As of January 1, 2025, Singapore will implement a minimum 15% tax rate for multinational enterprises (MNEs) with consolidated annual revenues of at least €750 million. This measure aligns with the global Base Erosion and Profit Shifting (BEPS) 2.0 initiative led by the Organization for Economic Co-operation and Development (OECD), which aims to ensure fairer taxation internationally.
Background to the Singapore Tax Regime
Before this reform, Singapore offered a 17% corporate tax rate, the lowest among ASEAN member countries. In addition, through various tax incentives, multinationals could further reduce their effective tax burden. Conversely, due to the introduction of BEPS 2.0, these tax planning strategies must be adjusted to comply with the new global minimum rate.
Implications for multinationals
Adopting this minimum rate means that multinationals must review and possibly restructure their tax and operational strategies in Singapore. Demonstrating a substantial economic presence in the country will be essential, including maintaining a local workforce, performing significant research and development activities, and making important capital investments. In addition, increased compliance costs are anticipated due to new reporting and documentation obligations.
Effects on Transfer Pricing
The implementation of BEPS 2.0 and the new tax rate in Singapore will also affect Transfer Pricing for multinationals. Companies must ensure that intra-group transactions reflect market value and are supported by real economic substance, thus avoiding tax adjustments and penalties. Proper documentation and a Transfer Pricing strategy aligned with the new regulations will be crucial for tax compliance.
Review of tax incentives
In response to these changes, the Singapore government is re-evaluating its tax incentives, expecting a transition to non-tax benefits, such as subsidies and sector-specific support, to continue to attract foreign investment and encourage high-value-added economic activities.
Conclusion
Introducing a 15% minimum tax rate in Singapore significantly changes the tax landscape. Companies must evaluate the effects of these changes on their operations and Transfer Pricing strategies in the region.
Frequent questions
- Which companies are subject to the new 15% tax rate in Singapore? Multinationals with consolidated annual revenues of at least €750 million.
- What are the effects of this measure on tax incentives in Singapore? Incentives that reduced the effective rate before may be restructured; the government is moving towards non-tax benefits.
- What should companies consider regarding Transfer Pricing under these new regulations? They must ensure that groupings reflect market value and are supported by real economic substance to comply with the regulations.
Source: Asean Briefing