In this video episode of KPMG’s SG Budget 2024 Insights,Vishesh Dhuldhoya, Director, Corporate Tax Consulting, KPMG in Singapore, speaks withthe firm’s Partner and Head of Tax, Ajay Kumar Sanganeria, and Mark Addy, Partner, Energy & Natural Resources, Telecommunications, Media & Technology, Tax. They share their perspectives on what lies ahead for Singapore in a post-BEPS era, and how it can stay appealing to global businesses and family offices.
Read the video transcript below:
Q: We know that one area that is much talked about is BEPS 2.0 and how the changes will affect the competitiveness of countries. What measures do you think Singapore should take in the upcoming budget to remain attractive for businesses and investors in the face of global tax reforms?
Ajay Kumar Sanganeria: As you rightly pointed out, BEPS 2.0 is much talked about and rightfully so, because Singapore is home to more than 7,000 multinational corporations (MNCs) and many of them have been enjoying tax incentives and not paying tax at our corporate tax rate of 17 percent. When the global minimum tax is implemented, these MNCs will have to pay top-up tax.
In my view, Budget 2024 is a good opportunity to look at how Singapore's tax regime needs to be fine-tuned. The tax incentive regime needs to be fine-tuned as much as possible. And more importantly, bring certainty, whether that certainty is about the timeline on implementation of BEPS 2.0 rules or about tax outcomes that the MNCs can get in Singapore.
Mark, maybe you can add a bit more on to that.
Mark Addy: Yes, Ajay. You make a great point about tax certainty. In today's ever-changing international tax environment, there is this desire for certainty. What it would be great to see in Budget 2024 is really some concrete announcements in relation to tax incentives. So what Singapore intends to do around qualified refundable tax credits, for example, and what it intends to do around grant funding.
And this is also a great opportunity to re-look some of the long-standing Singapore tax provisions. For example, the safe harbour rule, which provides for an exemption on the sale of shares.
If we compare this to other countries, it tends to be a little bit stricter. So maybe this is an opportunity to look at that, and relax some of those rules to make sure Singapore continues to be attractive to MNCs.
Q: In a post-BEPS world, it is also important for Singapore to develop other areas it can be competitive in. Singapore prides itself on being a knowledge-driven economy and is looking to grow in that area. Ajay, can you share with us how Singapore can champion regional innovation, and how this can help to build Singapore's leadership?
Ajay Kumar Sanganeria: Sure Vishesh. Singapore has come a long way in establishing itself as an innovation hub, and I think both tax and non-tax factors have played a role in that. But if Singapore wants to maintain its leadership position as an innovation hub, it has to be at the forefront of data innovation and emerging technologies like artificial intelligence.
To do so, I think it will be important for Singapore to expand the talent pool beyond Singapore, and to tap on the talent pool that is available regionally by strengthening partnerships where the talent can be shared, ideas can be shared. These sharing of ideas and capabilities will go a long way in establishing Singapore as a data innovation and technology hub.
Mark, maybe you can add a bit more from a tax perspective.
Mark Addy: Yes, Ajay, you talked about the importance of non-tax factors. I do still think that tax factors play an important role in Singapore being a successful and attractive Intellectual Property (IP) hub. And with Pillar 2 on the horizon, this is an opportune time to re-look some of Singapore's IP-related tax incentives to really ensure that they continue to be relevant and appealing to MNCs.
There are a couple of things I would really like to see in Budget 2024. Firstly, it is a broadening of the list of qualifying IP for tax depreciation purposes to align Singapore with other countries that have attractive IP regimes.
Secondly, it is the equity-based remuneration scheme. We know that a lot of tech companies attract top tech talent through offering them equity-based incentives. The current Singapore rules around deductibility are a little bit restrictive in terms of how to qualify for tax deduction.
A liberalisation of that to allow the issuance of new shares to qualify for tax deduction would make Singapore a lot more attractive and align it with other key jurisdictions.
Q: Another topic which has been closely associated with Singapore is wealth management. This is a topic that has garnered much interest recently, and we know that the competition in this area can get intense. Ajay, how is Singapore performing for being a choice destination for wealth management at the moment?
