During the Singapore Budget 2024, it was announced that Singapore will introduce the Refundable Investment Credit (RIC), which will be awarded to companies by the Economic Development Board and Enterprise SG to support high-value and substantive economic activities.
In his budget speech, DPM Wong affirmed that Singapore has always thrived on high-quality and high-value investments in Singapore, which create high-paying jobs for Singaporeans, while giving the Singaporean workforce the chance to glean knowledge while working at these firms. Attracting these investments amid rising global competition is key to Singapore’s long-term prosperity.
Here’s a summary of how the RIC is designed to maintain Singapore’s competitive edge.
How The Refundable Investment Credit (RIC) Works
The RIC will be awarded on a project-basis, based on qualifying expenses incurred on that project over a qualifying period of up to 10 years.
If awarded, the company receives RIC as credits to offset the Corporate Income Tax payable. Unutilised credits will be given to the company in cash within four years from when the company satisfies the conditions for receiving the credits.
According to the Ministry of Finance, this scheme is consistent with Global Anti-Base Erosion Rules (GloBE) for Qualified Refundable Tax Credits (QRTCs).
Read Also: From Loss Carry-Back Relief To BIPS: How To Save Corporate Income Tax In Singapore
How The RIC Will Be Awarded
The RIC will be awarded on approval to support projects such as:
- Investing in new productive capacity (e.g., new manufacturing plant, production of low-carbon energy)
- Expanding or establishing the scope of activities in digital services, professional services, and supply chain management
- Expanding or establishing headquarter activities, or Centres of Excellence
- Setting up or expansion of activities by commodity trading firms
- Carrying out R&D and innovation activities
- Implementing solutions with decarbonisation objectives.
Read Also: How Companies Can (Legally) Reduce Their Corporate Income Tax In Singapore
How Much RIC Can A Company Get
A company can receive up to 50% support on different qualifying expenses for a project. The support rate will be determined based on the expected economic or decarbonisation outcomes that the project is expected to bring.
Depending on project type, 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
- for work outsourced in Singapore
- Materials and consumables
- Freight and logistics costs.
How RIC is Related To GloBE QRTC And BEPS 2.0, And How It Will Help Singapore Stay Competitive In A Post-BEPS World
BEPS 2.0 is an evolving tax framework spearheaded by the OECD that is intended to help prevent companies from exploiting tax loopholes by shifting profits to tax havens, where little or no tax is paid. It is designed such that if a company is not sufficiently taxed in a jurisdiction, it will have to pay the tax elsewhere instead. This is designed to incentivise countries to adopt this framework, and to date, some 140 countries have agreed to this framework.
Hence, in Budget 2024, DPM Wong announced that Singapore will be joining in to implement BEPS 2.0 on a gradual basis, so that Singapore does not lose out on the tax which will otherwise be charged in another country.
However, BEPS 2.0 requires companies parented in Singapore to pay a minimum effective tax rate (ETR) of 15% on overseas profits. This will make Singapore’s tax incentives ineffective because for companies that fall below 15% ETR, the tax deduction effectively incurs a top-up tax, negating the benefits.
This is where QRTCs come into the picture. Article 3.2.4 of the OECD Model Rules provides that QRTCs (like the RIC) are not counted as reductions to covered tax but are instead added to GloBE income. While this still results in some additional top-up tax, it is still less than the top-up tax incurred as a result of deduction from covered tax.
Read Also: 10 Things Businesses Need To Know About Singapore’s Budget 2024
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