Financial Services Tax Bulletin provides updates and analyses of regulatory and other developments relating to corporate tax in Singapore.
The MAS issued Circular FDD Cir 02/2014 ("MAS Circular 2014") on 31 March 2014 that introduced the much debated rules on the "belonging" status of an incorporated fund for the purpose of applying the GST treatment of services to the fund. To recap, the MAS Circular 2014 stipulated that an overseas fund (other than a trust fund) will be treated as having a business establishment and hence "belonging in Singapore" if the fund wholly relies on a Singapore-based fund manager ("SFM") to carry on its business. Services provided to such a fund would be subject to GST at the standard rate of 7 percent.
Following feedback from the industry and us on the need to simplify the rules and on the potential implications for the industry, the rules have been revised and covered in the IRAS’ e-tax guide "GST : Guide for the Fund Management Industry (Second Edition)” released on 18 March 2015 (“IRAS E-tax guide”) and in the MAS Circular FDD 02/2015 issued on 24 March 2015 (“MAS Circular 2015”).
The Ministry of Finance (MOF), State Administration of Taxation (SAT) and China Securities Regulatory Commission (CSRC) jointly promulgated the tax policies for the scheme of Shanghai-Hong Kong Stock Connect on 14 November 2014, right before its launch on 17 November 2014. At the same time, these authorities also published the circular entitled Caishui  No.79 (Notice 79) to provide long-awaited clarification on withholding tax (WHT) policy for capital gains in relation to QFIIs / RQFIIs schemes.
Under Notice 79, QFIIs /RQFIIs are temporarily exempt from WHT on gains derived from the trading of equity investment assets (including shares) effective from 17 November 2014, which is largely the same as that for the scheme of Shanghai-Hong Kong Stock Connect. Apparently, the aim of Notice 79 is to make the tax treatments for all such investment schemes at par. This should be a tax policy welcomed by QFIIs/RQFIIs.
However, it was also stipulated in Notice 79 that QFIIs and RQFIIs shall be subject to WHT on their capital gains derived before 17 November 2014. This answered a very important question that many QFIIs/RQFIIs have been asking, but it still leaves a number of key tax issues that QFIIs/RQFIIs should consider and the Chinese tax authorities should clarify. Read more in our latest news flash.
The release of MAS Circular FDD Cir 02/2014 on 31 March 2014 and the clarification on the "belonging" status of an incorporated fund for the purpose of applying the GST treatment to services to the fund have resulted in certain controversies when it came to the interpretation of the Goods and Services Tax treatment. As a result, tax practitioners were invited to meet the Monetary Authority of Singapore, Ministry of Finance and the Inland Revenue Authority of Singapore on 28 May 2014, to provide feedback on the Circular.
The long-awaited IGA between the US and Singapore has been agreed in substance and takes effect from 5 May 2014. The agreement will facilitate compliance with the FATCA rules by Singapore-based financial institutions (Singapore FIs).
Singapore FIs will be permitted to register under the Singapore-US IGA (which is agreed in substance) and will be able to certify their status to withholding agents until 31 December 2014 (the date by which the IGA must be signed in order for this status to continue without interruption) and report the required FATCA reporting information to the US Inland Revenue Services (IRS) via the Singapore Inland Revenue Authority of Singapore (IRAS). This is likely to help ease the compliance burden for the FIs.
The MAS issued Circular FDD Cir 02/2014 on 31 March 2014 in respect of the GST remission for prescribed expenses for qualifying funds. While the circular confirms the 2014 Budget announcement of the extension of the GST remission to 31 March 2019 and a fixed input tax recovery rate of 90 percent for the period 1 January 2014 to 31 December 2014, it also introduces the rules on how the "belonging" status of a fund is to be determined for GST purposes (Separately, the IRAS has also updated the "belonging" rules in the e-tax guide "GST : Guide for the Fund Management Industry"). This has wide impact on the ability to apply zero-rating to services to an overseas incorporated fund. Read more about the background and implications of the rules in the latest Tax Bulletin.
In Comptroller of Income Tax v BBO  SGCA 10 (BBO), the Court of Appeal decided in favour of the taxpayer (and upheld the decisions of the High Court and the Income Tax Board of Review), concluding that gains derived by an insurer from the disposal of certain shares held within its insurance funds are capital in nature. Read more about the background and PwC's observations about the case in the latest Tax Bulletin.
Over the last six months, several measures have been announced which demonstrate Singapore’s commitment to meeting international standards and best practices in this area. Please refer to the latest Financial Services Tax Bulletin for the key measures and a summary of the necessary steps that financial institutions should take to ensure compliance with the new rules.
On 8 April 2013, the High Court handed down its decision in the case of The Comptroller of Income Tax v BBO  SGHC 74. In the landmark decision, the High Court ruled that gains arising from the disposal of investments in the insurance industry can, in certain circumstances, be treated as capital in nature, and hence non-taxable.
In handing down its decision, the courts have granted potential clarification to an issue that has long been the subject of disagreement between the insurance industry and the Comptroller of Income Tax. The outcome of this case should be well received by the insurance industry.
On 22 December 2012, the Monetary Authority of Singapore (MAS) issued a consultation paper and accompanying draft regulations dealing with requirements for banks entering into related party transactions. The MAS is looking for feedback from interested parties by 25 January 2013.
The essence of the consultation paper is that the MAS wishes to further enhance and codify the requirement for banks to enter into any related party transactions on an arm's length basis, and that "material" transactions with and the write-off of exposures to related parties should be subject to prior approval by the bank's board of directors. Subject to the outcome of the consultation, the requirements will be incorporated into the Banking Act in due course.
For a summary of the main themes of the document and our comments on these developments, please download the Financial Services Tax Bulletin.