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EBY SINGAPORE TAX DESKUPDATE
On February 15, 2007, the Second Minister for Finance announced in Parliament the Singapore Budget (Budget) for the fiscal year April 1,2007, to March 31, 2008. The Budget reduces the corporate income tax rate while increasing the threshold for the partial tax exemption income bracket. This lowers Singapore's effective tax rate to be comparable with Hong Kong (17.5%) and, in some cases, Ireland (12.5%). The Budget also expands existing incentives to promote activities in the finance industry with a goal of making Singapore Asia's financial hub.
Corporate tax rate reduction. Under current law, the corporate tax rate is 20%, with a partial tax exemption for the first S$100,000 (US$65,000). Under the proposal, the corporate tax rate will be reduced to 1 8% with an increase in the partial tax exemption threshold to S$300,000 (US$195,000), effective for the tax year ending in 2007, i.e., year of assessment (YA)s 2008. Consequently if taxable income is US$195,000, the effective tax rate will be 8.85%. In line with the reduction of the standard corporate tax rate to 18%, the following tax rates, which are aligned with the prevailing corporate tax rate, will also be correspondingly reduced to 18%: (1) withholding tax rate on technical assistance and service fees,4 and management fees5 paid to nonresident persons (other than nonresident individuals/Hindu joint families,6 which will remain at 20%); (2) tax rate for nonresident persons (other than nonresident individuals/ Hindu joint families, which will remain at 20%); and (3) rate of deduction of tax from Singapore franked dividends paid from January 1 , 2007, to December 31, 2007.
Tax deduction for borrowing costs. Under current law, only interest costs associated with borrowings used to acquire a capital asset that generates taxable income are tax deductible. Under the proposal, with effect from YA 2008, specified borrowing costs, besides interest costs, will be tax deductible, provided that...