Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

Bill No. 7/2004

Read the first time on 27th February 2004.
An Act to amend the Economic Expansion Incentives (Relief from Income Tax) Act (Chapter 86 of the 2001 Revised Edition) and to make consequential amendments to the Income Tax Act (Chapter 134 of the 2004 Revised Edition).
Be it enacted by the President with the advice and consent of the Parliament of Singapore, as follows:
Short title and commencement
1.—(1)  This Act may be cited as the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004.
(2)  Sections 3, 4 and 5 shall be deemed to have come into operation on 27th November 2002.
(3)  Section 7 shall be deemed to have come into operation on 10th December 2002.
(4)  Sections 6, 11 and 22 shall be deemed to have come into operation on 20th December 2002.
(5)  Section 23 shall be deemed to have come into operation on 1st March 2003.
(6)  Section 24 shall be deemed to have come into operation on 1st June 2003.
(7)  Sections 16, 18(a) and 25 shall be deemed to have come into operation on 1st January 2004.
Amendment of section 3
2.  Section 3 of the Economic Expansion Incentives (Relief from Income Tax) Act (referred to in this Act as the principal Act) is amended by deleting the definitions of “approved product”, “expanding enterprise”, “expansion certificate”, “expansion day”, “export enterprise”, “export enterprise certificate”, “export produce”, “export product”, “export year”, “officer of customs” and “senior officer of customs”.
Amendment of section 6
3.  Section 6 of the principal Act is amended by deleting the words “a period of 5 years or such longer period” and substituting the words “such period”.
Amendment of section 8
4.  Section 8 of the principal Act is amended —
(a)by deleting subsections (1) and (2) and substituting the following subsection:
“(1)  Where, during its tax relief period, a pioneer enterprise carries on any trade or business other than the trade or business relating to the relevant pioneer product (referred to in this section as separate trade), separate accounts shall be maintained in respect of that separate trade or business and in respect of the same accounting period.”; and
(b) by deleting the word “Minister” in subsection (4) and substituting the word “Comptroller”.
Amendment of section 10
5.  Section 10(3A) of the principal Act is amended by deleting the words “Where the carrying on of a separate trade or business by a pioneer enterprise referred to in subsection (3) has been permitted under section 8(1)” and substituting the words “Where a pioneer enterprise referred to in subsection (3) carries on a separate trade or business”.
Amendment of section 14
6.  Section 14 of the principal Act is amended by deleting subsection (3A) and substituting the following subsection:
“(3A)  Notwithstanding subsections (3) and (9), no dividend paid on any share of a preferential nature shall be exempt from tax under this section in the hands of the shareholder.”.
Amendment of section 15
7.  Section 15(1) of the principal Act is amended by deleting the words “section 37(2) and (2A) of the Income Tax Act” and substituting the words “section 37 of the Income Tax Act, with the necessary modifications,”.
Repeal of Part IIIA
8.  Part IIIA of the principal Act is repealed.
Amendment of section 19J
9.  Section 19J of the principal Act is amended —
(a)by inserting, immediately after the word “activities” in subsection (6), the words “(referred to in this section and section 19M as qualifying income)”; and
(b)by deleting the words “income from such qualifying activities” in subsection (7) and substituting the words “qualifying income”.
Amendment of section 19K
10.  Section 19K(3) of the principal Act is amended by inserting, immediately after the words “Part IIIA”, the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Amendment of section 19L
11.  Section 19L of the principal Act is amended by deleting subsection (4) and substituting the following subsection:
“(4)  Notwithstanding subsections (3) and (6), no dividend paid on any share of a preferential nature shall be exempt from tax under this section in the hands of the shareholder.”.
Repeal and re-enactment of section 19M and new sections 19N, 19O and 19P
12.  Section 19M of the principal Act is repealed and the following sections substituted therefor:
“Ascertainment of income from qualifying activities
19M.—(1)  Subject to subsections (2) and (3), the qualifying income of a development and expansion company shall be ascertained in accordance with the provisions of the Income Tax Act after making such adjustments as may be necessary in consequence of any direction given under section 19P.