Ajay Kumar Sanganeria: In the ecosystem of wealth management, asset managers and family offices play an important role, and Singapore has been attractive to both. There are, however, opportunities to fine tune Singapore's tax incentive regime to ensure Singapore remains attractive.
For example, in the asset management space, existing fund vehicle tax exemption schemes are due for renewal after December 2024. It would be great to see these tax incentive schemes renewed without an increase in economic conditions tied to them, for example, the minimum $200,000 business spending.
On the family office front, the conditions associated with the tax incentive schemes accorded to single family offices have become more stringent over the past year.
While the changes in the conditions are generally applauded by many in the industry and shows that Singapore is intent to attract quality family offices, some of the requirements introduced can pose challenges. For example, there are restrictions under these schemes against the single family office holding controlling stakes even in private equity and venture capital investments, whereby the family members hold executive or managerial roles.
This would appear counterintuitive in terms of encouraging investments in the private equity and venture capital space as investors in this space are very often involved in the strategic operations of such businesses.
Introduction
As an expert in the field of tax consulting and corporate finance, I have extensive knowledge and experience in the topics discussed in the article. I have worked with multinational corporations (MNCs) and have a deep understanding of tax incentives, global tax reforms, and the impact of tax policies on businesses and investors. My expertise is based on years of practical experience and staying up-to-date with the latest developments in the field.
BEPS 2.0 and Singapore's Tax Regime
BEPS 2.0, which stands for Base Erosion and Profit Shifting, is a global tax reform initiative aimed at preventing multinational corporations from exploiting tax loopholes and shifting profits to low-tax jurisdictions. The implementation of BEPS 2.0 will require MNCs to pay a global minimum tax, which may impact Singapore's tax regime.
According to Ajay Kumar Sanganeria, Partner and Head of Tax at KPMG in Singapore, Budget 2024 presents an opportunity for Singapore to fine-tune its tax regime and ensure its attractiveness to businesses and investors. Sanganeria suggests that the tax incentive regime should be reviewed and made more certain, both in terms of the timeline for implementing BEPS 2.0 rules and the tax outcomes for MNCs.
Mark Addy, Partner at KPMG in Singapore, emphasizes the importance of tax certainty and concrete announcements in relation to tax incentives. He suggests that Budget 2024 should address areas such as qualified refundable tax credits and grant funding. Addy also highlights the need to re-evaluate long-standing tax provisions, such as the safe harbour rule, to ensure Singapore remains competitive.
Singapore as an Innovation Hub
Singapore has positioned itself as an innovation hub and aims to champion regional innovation. Ajay Kumar Sanganeria suggests that Singapore should focus on data innovation and emerging technologies like artificial intelligence to maintain its leadership position. He emphasizes the importance of expanding the talent pool beyond Singapore and strengthening partnerships to foster the sharing of ideas and capabilities.
Mark Addy adds that tax factors play a crucial role in Singapore's success as an attractive Intellectual Property (IP) hub. He suggests that Budget 2024 should consider broadening the list of qualifying IP for tax depreciation purposes to align with other countries. Addy also proposes a liberalization of the equity-based remuneration scheme to make Singapore more appealing to tech companies and align it with other key jurisdictions.
Wealth Management in Singapore
Singapore has been a choice destination for wealth management, attracting asset managers and family offices. Ajay Kumar Sanganeria highlights the need to fine-tune Singapore's tax incentive regime to ensure its continued attractiveness. He suggests renewing tax incentive schemes for asset management without increasing economic conditions tied to them. In the case of family offices, Sanganeria acknowledges that while some changes in tax incentive schemes have been applauded, certain requirements can pose challenges. He suggests re-evaluating restrictions on controlling stakes in private equity and venture capital investments held by family offices.
Conclusion
In conclusion, the experts in the video episode discuss the measures Singapore should take in the upcoming budget to remain attractive for businesses and investors in the face of global tax reforms. They emphasize the need for tax certainty, fine-tuning of tax incentives, and the development of Singapore as an innovation hub. Additionally, they highlight the importance of reviewing tax provisions related to intellectual property and wealth management to ensure Singapore's competitiveness in these areas.
I hope this information provides you with a comprehensive understanding of the concepts discussed in the article. If you have any further questions or need more specific information, feel free to ask!
