Singapore to stay attractive with refundable tax credit scheme, says KPMG

Cash payouts provide firms with greater flexibility to grow their businesses.

As more countries adopt the global minimum tax of 15%, KPMG in Singapore said the Lion City can remain attractive to businesses with a Qualified Refundable Tax Credits (QRTC) scheme to soften the impact of the new floor rate. 

QRTCs, as an incentive, provide tax credits on qualifying expenditures of businesses which they can use to either reduce the corporate tax payable or claim through cash or cash equivalents within four years, the auditing giant explained in a recent note.

In his Budget 2024 speech on 16 February, Finance Minister Lawrence Wong introduced the Refundable Investment Credit (RIC) offering tax credit with a refundable cash feature based on the qualifying expenditures of companies. 

The perk’s coverage spans from capital expenditure, manpower costs, to logistics, in sectors involving manufacturing, R&D, innovation, and decarbonisation, among other things.

Harvey Koenig of KPMG in Singapore said in a note that “it is crucial for Singapore to also consider implementing QRTCs to preserve its competitive edge” as more economies adopt such schemes to mitigate the impact of the city-state’s adoption of the 15% global minimum tax rate starting 2025.

He highlighted the advantages QRTCs have even for businesses that are yet to turn a profit since its refundable feature allows for cash payouts when there is no corporate tax due.

“This feature provides a lifeline akin to grant programmes, with added flexibility. Businesses can receive support over an extended period without the necessity to apply for support before initiating a specific project or activity,” Koenig said.

READ MORE: Budget 2024: 3 tax strategies to offset BEPS 2.0 effects

Adopting the 15% floor tax rate forms part of Singapore’s commitment to the two-pillared Base Erosion Profit Shifting (BEPS) laid out by the Organisation for Economic Co-operation and Development (OECD) and was agreed upon by nearly 140 nations.

To further retain the country’s appeal to businesses following the implementation of BEPS 2, Koenig said the government can also directly provide cash grants to companies affected by BEPS 2, and ensure it applies to a wide range of sectors. 

“These grants, as opposed to tax incentives, offer direct financial support to enterprises, thereby potentially offering more immediate financial relief, while also mitigating the impact from Pillar Two,” he said.