(2)  In determining the qualifying income of a development and expansion company for the basis period for any year of assessment —
(a)the allowances provided for in sections 16, 17, 18, 19, 19A, 19B, 19C, 19D, 20, 21 and 22 of the Income Tax Act shall be taken into account notwithstanding that no claim for such allowances has been made;
(b)the allowances referred to in paragraph (a) for that year of assessment shall firstly be deducted against the qualifying income of the company, and any unabsorbed allowances shall be deducted against the other income of the company subject to tax at a different rate of tax under this Act or the Income Tax Act (Cap. 134) in accordance with subsection (3);
(c)the balance, if any, of the allowances after the deduction in paragraph (b) shall be available for deduction for any subsequent year of assessment in accordance with sections 22A and 23 of the Income Tax Act and shall be made in the manner provided in that paragraph;
(d)any loss incurred for that basis period shall be deducted in accordance with subsection (3) against the other income of the company subject to tax at a different rate of tax under this Act or the Income Tax Act;
(e)the balance, if any, of the losses after the deduction in paragraph (d) shall be available for deduction for any subsequent year of assessment in accordance with section 37 of the Income Tax Act firstly against the qualifying income of the company, and any balance of the losses shall be deducted against the other income of the company subject to tax at a different rate of tax under this Act or the Income Tax Act in accordance with subsection (3);
(f)any unabsorbed donation for that year of assessment shall be deducted in accordance with subsection (3) against the other income of the company subject to tax at a different rate of tax under this Act or the Income Tax Act; and
(g)the balance, if any, of the donations after the deduction in paragraph (f) shall be available for deduction for any subsequent year of assessment in accordance with section 37 of the Income Tax Act firstly against the qualifying income of the company, and any balance of the donations shall be deducted against the other income of the company subject to tax at a different rate of tax under this Act or the Income Tax Act in accordance with subsection (3).
(3)  Section 37B of the Income Tax Act shall apply, with the necessary modifications, in relation to the deduction of the allowances provided for in sections 16, 17, 18, 19, 19A, 19B, 19C, 19D, 20, 21 and 22 of that Act, the losses or donations under section 37 of that Act in respect of the qualifying income of a development and expansion company and such part of its income as is subject to tax at a different rate of tax under this Act or the Income Tax Act (Cap. 134).
(4)  For the purpose of the application under subsection (3), any reference in section 37B of the Income Tax Act to income of a company subject to tax at a higher or lower rate of tax or income of the company subject to tax at a higher or lower rate of tax, as the case may be, shall be read as a reference to its qualifying income.
Ascertainment of income from other trade or business
19N.—(1)  Where, during its tax relief period, a development and expansion company carries on any trade or business other than its qualifying activities, separate accounts shall be maintained in respect of that other trade or business and in respect of the same accounting period; and the income from that other trade or business shall be computed and assessed in accordance with the Income Tax Act with such adjustments as the Comptroller thinks reasonable and proper.
(2)  Where, in the opinion of the Comptroller, the carrying on of such other trade or business is subordinate or incidental to the carrying on of the qualifying activities of the development and expansion company, the income or loss arising from such other trade or business shall be deemed to form part of the income or loss of the company from its qualifying activities.
Deduction of losses
19O.  The Minister may, in relation to development and expansion companies, by regulations provide for —
(a)the manner in which expenses, capital allowances and donations allowable under the Income Tax Act are to be deducted; and
(b)the deduction of capital allowances, losses and donations otherwise than in accordance with sections 23 and 37 of the Income Tax Act.
Power to give directions
19P.  For the purposes of this Act and the Income Tax Act (Cap. 134), the Comptroller may direct that —
(a)any sum payable to a development and expansion company in its tax relief period which might reasonably and properly have been expected to be payable, in the normal course of business, after the end of that period shall be treated as not having been payable in that period but as having been payable on such date, after that period, as the Comptroller thinks fit; and
(b)any expense incurred by a development and expansion company within one year after the end of its tax relief period which might reasonably and properly have been expected to be incurred, in the normal course of business, during its tax relief period shall be treated as not having been incurred within that year but as having been incurred for the purposes of its qualifying activities and on such date, during its tax relief period, as the Comptroller thinks fit.”.
Repeal of Parts IV, V and VI
13.  Parts IV, V and VI of the principal Act are repealed.
Amendment of section 44D
14.  Section 44D of the principal Act is amended —
(a)by inserting, immediately after the words “Section 40” in subsection (2), the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”;
(b)by inserting, immediately after the words “Sections 49 and 50” in subsection (3), the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”; and
(c)by inserting, immediately after the words “section 49(2)” in subsection (3), the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Amendment of section 44F
15.  Section 44F(2) of the principal Act is amended by inserting, immediately after the words “section 40(6)”, the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Amendment of section 44I
16.  Section 44I of the principal Act is amended by deleting the words “section 37(2)” in paragraph (b) and substituting the words “section 37(3)”.
Repeal of Part VII
17.  Part VII of the principal Act is repealed.
Amendment of section 66
18.  Section 66(1) of the principal Act is amended —
(a)by deleting the words “43M, 43N, 43O or 43P” in the definition of “concessionary income” and substituting the words “43N, 43O, 43P or 43Q”; and
(b)by inserting, immediately after the words “Part IIIA” in paragraph (b) of the definition of “relevant income”, the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Amendment of section 70
19.  Section 70(2) of the principal Act is amended by inserting, immediately after the words “section 53” in paragraphs (a)(ii) and (b)(ii), the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Amendment of section 72
20.  Section 72 of the principal Act is amended —
(a)by inserting, immediately after the words “Section 53”, the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”; and
(b)by inserting, immediately after the words “section 51”, the words “in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004”.
