Budget 2024: Refundable Investment Credit scheme could boost Singapore’s competitiveness

• RIC scheme reflects Republic’s seriousness in reviewing incentive, tax policies
• Move could help alleviate costs, incentivise corporates to make substantial investments in high-value activities

TAX consultants praised the Refundable Investment Credit (RIC) scheme for its potential to enhance Singapore as an attractive base of operations for multinational enterprises (MNEs).

This comes as a new regime of a global minimum tax rate of 15 per cent is set to kick in.

The scheme, a tax credit with a refundable cash feature, was announced by Finance Minister Lawrence Wong in his Budget speech. It is consistent with the Global Anti-Base Erosion Rules for Qualified Refundable Tax Credits.

Johanes Candra, EY partner, business incentives advisory, said the RIC was “unprecedented” not only because it will be a first for Singapore, but also because it breaks new ground in terms of what other countries have announced in terms of refundable tax credits.

“Other jurisdictions are not as extensive as Singapore’s (RIC). It shows the government’s seriousness in reviewing and revising its incentive policy to make sure that Singapore continues to be competitive and that it can continue to attract the investments it wants,” he said.

Ireland’s tax credits, for instance, are focused more on R&D activities. Singapore’s RIC covers a slew of activities, including new productive capacity, expansion of activities in digital services and supply chain management, expansion or establishment of headquarter activities, R&D, as well as implementation of solutions for decarbonisation. There is also a broad range of qualifying expenditures, including capital expenditure, and manpower, training and logistics costs.

David Sandison, Grant Thornton Singapore head of tax and Singapore practice leader, said the RIC is good news for MNEs with entities in Singapore that could have an overall effective tax rate of less than 15 per cent under BEPS (Base Erosion and Profit Shifting) Pillar 2 rules.

“The new credits may eliminate or reduce the amount of future top-up taxes whether these are payable in Singapore or overseas,” he said, adding that the measures may not enhance competitiveness as other jurisdictions are likely to follow suit. “However, they might help to stanch an outflow of investment, and not materially affect the attractiveness of Singapore overall, given its other attractions.”

Lennon Lee, PwC Singapore financial services tax leader, said: “Given the high cost of doing business in Singapore, the RIC scheme will alleviate costs and incentivise MNEs to make substantial investment in high-value and substantive economic activities... The refundable cash feature would further increase the attractiveness of the scheme from a cash flow perspective, given that the expenditure on such investment and activities is costly with a long investment horizon.”

Yvaine Gan, Deloitte Singapore global investment and innovation incentives leader, said the RIC seems to be an expenditure-based scheme. She had hoped to see the scheme expand to include “output/volume-based features, such as a company’s volume of products manufactured in Singapore”.

“This greater flexibility of a combination of expenditure-based and output-based credits will address the needs of a broader range of businesses, making the RIC an even more impactful incentive in supporting companies in the changing investment landscape,” she said.

Consultants have also raised the question of what would happen to companies operating under existing incentive schemes. Sandison said: “It would have been helpful if there could have been some clarity around the fate of existing tax incentive regimes for companies not affected by BEPS. The inference is that they will not be affected, but there may be many companies sitting on the edge of their seats waiting for some sort of confirmation.”