Tax considerations

On 18 February 2020, in response to the economic impact brought about by COVID-19, the Minister for Finance has unveiled during Budget 2020, a S$4 billion Stabilization and Support Package (as part of the Unity Budget) that contains a range of measures to cushion the pandemic’s impact on local businesses and workers. Details of the Stabilization and Support package shared during Budget 2020 can be found here.

As both the global economy and COVID-19 outbreak continued to worsen, the Government announced a second stimulus package (known as the Resilience Budget) on 26 March 2020. The Resilience Budget, worth a generous S$48.4 billion, aims to support households, help workers stay employed, and provide support for businesses to emerge stronger when the economy recovers. One of the key tax measures included in the Resilience Budget relates to the automatic deferment of income tax payment for companies. Apart from broad-based support for the entire economy, the Resilience Budget also introduced measures to help specific sectors that are directly impacted by the COVID-19 outbreak such as the Aviation, Tourism, Food Services, Land Transport and Arts & Culture sectors. Details of the Resilience Budget can be found here.

With the “circuit breaker” taking effect from 7 April 2020, the Government announced on 6 April 2020 a S$5.1 billion Solidarity Budget, targeted at cushioning the impact of the month-long “circuit breaker” on the local workforce livelihoods of our workers. Details of the Solidarity Budget can be found here.

And with the “circuit breaker” extended to 1 June 2020, the Government has also extended the enhancements made to the Jobs Support Scheme (JSS) and Foreign Worker Levy (FWL) for the month of April 2020 (as announced during the Solidarity Budget) to the month of May 2020. Additionally, with effect from April 2020, the JSS will also cover employees who are shareholders/ directors of the company, subject to meeting relevant conditions.

• The Government has passed a new wide-ranging bill which includes among other measures, the obligation on property owners to pass on the property tax rebates to tenants in full.
  
• On 16 April 2020, the Government also announced new measures to provide real estate investment trusts listed on the Singapore Exchange (S-REITs) with greater flexibility to manage their cash flows and raise funds. The measures comprise an extension of the deadline for distribution of taxable income derived during FY 2020 for purposes of qualifying for the tax transparency treatment, a raising of the leverage limit, and deferment of new regulatory requirements by the Monetary Authority of Singapore (MAS) pertaining to a minimum interest coverage ratio requirement for S-REITs.
• The projected increase of GST from 7% to 9% as previously announced during the Singapore Budget 2018 has been delayed.
• In light of the travel restrictions imposed due to COVID-19, the Inland Revenue Authority of Singapore (IRAS) has also provided the following clarifications, with the expectations that relevant supporting documentation and records will be maintained by the companies upon IRAS request:
  
  
  • Tax residence status of a company
    Where a company is not able to hold its Board of Directors (BOD) meeting in Singapore, the IRAS is prepared to consider the company as a Singapore tax resident for YA 2021, if it meets all the following conditions:
    
    a) The company is a Singapore tax resident for YA2020;
    
    b) There are no other changes to the economic circumstances of the company; and
    
    c) The BOD meetings need to be held outside Singapore or via electronic means due to the directors being temporarily restricted in their travel because of COVID-19.
    
    
  • Income tax exposure for foreign companies with unplanned employee presence in Singapore 
    Where employees of a foreign company have unplanned presence in Singapore due to travel restrictions (and thereby create potential Singapore income tax exposures for the foreign company), the IRAS has clarified that such unplanned presence should not result in the creation of permanent establishment (PE) in Singapore, if it meets all the following conditions:
    
    a) The foreign company does not have a PE in Singapore for YA 2020;
    
    b) There are no other changes to the economic circumstances of the foreign company;
    
    c) The unplanned presence of employees in Singapore is due to travel restrictions relating to COVID-19 and their physical presence in Singapore is temporary (not more than 183 days in the year 2020 from the date of their first arrival in Singapore); and
    
    d) The activities performed by the employees during the unplanned presence would not have been performed in Singapore if not for the travel restrictions imposed.
    
    
• Note that there are a couple of measures introduced by the Government on employment-related measures and personal income tax front below: 
  
  
  • The IRAS has provided the following clarifications, largely in line with the clarifications for tax residency of companies and creation of PE above, relating to individuals having temporary or extended work days in Singapore due to COVID-19:
    
    a) For Singapore citizens and Singapore Permanent Residents who have been working overseas, the income relating to their temporary stay in Singapore due to COVID-19 would be exempted from tax from the date of their return till 30 September 2020, subject to review due to evolving situation and meeting relevant conditions;
    
    b) For non-resident foreign employees who were on short term business assignment and are stranded in Singapore due to COVID-19, the IRAS is prepared to regard the extended stay (not more than 60 days) as non-Singapore work days provided that the work done in Singapore during the extended period is not related to the Singapore business assignment and would have been performed overseas if not for COVID-19; and
    
    c) If during a business trip in Singapore, an employee is being served the Stay Home Notice (SHN) or a quarantine order (QO) resulting in his inability to work, the period during which he is not able to carry out his duties will not be considered as business days in Singapore. 
    