Repeal of Parts XI to XIIIA
21.  Parts XI to XIIIA of the principal Act are repealed.
Amendment of section 97Q
22.  Section 97Q of the principal Act is amended by deleting subsection (4A) and substituting the following subsection:
“(4A)  Notwithstanding subsections (3) and (4), no dividend paid on any share of a preferential nature shall be exempt from tax under this section in the hands of the shareholder.”.
New Part XIIID
23.  The principal Act is amended by inserting, immediately after section 97Z, the following Part:
“PART XIIID
INTEGRATED INDUSTRIAL CAPITAL ALLOWANCES
Interpretation of this Part
97ZA.  In this Part, unless the context otherwise requires —
“approved project” means a project approved by the Minister under section 97ZB(2);
“commencement day”, in relation to a company, means the date specified in the approval letter issued to the company under section 97ZB(2) as the date from which it shall qualify for the integrated industrial capital allowance;
“fixed capital expenditure” means capital expenditure (including capital expenditure on alteration to any building incidental to the installation of any productive equipment) to be incurred by a company on or after 1st March 2003 on —
(a)any new productive equipment; and
(b)subject to the approval of the Minister, any secondhand productive equipment (but does not include equipment sold and repurchased by the company),
to be provided to and used by an overseas subsidiary of the company for an approved project;
“overseas subsidiary” means a company —
(a)which is incorporated outside Singapore;
(b)whose principal activity is solely or primarily to carry out any approved project outside Singapore; and
(c)in respect of which all (or such other percentage as the Minister may determine) of its paid-up capital is beneficially owned throughout the qualifying period by a company qualifying for the integrated industrial capital allowance under section 97ZB in respect of the approved project.
Integrated industrial capital allowance
97ZB.—(1)  Where a company incorporated and resident in Singapore proposes to carry out a project through any overseas subsidiary —
(a)for the manufacture or increased manufacture of any product; or
(b)for the provision of specialised engineering or technical services,
the company may apply in the prescribed form to the Minister for the approval of an integrated industrial capital allowance in respect of the fixed capital expenditure for the project.
(2)  Where the Minister considers it expedient, having regard to the economic, technical and other merits of the project, he may approve the project and issue a letter to the company which shall qualify the company for an integrated industrial capital allowance in respect of the fixed capital expenditure for the approved project subject to such terms and conditions as the Minister thinks fit.
(3)  Every letter issued to a company under subsection (2) shall specify —
(a)a period not exceeding 5 years (referred to in this Part as the qualifying period) commencing from the commencement day; and
(b)the items of the fixed capital expenditure to be incurred by the company for the purpose of subsection (1).
(4)  Where any question arises as to whether a particular item qualifies as one of the items under subsection (3)(b), it shall be determined by the Minister whose decision shall be final.
(5)  No approval under this section shall be granted to any company on or after 1st March 2013.
Deduction of integrated industrial capital allowance
97ZC.—(1)  Subject to this section, where in the basis period for any year of assessment a company incurs fixed capital expenditure within the qualifying period which qualifies for the integrated industrial capital allowance under section 97ZB, sections 19 and 19A of the Income Tax Act (Cap. 134) shall apply, with the necessary modifications, as if the fixed capital expenditure is incurred in the provision and use of machinery or plant for the purposes of a trade, profession or business carried on by the company.
(2)  Notwithstanding subsection (1), no integrated industrial capital allowance shall be made to any company for an approved project unless the claim for the integrated industrial capital allowance in respect of any fixed capital expenditure incurred within the qualifying period is made by the company by the year of assessment relating to the basis period during which the qualifying period ends.
(3)  For any year of assessment, the integrated industrial capital allowance referred to in subsection (1) shall be made to a company as a deduction only against the following income (and not against any other income) of the company in the following order:
(a)firstly, against the income derived from the carrying on of an approved project subject to tax as concessionary income;
(b)secondly, against the income derived from the carrying on of an approved project subject to tax as normal income; and
(c)lastly, against the income received in Singapore from the provision of the productive equipment to the overseas subsidiary.
(4)  Sections 22A and 23 of the Income Tax Act (Cap. 134) shall apply, with the necessary modifications, in relation to the set-off order and carry forward of the integrated industrial capital allowances.
