The MAS issues a circular on tax concessions to promote Islamic financial services

May 2008

The Monetary Authority of Singapore (MAS) issued a circular on 30 May 2008 providing details of the three new tax concessions for Islamic financial services introduced during the 2008 Budget Speech. These are summarised below.

Financial Sector Incentive-Islamic Finance (FSI-IF)

Tax incentive	5% concessionary tax rate for five years on income from qualifying activities. No qualifying base (QB) is imposed
Qualifying activities	Shariah-compliant financial activities related to: Lending and related activities; or Fund management and the provision of investment advisory services to funds.
Qualifying criteria	For both categories of qualifying activities, the MAS will take into consideration the incremental professional headcount significantly engaged in the qualifying activity and the applicant's business plan. In addition, the specific criteria for each category are as follows: Lending and related activities: The applicant must be a bank licensed under the Banking Act or a merchant bank approved under the Monetary Authority of Singapore Act. Both existing FSI award holders and new applicants may apply. Qualifying activities must be structured in accordance with one of the following Shariah concepts - Murabaha, Mudaraba, Ijara wa Igtina, Musharaka, Istisna or Salam. Fund management and the provision of investment advisory services to funds: The applicant must be a company that holds a capital markets services licence under the Securities and Futures Act to carry on business in fund management or be exempted under that Act from the requirement to hold the licence. Both existing FSI award holders and new applicants may apply. The qualifying fund(s) must be Shariah-compliant. For further details on qualifying funds, refer to the September 2007 issue of Harvest .

Islamic debt securities or sukuks

Tax incentive	Tax exemption for all investors for income from Islamic debt securities that are qualifying debt securities (QDS). As this is an enhancement to the usual tax concessions for QDS, Islamic debt securities have been grouped under a new QDS Plus (QDS+) scheme, together with other QDS that enjoy similar enhanced treatment.
Qualifying criteria	The Islamic debt securities must be issued between 16 February 2008 and 31 December 2013. Amounts payable by the issuer to investors are not deductible against any income of the issuer accruing in or derived from Singapore. All conditions under the QDS scheme must be met.

Offshore Insurance Business (OIB) - takaful (Islamic insurance) and retakaful (Islamic reinsurance)

Tax incentive	5% concessionary tax rate for five years on income derived from Shariah-compliant activities performed by a qualifying insurer.
Qualifying criteria	The applicant must be a company registered, or a person (other than an individual) permitted under a foreign insurer scheme, to carry on insurance business in Singapore under the Insurance Act. The MAS will take into consideration the incremental number of experienced professionals significantly engaged in the qualifying activity and the applicant's business plan.
Qualifying income	Income from accepting general insurance and reinsurance covering offshore risks; Income relating to funds established and maintained for offshore life policies; and Foreign dividends, qualifying returns in lieu of interest, gains from the sale of offshore investments and interest from ACU deposits derived from the investment of insurance and shareholders’ funds which are used to support the offshore specialised insurance business.

The window period for applications for the above incentives is from 1 April 2008 to 31 March 2013. Although not stated in the circular, it was mentioned during the Budget Speech that there would be no extension of the incentive period or the window period for approval for the FSI-IF and OIB incentives.

Successful applicants are required to submit an annual review form to the Financial Centre Development Department of MAS within four months from each financial year-end.

For further details, please call your usual PricewaterhouseCoopers contact.