amendment accords such a beneficiary the same tax treatment as that accorded to a resident beneficiary entitled to a share of statutory income of an EHT
• concession: a concessionary rate of tax will apply to any share of the statutory income of an EUA that is received by, distributed to or applied to a resident beneficiary, if that rate of tax would have applied had the income been derived or received directly by the beneficiary. The amendment accords such a beneficiary the same tax treatment as that accorded to a resident beneficiary entitled to a share of statutory income of an EHT
• foreign tax credit: where an executor of an EUA receives income from outside Singapore, tax credit for any part of that income that is received by, distributed to or applied to a resident beneficiary is to be given to the beneficiary. This is similar to the treatment given to a beneficiary entitled to a share of trust income received from outside Singapore.

Taxpayers Affected 

The proposed amendments will affect EUAs and resident beneficiaries of EUAs.

Effective Date 

The proposed amendments will take effect from the date the Amendment Act is published in the Gazette.

Objective 

These changes will simplify the taxation of estate income and ensure parity in tax treatment between EUAs and EHTs. 

Our Observations 

An estate is under administration one day after the death of the deceased to 31 December of the year in which the courts issue the Grant of Representation. During this period, the deceased person’s estate is administered by a legal personal representative. The income generated by the deceased’s assets is considered estate income. If the legal personal representative distributes the income during this period, it is estate income in the hands of the beneficiaries.

When the estate is no longer under administration and the investments and assets left in the estate are held in trust for the beneficiaries, the estate is held in trust. The trust is administered by a trustee. The income derived from assets belonging to the trust is trust income. If the income of discretionary trusts is distributed, it is trust income in the hands of the beneficiaries.

Since the underlying nature of the income generated from the deceased’s assets (eg rental income, dividend income, interest income) does not change whether the estate is under administration or held in trust, it makes sense for the tax treatment for income of an EUA to be aligned with that of income of an EHT.

Disbursement of Relief Payments to Drivers by Taxi and Private Hire Car Operators 

In August 2022, eligible taxi and private hire car (PHC) drivers received a one-off relief of $150 as part of the off-Budget $1.5 billion support package rolled out in June 2022, which was disbursed through taxi and PHC operators. Currently, operators are taxed on the payout received from the government as additional income, but cannot claim the subsequent payouts to their drivers as tax-deductible expenses.

The government is proposing to allow income tax deductions for taxi and PHC operators for their disbursement of the $150 one-off relief payments to their drivers in 2022, as well as any payouts under extensions of existing schemes or new schemes with a similar disbursement method, if the payouts were received by the operators in connection to a government scheme where taxi or PHC drivers are beneficiaries.

Taxpayers Affected 

The proposed amendment will affect taxi and PHC operators.

Effective Date

The proposed amendment will take effect from YA 2023 in respect of any benefit given on or after 1 August 2022 by taxi and PHC operators to taxi and PHC drivers.

Objective 

This change will ensure that taxi and PHC operators do not incur any additional tax burden in being intermediaries for this scheme and other payouts with a similar disbursement method.

Our Observations

Since the taxi and PHC operators are only acting as intermediaries by receiving the payouts on behalf of their drivers, and will disburse the payouts to the drivers within the same year, the payouts should not constitute income to the taxi and PHC operators. It therefore makes sense to allow taxi and PHC operators to claim income tax deduction on payouts disbursed to their drivers.

Withholding Tax on Payments to Non-Resident Professionals/Foreign Firms and Non-Resident Public Entertainers

The government is proposing to legislate the current IRAS administrative concession for payors to impose withholding tax on net income instead of gross payment made to non-resident professionals/foreign firms (NRP/FF) and non-resident public entertainers (NRPE).

With the proposed changes, where an NRP/FF opts to be taxed at the rate of 24% on the NRP/FF’s net income (instead of 15% or 10% on the gross amount of any income), the payor of such income to the NRP/FF will withhold tax in accordance with the following requirements:

• the payor is to deduct expenditure which the payor reasonably believes is wholly and exclusively incurred by the NRP/FF in producing that income, and
• the withholding tax rate is 24% instead of 15% or 10%.

The proposed amendments will align the law with the current IRAS administrative concession for withholding tax to be computed based on chargeable income instead of gross payments for payments made to NRPs/FFs and NRPEs.

Our Observations 

It should be noted that there is no change to the withholding tax treatment on income derived by NRPs/FFs and NRPEs. The legislation of the administrative concession provides certainty for payors of NRPs/FFs and NRPEs as such payors no longer need to check if the IRAS has withdrawn the administrative concession.

Empower the Inland Revenue Authority of Singapore to Issue a Notice to Attend Court 

Currently, law enforcement agencies generally initiate criminal proceedings by filing a Magistrate’s Complaint. If there is sufficient reason to proceed with a complaint from the regulatory agencies, the Magistrate must issue a summons for the attendance of an accused person.

The government is proposing to empower the IRAS to issue a Notice to Attend Court (NTAC) to any person who appears to the Comptroller to have committed an offence that is punishable by a fine or an imprisonment not exceeding 12 months, or to both.

Taxpayers Affected

The proposed amendment will affect persons who appear to the Comptroller to have committed an offence that is punishable by a fine or an imprisonment not exceeding 12 months, or to both.

Effective Date 

The proposed amendment will take effect from the date the Amendment Act is published in the Gazette.

Objective

The proposed amendment will streamline the IRAS’ administration process and optimise the use of court resources.

Our Observations

The proposed change will expedite the prosecution of tax offences by the IRAS by removing the need for the Comptroller to file a Magistrate’s Complaint to initiate criminal proceedings against potential offenders.

What's Next 

The MOF will publish a summary of the main comments received from the public on the Bill, together with the MOF’s responses, in August 2023. If the feedback is accepted by the MOF, the necessary changes will be made to the Bill before it is read in parliament. Where applicable, further clarification may be made in the relevant IRAS e-Tax Guides. The MOF will also explain or clarify why certain feedback is not accepted by the MOF. The Bill is expected to be presented to parliament in September or October 2023.