(5)  Notwithstanding subsection (3), where a company ceases permanently to carry on an approved project through the overseas subsidiary in the basis period for any year of assessment, any balance of the integrated industrial capital allowance remaining unabsorbed shall be available as a deduction against any other income of the company for the year of assessment which relates to the basis period in which the project permanently ceases and any subsequent year of assessment in accordance with section 23 of the Income Tax Act, with the necessary modifications.
(6)  Where a company sells or disposes of any productive equipment after the qualifying period in respect of which any integrated industrial capital allowance has been made under subsection (1), there shall be made on the company for the year of assessment relating to the basis period in which the sale or disposal occurs, a balancing allowance or a balancing charge determined in accordance with section 20 or 21 of the Income Tax Act, with the necessary modifications.
(7)  Section 37B of the Income Tax Act shall apply, with the necessary modifications, in relation to the deduction of the integrated industrial capital allowance against the income of a company for any year of assessment which is subject to tax as concessionary income and normal income.
(8)  Any balance of the integrated industrial capital allowance remaining unabsorbed for any year of assessment shall not be available for transfer by the company under section 37C of the Income Tax Act.
(9)  In this section —
“concessionary income” means income subject to tax at the concessionary rate under Part IIIB;
“normal income” means income subject to tax at the rate of tax under section 43(1)(a) of the Income Tax Act (Cap. 134).
Prohibition to sell, lease out or dispose of productive equipment
97ZD.—(1)  During its qualifying period, a company shall not, without the written approval of the Minister, sell, lease out (except to the overseas subsidiary) or otherwise dispose of any productive equipment in respect of which an integrated industrial capital allowance has been made to the company.
(2)  Where, during its qualifying period, a company has, without the written approval of the Minister, sold, leased out (except to the overseas subsidiary) or otherwise disposed of any productive equipment in respect of which an integrated industrial capital allowance has been made, the company shall be deemed to have derived an amount of income for that year of assessment equal to the deduction which has been made under section 97ZC as if the integrated industrial capital allowance were not made.
(3)  The Minister may waive, wholly or partly, the recovery of the integrated industrial capital allowance under subsection (2).
(4)  Where the Minister waives, wholly or partly, the recovery of the integrated industrial capital allowance under subsection (3), section 97ZC(6) shall apply in respect of the sale or disposal of the productive equipment made by the company during the qualifying period.
Recovery of tax
97ZE.  Notwithstanding anything in this Part, where it appears to the Comptroller that any deduction under section 97ZC ought not to have been made to a company by reason of the revocation under section 99 of a letter issued under section 97ZB to the company, the Comptroller may, subject to section 74 of the Income Tax Act, make such assessment or additional assessment upon the company as may be necessary in order to recover any tax which should have been payable by the company.”.
New Part XIIIE
24.  The principal Act is amended by inserting, immediately after section 97ZE, the following Part:
“PART XIIIE
RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY MANAGEMENT HUB
Interpretation of this Part
97ZF.  In this Part, unless the context otherwise requires —
“approval year”, in relation to an approved company, means the basis period in which the Minister approves the company for the tax exemption on its remitted income under this Part;
“approved company” means a company approved under section 97ZG(2);
“relevant foreign income”, in relation to an approved company, means any royalty or interest derived by the company from any territory outside Singapore where the payment of the royalty or interest is not borne by, directly or indirectly, or deductible against any income of, a person resident in Singapore or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore);
“remitted income” means the total amount of relevant foreign income received in Singapore in any basis period by an approved company;
“research and development” has the same meaning as section 2(1) of the Income Tax Act (Cap. 134);
“year of receipt” means the basis period in which any remitted income is received by an approved company.
Application for and issue of letter of approval
97ZG.—(1)  Any company which is desirous of undertaking any research and development project in Singapore or elsewhere may apply in the prescribed form to the Minister to be approved for the tax exemption under this Part on any remitted income during its tax relief period.
(2)  Where the Minister considers it expedient, having regard to the economic, technical and other merits of the research and development project, he may approve the company for the tax exemption under this Part and issue a letter of approval to the company subject to the following conditions:
(a)the whole amount of any remitted income is used by the company by the end of the 5th basis period commencing from the year of receipt of the remitted income on any research and development project undertaken by it in Singapore or elsewhere;
(b)at least 20% of any remitted income is used by the company by the end of the 5th basis period commencing from the year of receipt of the remitted income on any research and development project undertaken by it in Singapore;
(c)any research and development project undertaken by the company in Singapore on which any remitted income is used is not an approved research and development project under section 14E of the Income Tax Act (Cap. 134);
(d)any intellectual property right resulting from any research and development project undertaken by the company on which any remitted income is used is owned and commercialised by the company; and
(e)such other conditions as the Minister may impose.
(3)  No approval under subsection (2) shall be given after 31st May 2008.
