BDO Corporate Tax News

Singapore - New Refundable Investment Credit scheme to offset impact of Pillar Two rules

Singapore will be implementing the global minimum effective tax rate of 15% on businesses effective from financial years commencing on 1 January 2025. The tax will be applicable to multinational enterprise (MNE) groups with annual group revenue of at least EUR 750 million. Top-up taxes are also taking effect in the home countries of MNEs at various timings. The implementation of the Pillar Two rules around the world will diminish the attractiveness of Singapore’s tax incentives schemes over time as taxes waived in Singapore will be collected in other jurisdictions.

To mitigate the impact of the Pillar Two rules, Singapore’s Deputy Prime Minister and Finance Minister announced a new Refundable Investment Credit (RIC) scheme in Budget 2024 (for prior coverage, see the tax alert prepared by BDO in Singapore). The RIC is designed to influence the investment climate and shape the direction of capital flows into Singapore by encouraging companies to make significant investments that bring substantive economic activities to key economic sectors and new growth areas. 

The RIC is a tax credit with a refundable cash feature that will provide support of up to 50% of qualifying expenditure incurred in respect of a qualifying project during a qualifying period. The RIC will be awarded on an approval basis for up to 10 years by the Economic Development Board (EDB) and Enterprise Singapore.

High value and substantive economic activities that will qualify for the RIC scheme include:
  • Investing in new productive capacity (e.g., new manufacturing plants, production of low-carbon energy);
  • Expanding or establishing the scope of digital services, professional services and supply chain management activities;
  • Expanding or establishing headquarter activities or centres of excellence;
  • Setting up or expanding activities by commodity trading firms;
  • Carrying out research and development and innovation activities; and
  • Implementing solutions with decarbonisation objectives.
Depending on the type of project, qualifying expenditure categories may include:
  • Capital expenditure (e.g., building, civil and structural works, plant and machinery, software);
  • Manpower costs;
  • Training costs;
  • Professional fees;
  • Intangible asset costs;
  • Fees for work outsourced in Singapore;
  • Materials and consumables; and
  • Freight and logistics costs.
RIC available can be used to offset corporate income tax payable and any unutilised tax credits will be refunded to the company in cash within four years from the date the company satisfies the conditions for receiving the credits.
Key takeaways
The introduction of the RIC scheme is important for Singapore in expanding its investment promotion toolkit and aligning the tax incentive landscape with Pillar Two. It is equally important for businesses to consider their profile, investment and business objectives when planning their substantive activities in Singapore, weighing the relative merits of the RIC against existing tax incentives, grants and economic commitments to achieve sustained viability and growth.

Further details—including the effective date—will be released by the EDB and Enterprise Singapore by the third quarter of 2024.

Evelyn Lim
BDO in Singapore