Minimum 15% tax on multinational enterprises will sustain Singapore’s edge: Indranee
Lawmakers debate new legislation that seeks to impose top-up corporate taxes on large multinationals here
CHANGES to Singapore’s tax regime will help to sustain the Republic’s economic competitiveness and provide better support to companies and individuals, while ensuring it stays aligned with international tax developments, said Second Minister for Finance Indranee Rajah.
She was speaking in Parliament on Monday (Oct 14) at the start of the debate on the Multinational Enterprise (Minimum Tax) Bill, which was debated alongside the Income Tax (Amendment) Bill.
Should the Multinational Enterprise (Minimum Tax) Bill be passed in Parliament, multinational enterprises (MNEs) operating in Singapore will have to pay a minimum effective tax rate of 15 per cent on their groups’ profits.
The Bill – first tabled in September – introduces a multinational enterprise top-up tax (MTT) and a domestic top-up tax (DTT) for large MNEs.
The MTT is in line with the Global Anti‑Base Erosion (GloBE) Model Rules under Pillar 2 of the Base Erosion and Profit Shifting (BEPS) 2.0 framework, which aims to discourage MNEs from profit shifting by limiting tax competition.
Both the MTT and DTT apply to MNEs with consolidated annual revenues of at least 750 million euros (S$1.1 billion) over two of the preceding four financial years. They take effect from businesses’ financial years starting on or after Jan 1, 2025.
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The MTT will apply to Singapore-based large MNEs that hold ownership interests in entities located in lower-tax foreign jurisdictions. Such companies must pay a top-up tax if their entities have a tax rate below 15 per cent.
On the other hand, the DTT is applicable to the Singapore entities of a large MNE, and subjects the group to at least a 15 per cent tax on their domestic profits.
Indranee noted that the implementation of the DTT and MTT ensures that Singapore is aligned with the international rollout of BEPS 2.0.
By not imposing the DTT and MTT, affected MNEs would end up paying these taxes to other jurisdictions that have imposed the GloBE rules, she said. Other jurisdictions such as the European Union, the United Kingdom, Switzerland, Japan, South Korea, Malaysia and Hong Kong have either implemented similar rules, or plan to do so in 2025.
“Hence, it is in Singapore’s interest to impose the DTT and MTT, so that we can collect the tax, rather than cede it to other jurisdictions,” noted Indranee.
She added that the government plans to reinvest the additional revenues from DTT and MTT to enhance Singapore’s overall business environment, in areas such as workforce upskilling, innovation ecosystem development, and infrastructure and connectivity.
Stopping “the race to the bottom” on corporate taxes
Most MPs who spoke during the first day of the debate supported the Bill, pointing out that adhering to BEP 2.0’s principles would put an end to “the race to the bottom” on corporate tax rates.
Non-Constituency MP Hazel Poa from the Progress Singapore Party said that the imposition of a global minimum corporate tax regime was a step in the right direction “that has hastened the inevitable” for Singapore – which is the need to remain competitive and attractive to foreign investments through means besides providing economic incentives and low taxes.
Meanwhile, People’s Action Party (PAP) MP Yip Hon Weng raised concerns that the tax regime could hurt Singapore’s global competitiveness and have a trickle-down effect on local businesses, particularly small and medium-sized enterprises (SMEs). “If MNEs choose to relocate or scale back operations in Singapore, it could hurt SMEs that rely on these larger corporations for business,” he added.
Acknowledging these same concerns, Workers’ Party MP Jamus Lim said that while BEPS 2.0 “may hurt at the margin, it is not game-changing”.
Many large MNEs are already domiciled in higher-taxed regimes, he pointed out, and would nevertheless face higher taxes when profits are repatriated back to their home country.
Singapore’s 15 per cent corporate tax rate also remains below the regional average of “a little more than 20 per cent” when compared to its Asean counterparts, he added.
PAP MP Don Wee said that the tax regime introduces new registration and compliance requirements, and urged the Ministry of Finance to “carefully assess the administrative burden” this would place on the government and MNEs.
He questioned if the Comptroller of Income Tax’s office had adequate resources to manage the increased workload, as well as if there were any measures in place to assist businesses in navigating complex compliance frameworks. “Clear guidance and streamlined processes will be crucial to ensure smooth compliance and avoid stifling business operations through excessive bureaucracy,” he said.
MPs also proposed using the additional tax revenues from the new tax regime for the direct benefit of Singaporeans and local businesses, rather than simply channelling them back to MNEs.
Yip said that the additional revenues could be used to strengthen public infrastructure, enhance healthcare services and upskill the local workforce, while Poa suggested investing part of this sum in SMEs to help them leverage new technologies such as artificial intelligence, to become more productive and internationally competitive. “With the additional tax revenue from this Bill, we can help to create a more level playing field between domestic companies and MNEs,” added Poa.
The debate on the Bill will resume on Tuesday afternoon, before lawmakers vote on it.
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