Exemption from income tax
97ZH.—(1)  Where any remitted income is received by an approved company during its tax relief period, the remitted income shall be exempt from tax.
(2)  The tax relief period of an approved company shall be —
(a)where the company receives any remitted income in the approval year, 5 consecutive basis periods commencing from the approval year; or
(b)where the company does not receive any remitted income in the approval year, 5 consecutive basis periods commencing from the basis period immediately after the approval year.
Certain dividends exempted from income tax
97ZI.—(1)  Where any remitted income of an approved company which is resident in Singapore is exempt from tax under section 97ZH, an amount equal to that amount of remitted income shall be credited to a tax exempt account (referred to in this section as the account) to be kept by the company for the purpose of this section.
(2)  Where the account is in credit at the date on which any dividends are paid by an approved company out of income which has been so exempted, an amount equal to those dividends or to that credit, whichever is the less, shall be debited to the account.
(3)  So much of the amount of any dividends so debited to the account as is received by a shareholder of an approved company shall, if the Comptroller is satisfied with the entries in the account, be exempt from tax in the hands of the shareholder.
(4)  Any dividends debited to the account shall be treated as having been distributed to the shareholders of the approved company or any particular class of the shareholders in accordance with the proportion of their shareholdings in the company.
(5)  Section 44 of the Income Tax Act (Cap. 134) shall not apply to any dividends or part thereof which are exempt from tax under this section.
(6)  Where an amount has been received by way of dividends from a company by a shareholder and the amount is exempt from tax under this section, if that shareholder is a company, any dividends paid by that company to its shareholders, to the extent that the Comptroller is satisfied that those dividends are paid out of that amount, shall be exempt from tax in the hands of those shareholders, and section 44 shall not apply to any such dividend or part thereof.
(7)  Notwithstanding subsections (3) and (6), no dividend paid on any share of a preferential nature shall be exempt from tax under this section in the hands of the shareholder.
(8)  An approved company shall deliver to the Comptroller a copy of the account, made up to any date specified by him, whenever called upon to do so by the Comptroller by notice in writing.
(9)  Notwithstanding anything in this Part, where it appears to the Comptroller that —
(a)any amount of remitted income of an approved company exempted from tax; or
(b)any dividends exempted from tax in the hands of any shareholder,
ought not to have been so exempted by reason of the revocation under section 99 of a letter of approval issued under section 97ZG to the company, the Comptroller may, subject to section 74 of the Income Tax Act (Cap. 134) —
(i)direct the company to debit the account with such amount as the circumstances require; or
(ii)make such assessment or additional assessment upon the company or any such shareholder as may be necessary in order to make good any loss of tax.
(10)  Parts XVII and XVIII of the Income Tax Act (relating to objections and appeals) shall apply, with the necessary modifications, to any direction given under subsection (9) as if it were a notice of assessment given under those provisions.
Recovery of tax for breach of condition
97ZJ.—(1)  If an approved company fails to comply with the condition in paragraph (a) of section 97ZG(2) in respect of any remitted income, there shall be deemed to be income of the company chargeable with tax under the Income Tax Act (Cap. 134), for the year of assessment relating to the 5th basis period commencing from the year of receipt of the remitted income, an amount ascertained in accordance with the formula
where A
is the whole amount of the remitted income;
B
is the amount of the remitted income used by the end of the 5th basis period commencing from the year of receipt of the remitted income by the company on any research and development project undertaken by it;
C
is the rate of tax under section 43(1)(a) of the Income Tax Act for the year of assessment relating to the year of receipt of the remitted income; and
D
is the rate of tax under section 43(1)(a) of the Income Tax Act for the year of assessment relating to the 5th basis period commencing from the year of receipt of the remitted income.
(2)  If an approved company fails to comply with the condition in paragraph (b) of section 97ZG(2) in respect of any remitted income, there shall be deemed to be income of the company chargeable with tax under the Income Tax Act, for the year of assessment relating to the 5th basis period commencing from the year of receipt of the remitted income, an amount ascertained in accordance with the formula
where A, C and D
have the same meanings as in subsection (1); and
E
is 5 times the amount of the remitted income used by the end of the 5th basis period commencing from the year of receipt of the remitted income by the company on any research and development project undertaken by it in Singapore.
(3)  If an approved company fails to comply with the conditions in paragraphs (a) and (b) of section 97ZG(2) in respect of any remitted income, there shall be deemed to be income of the company chargeable with tax under the Income Tax Act (Cap. 134), for the year of assessment relating to the 5th basis period commencing from the year of receipt of the remitted income, an amount equal to the higher of the amounts determined under subsections (1) and (2).