    The IRAS will expect the relevant supporting documentation and records be maintained upon the IRAS’ request.
    
    
  • The air passages provided by employers to evacuate their overseas-based employees to Singapore for safety reasons and the subsequent flight of sending them back to the overseas work location shall not be taxable to the employee. 
  • Employees under the Not Ordinarily Resident (“NOR”) Taxpayer scheme could avail themselves to the time apportionment concession if they are unable to return to Singapore following their overseas business trip due to COVID-19. The extended stay in the overseas location may count as part of overseas business days and hence, exempted from tax, if that employee has been working in the overseas location during the extended period.
  • In connection with the automatic deferment of income tax payment for companies, individual taxpayers are also given the similar option to help with easing cashflows. Details are in the Resilience Budget link here.
  • The IRAS has allowed the following extensions on individual tax filings:
    
    a) Deadline for filing of YA 2020 individual income tax return has been extended to 31 May 2020.
    
    b) Deadline for tax agents to file their clients’ individual income tax returns for YA 2020, including NOR applications, has been extended to 15 August 2020.
    
    c) Filing of tax clearance return for departing non-citizen employees which are due in April and May 2020 has been extended till 30 June 2020. However, the requirement to withhold monies due to employees remain unchanged.
    
    
  • The Central Provident Fund (“CPF”) Board has clarified that reimbursements based on actual expenditure to help defray employees’ transport, meal, lodging or utility expenses will not be subject to CPF. This is provided that the reimbursements do not increase the employees’ remuneration and the expenses are incurred due to alternative work arrangements in connection with COVID-19.
     
• During the circuit breaker, the following measures have been implemented from an immigration perspective:
  
  
  • All short-term visitors are not allowed entry or transit through Singapore.
  • All returning residents (including Singapore citizens, Singapore Permanent Residents and long-term pass holders) will be required to submit a health declaration which may be done online ahead of arrival. Upon arrival, they must serve a compulsory 14-day SHN in designated facilities.
  • International travels (i.e. bringing foreign employees and their dependents into Singapore) are strongly urged to be deferred. Additionally,
    
    a) Work pass holders and their dependents (including those with in-principle approvals) will need entry approval from the Ministry of Manpower (MOM) before travelling. During this period, the chances of receiving this approval in practice, are very slim.
    
    b) To help employers defer bringing in foreigners, the MOM will automatically extend the validity of in-principle approvals by 2 months during the “circuit breaker” period.
    
    
  • Approval for new work pass applications for candidates who are overseas will be challenging. Employers may continue to apply for passes for foreigners who are already in Singapore. Employment and dependent passes expiring from 6 April 2020 to 5 May 2020 will be automatically extended until 5 June 2020.
  • For foreign employees who have their work passes cancelled, employers may apply for an extension of stay in view of the travel restrictions in place due to COVID-19.

Apart from the various short-term measures announced in the Unity, Resilience and Solidarity Budgets to combat the negative economic impact brought about by COVID-19, the Government has also announced certain medium and longer-term measures (some of which have been further enhanced during the Resilience Budget) to move our transformation journey forward, while bringing our nation closer to KPMG’s vision of Singapore becoming the Transformation Capital of Asia.

Some of the key medium- and longer-term measures, amongst others, announced/ enhanced include the following:

• The Government is aiming to reach out to 3,000 SMEs with the Enterprise Development Grant (EDG) to provide substantial support in three areas: Core Capabilities, Innovation and Productivity, and Market Access. This has been further enhanced during the Resilience Budget, which provides the maximum support level of up to 90%.  Details are in the Resilience Budget link here.
• The Enterprise Leadership for Transformation (ELT) programme, aimed at business leaders with the ambition and commitment to transform their business, is created as a three-year pilot focused on helping the professional growth of SME business leaders.
• Enhancements have made to the Market Readiness Assistance (MRA) grant, a broad-based enterprise grant scheme that provides 70% funding for eligible costs incurred by SMEs taking their first steps overseas, with the grant cap increased from S$20,000 per year to S$100,000 per new market per company.
• There have also been enhancements made to the Double Tax Deduction for Internationalization (DTDi) scheme that gives businesses an automatic 200% tax deduction on qualifying expenditure of up to S$150,000 incurred on specified activities. This scheme has been expanded to include new categories of expenses.
• The New SkillsFuture Enterprise Credits to help businesses defray 90% of out-of-pocket costs of business transformation, job redesign and skills training has been further enhanced as part of the Resilience Budget. Details are in the Resilience Budget link here.
• The Productivity Solutions Grant, which supports businesses to adopt pre-approved IT solutions and equipment, had been expanded earlier to include job redesign consultancy services. This has been further enhanced during the Resilience Budget. Details are in the Resilience Budget link here.
• The Mergers & Acquisitions (M&A) scheme that provides a continuous drive to encourage and support businesses to transform and grow via strategic acquisitions, has been tightened for SMEs.

For more details on these key medium and longer term measures to help businesses transform and emerge stronger when the economy recovers, please click here.