The Singapore government has made a bold move to try and reduce the costs of doing business in the country in its 2009 budget . Despite being in a recession, the government has announced tax cuts and record levels of spending. Facing stiff competition from its neighbour Hong Kong, Singapore has been steadily reducing its corporation tax rate for a number of years to increase its attractiveness for foreign investment. And finance minister Tharman Shanmugaratnam cut the rate again in the budget on January 22, from 18% to 17%.

"With this reduction, Singapore's corporate tax rate is now only half a percentage point higher than Hong Kong's, "said Ajit Prabhu, a partner at Deloitte in Singapore. "Combined with our extensive tax incentive regime and extensive tax treaty network, Singapore now has one of the most competitive tax environments in the Asia Pacific region." The fact that Singapore is in a recession does not worry commentators. "In a recession life must go on, especially when you are competing for investment," said Eng Chaun Choo, a partner at Ernst & Young in Singapore.

Although a one percentage point reduction is low, its impact may be considerable. "It will save businesses approximately S$400 million ($267 million) to S$500 million ($334 million) per year," said Choo. The minister also announced a temporary lifting of the conditions required for tax exemption for foreign dividends, foreign branch profit and foreign service income and a proposal to allow a temporary exemption from tax for all foreign income remitted into Singapore by tax resident companies. This should enable the businesses to repatriate overseas income to fund their Singapore operations without having to pay Singapore tax when they bring the money back.

These tax cuts should help Singapore retain its reputation as a strong business jurisdiction. "Singapore has always shown itself to be relevant to businesses and this one percentage point reduction in the corporate tax rate is a clear indication of its intention to remain relevant and competitive to businesses," said Choo. Others share this optimistic view of the budget. "Overall, the tax measures introduced are well balanced and address the immediate requirements of the economy while looking into the future when the economy recovers from the recession," said Prabhu

David Stevenson, International Tax Review, 22 January 2009

Related Event:  Overview of Singapore Business Tax 2009, Aug 2009, Singapore  (Please Call: 65 63299766)