(4)  If an approved company fails to comply with —
(a)the condition in paragraph (c) or (d) of section 97ZG(2) only; or
(b)the conditions in paragraphs (c) and (d) of section 97ZG(2) only,
in respect of one or more research and development projects undertaken by it, there shall be deemed to be income of the company chargeable with tax under the Income Tax Act, for the year of assessment relating to the 5th basis period commencing from the year of receipt of any remitted income which has been used by the company on each of such projects, an amount ascertained in accordance with the formula
where F1, F2, F3, F4 and F5
is the amount of remitted income used by the company on each of such research and development projects in the 1st, 2nd, 3rd, 4th and 5th basis periods, respectively, from the year of receipt of the remitted income to the 5th basis period from the year of receipt of the remitted income; and
C and D
have the same meanings as in sub-section (1).
(5)  If an approved company fails to comply with the conditions in —
(a)paragraphs (a) and (c) of section 97ZG(2) only;
(b)paragraphs (a) and (d) of section 97ZG(2) only; or
(c)paragraphs (a), (c) and (d) of section 97ZG(2) only,
there shall be deemed to be income of the company chargeable with tax under the Income Tax Act (Cap. 134), for the year of assessment relating to the 5th basis period commencing from the year of receipt of any remitted income used by the company on the research and development project or projects for which the company fails to comply with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be, an amount equal to the aggregate of —
(i)the amount determined under subsection (1); and
(ii)the amount determined under subsection (4).
(6)  If an approved company fails to comply with the conditions in —
(a)paragraphs (b) and (c) of section 97ZG(2) only;
(b)paragraphs (b) and (d) of section 97ZG(2) only; or
(c)paragraphs (b), (c) and (d) of section 97ZG(2) only,
there shall be deemed to be income of the company chargeable with tax under the Income Tax Act, for the year of assessment relating to the 5th basis period commencing from the year of receipt of any remitted income used by the company on the research and development project or projects for which the company fails to comply with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be, an amount equal to the aggregate of —
(i)the amount determined under subsection (2) that relates to the research and development project or projects for which the company fails to comply with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be;
(ii)the amount determined under subsection (2) that relates to the research and development project or projects for which the company complies with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be; and
(iii)the amount determined under subsection (4), reduced by the amount determined under sub-paragraph (i).
(7)  If an approved company fails to comply with the conditions in —
(a)paragraphs (a), (b) and (c) of section 97ZG(2) only;
(b)paragraphs (a), (b) and (d) of section 97ZG(2) only; or
(c)paragraphs (a), (b), (c) and (d) of section 97ZG(2),
there shall be deemed to be income of the company chargeable with tax under the Income Tax Act (Cap. 134), for the year of assessment relating to the 5th basis period commencing from the year of receipt of any remitted income used by the company on the research and development project or projects for which the company fails to comply with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be, an amount equal to the aggregate of —
(i)an amount determined under subsection (3) that relates to the research and development project or projects for which the company fails to comply with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be;
(ii)the amount determined under subsection (3) that relates to the research and development project or projects for which the company complies with the condition in paragraph (c) or (d) of section 97ZG(2), or the conditions in paragraphs (c) and (d) of section 97ZG(2), as the case may be; and
(iii)the amount determined under subsection (4), reduced by the amount determined under sub-paragraph (i).”.
New Part XIIIF
25.  The principal Act is amended by inserting, immediately after section 97ZJ, the following Part:
“PART XIIIF
OVERSEAS INVESTMENT INCENTIVE
Interpretation of this Part
97ZK.  In this Part, unless the context otherwise requires —
“accounting period”, in relation to an eligible investee company, means an accounting period of 12 months (or such other period as the Minister may determine) during which the eligible investee company is designated as such, and any subsequent period of 12 months (or such other period as the Minister may determine) where the eligible investee company remains designated as such for the whole or part of the period;
“chargeable income”, in relation to an eligible holding company, means the income of the company chargeable to tax after deducting —
(a)expenses, allowances, losses, donations and any qualifying deductions available for transfer under section 37C of the Income Tax Act (Cap. 134); and
(b)allowances and losses allowable under this Act;
“eligible holding company” means a company which is approved as an eligible holding company under section 97ZL(2)(a);
“eligible investee company” means an overseas company which is designated as an eligible investee company under section 97ZL(2)(b);
“new overseas market”, in relation to an eligible holding company, means an investment in any place, product or technology in a country outside Singapore which is different from the place, product or technology which the company is engaged in before its approval as an eligible holding company;
“overseas company” means a company —
(a)that carries on any trade or business in a country outside Singapore;
(b)that is not incorporated in Singapore and not listed on the Singapore Exchange or elsewhere; and
(c)in respect of which at least 50% (or such other percentage as the Minister may determine) of its paid-up capital (excluding any part of the paid-up capital held by an eligible holding company before the date of commencement specified in the letter of approval referred to in section 97ZL(2)(a)) is held by an eligible holding company throughout the period referred to section 97ZL(2)(b);
“qualifying year of assessment”, in relation to an eligible holding company, means any year of assessment relating to the relevant accounting period of the company;
“relevant accounting period”, in relation to an eligible holding company, means the basis period of the company that ends on the same date or a date no later than one year from the end of the corresponding accounting period of the eligible investee company.
Application for and issue of letter of approval
97ZL.—(1)  Any company, incorporated and resident in Singapore, desirous of investing in an overseas company on or after 1st January 2004 for the purpose of acquiring for use in Singapore any technology from the overseas company or for the purpose of gaining access to any new overseas market may make an application in the prescribed form to be approved as an eligible holding company.
(2)  Where the Minister is satisfied in respect of any application under subsection (1) that the technology acquired, if introduced in Singapore or the access which would be gained to the new overseas market, would promote or enhance the technological or economic development of Singapore, he may —
(a)approve the applicant company as an eligible holding company and issue a letter of approval to the company subject to such terms and conditions as he may impose; and
(b)designate the overseas company as an eligible investee company for a period of 3 years from the date of commencement specified in the letter of approval referred to in paragraph (a).
(3)  No approval under this section shall be given after 31st December 2006.
Deferment of payment of tax
97ZM.—(1)  Where an eligible holding company is liable to pay any tax on its chargeable income for any qualifying year of assessment and where the eligible investee company incurs any qualifying loss from the carrying on of any trade or business during the accounting period that ends on the same date or a date no earlier than one year from the end of the relevant accounting period of the eligible holding company to which that qualifying year of assessment relates, the payment of a specified amount of the tax for that qualifying year of assessment by the eligible holding company shall be deferred.
(2)  The specified amount of tax the payment of which may be deferred for any qualifying year of assessment by an eligible holding company under subsection (1) shall be ascertained in accordance with the formula
where A
is the amount of qualifying loss of the eligible investee company incurred during the accounting period of the company as determined under section 97ZN;
B
is the amount of chargeable income of the eligible holding company for the qualifying year of assessment relating to the relevant accounting period which ends on the same date or a date no later than one year from the end of the accounting period of the eligible investee company during which the qualifying loss is incurred; and
C
is the amount of tax payable by the eligible holding company for the qualifying year of assessment relating to the relevant accounting period which ends on the same date or a date no later than one year from the end of the accounting period of the eligible investee company during which the qualifying loss is incurred.
(3)  The specified amount of tax deferred by an eligible holding company under subsection (1) for any qualifying year of assessment shall be paid by the company to the Comptroller not later than 2 years from the date of the notice of assessment on which tax for that qualifying year of assessment was imposed, and where more than one assessment is issued to the company for that qualifying year of assessment, the specified amount of tax shall be paid not later than 2 years from the date of the earliest of the notices of assessment.
(4)  Where an eligible investee company incurs a qualifying loss from the carrying on of any trade or business in any accounting period, but the eligible holding company is not liable to pay any tax for the qualifying year of assessment relating to the relevant accounting period which ends on the same date or a date no later than one year from the end of the accounting period of the eligible investee company, the amount of such loss shall not be used to compute the specified amount of tax the payment of which may be deferred for any subsequent qualifying year of assessment by the eligible holding company.
(5)  If, at the time the qualifying loss of an eligible investee company is ascertained for any accounting period, the eligible holding company has made any payment of any part of the tax payable for the qualifying year of assessment relating to the relevant accounting period which ends on the same date or a date no later than one year from the end of the accounting period of the eligible investee company, the amount of tax that the eligible holding company may defer under subsection (1) for that qualifying year of assessment shall be limited to the amount of the tax remaining unpaid by the company as at the date the qualifying loss is ascertained.
(6)  Where the specified amount of tax deferred by an eligible holding company under subsection (1) for any qualifying year of assessment has been ascertained and any subsequent revision of assessment is made on the company for that qualifying year of assessment, the specified amount of tax to be deferred by the company under subsection (1) for that qualifying year of assessment shall be re-ascertained in accordance with the formula specified in subsection (2) for the subsequent revision of assessment, except that the references to the amount in B and C shall be read as references to the revised amount, in each case.
Ascertainment of qualifying loss
97ZN.—(1)  The qualifying loss of an eligible investee company for any accounting period shall be the lowest of the following amounts:
(a)the amount determined in accordance with the formula
where D
is the amount of loss before tax as disclosed in the audited financial statements of the eligible investee company for that accounting period;
E
is —
 
(i)the number of days from the date the eligible investee company is designated as such to the end of the accounting period, if the accounting period is the first accounting period of the company;
 
(ii)the number of days from the first day of the accounting period to the last day the eligible investee company remains designated as such, if the accounting period is the last accounting period of the company; or
 
(iii)the number of days in the accounting period of the eligible investee company, in any other case;
F
is the number of days in that accounting period of the eligible investee company; and
G
is the percentage of paid-up capital (excluding any part of the paid-up capital held by the eligible holding company before the date of commencement specified in the letter of approval referred to in section 97ZL(2)(a)) of the eligible investee company that is held by the eligible holding company during that accounting period of the eligible investee company, and where the percentage of paid-up capital (excluding any part of the paid-up capital held by the eligible holding company before the date of commencement specified in the letter of approval referred to in section 97ZL(2)(a)) changes during that accounting period, the average percentage held over such accounting period;
(b)the amount of paid-up capital (excluding any part of the paid-up capital held by the eligible holding company before the date of commencement specified in the letter of approval referred to in section 97ZL(2)(a)) held by the eligible holding company in the eligible investee company during that accounting period of the eligible investee company, and where the amount of paid-up capital (excluding any part of the paid-up capital held by the eligible holding company before the date of commencement specified in the letter of approval referred to in section 97ZL(2)(a)) changes during that accounting period, the average amount held over such accounting period; or
(c)the amount of chargeable income of the eligible holding company for the qualifying year of assessment relating to the relevant accounting period which ends on the same date or a date no later than one year from the end of that accounting period of the eligible investee company.
(2)  The amount of qualifying loss of an eligible investee company for any accounting period shall be certified by the external auditor of the company unless the Minister otherwise directs.
Payment of tax deferred
97ZO.  Notwithstanding anything in this Part, where it appears to the Comptroller that any amount of tax the payment of which has been deferred by an eligible holding company for any qualifying year of assessment under section 97ZM(1) ought not to have been deferred by reason of the revocation under section 99 of the letter of approval issued under section 97ZL to the company, the company shall pay the amount of tax deferred to the Comptroller immediately upon receipt of a notice in writing from the Comptroller to do so.”.
Amendment of section 98
26.  Section 98 of the principal Act is amended by inserting, immediately after the word “certificate” wherever it appears in subsections (1) and (2) and the section heading, the words “or letter”.
Amendment of section 99
27.  Section 99 of the principal Act is amended by inserting, immediately after the word “certificate” wherever it appears in subsections (1), (2) and (3) and the section heading, the words “or letter”.
Repeal of sections 101 to 106
28.  Sections 101 to 106 of the principal Act are repealed.
New section 109
29.  The principal Act is amended by inserting, immediately after section 108, the following section:
“Savings provision
109.  Notwithstanding the repeal of Parts IIIA, IV, XI and XIIIA by the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004, the repealed Parts IIIA, IV, XI and XIIIA shall continue to apply to and have effect on any approved company approved before and its qualifying activities conducted before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004 as if that Act had not been enacted.”.
Consequential amendments to Income Tax Act
30.  The Income Tax Act (Cap. 134) is amended —
(a)by deleting the words “section 19B or 19J of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86)” in section 13E(12)(b) and substituting the words “section 19B of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86) in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004 or section 19J of the Economic Expansion Incentives (Relief from Income Tax) Act”;
(b)by deleting the words “section 97D, 97G or 97V of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86)” in section 37C(15)(b) and substituting the words “section 97D or 97G of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86) in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004 or section 97V of the Economic Expansion Incentives (Relief from Income Tax) Act”;
(c)by deleting the definitions of “claimant company” and “transferor company” in section 37C(19) and substituting the following definition:
“ “claimant company” or “transferor company” means a Singapore company that claims or transfers, respectively, any qualifying deduction under subsection (1) but shall not include a company approved as —
(a)a technology company under section 94(2) of the Economic Expansion Incentives (Relief from Income Tax) Act in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004;
(b)a venture company under section 97B(2) of the Economic Expansion Incentives (Relief from Income Tax) Act in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004;
(c)a technology investment company under section 97C(2) of the Economic Expansion Incentives (Relief from Income Tax) Act in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004;
(d)an overseas investment company under section 97C(4) of the Economic Expansion Incentives (Relief from Income Tax) Act in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004; or
(e)a technopreneur start-up company under section 97T(2) of the Economic Expansion Incentives (Relief from Income Tax) Act;”; and
(d)by deleting the words “section 19B or 19J of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86)” in section 44(20)(e) and substituting the words “section 19B of the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86) in force immediately before the date of commencement of the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 2004 or section 19J of the Economic Expansion Incentives (Relief from Income Tax) Act”.
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Last updated 25 Nov 2024
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