Financial services tax trends in Singapore 

My name is Alan Lau. I'm a Financial Services Tax Partner with KPMG Singapore.

Current trends

Based on my experience I think some of the key trends in the fund management industry in Singapore that you do see is that about ten years ago the Singapore industry or the Singapore government through the Monetary Authority of Singapore has been very actively trying to promote the fund management industry. Now it started off with Singapore trying to tax incentivize of a lot of offshore funds. That was the first phase and then in recent years in about 2005 to 2006 they moved onto the second phase where they tried to incentivize the onshore funds. So you can see that along the way they've gone through various phases of tax incentivization and I will say that as of today the fund management industry in Singapore is reaching a very mature stage.

GST

One of the key things in terms of the fund management industry that we find that the industry has been very interested in these, actually pertaining in the areas of indirect taxation which affects our fund management industry. Now, in Singapore we call that a goods and services tax or GST. In the past there has been a GST input tax recovery problem for our clients in the fund management industry because most of these clients are not able to claim back the GST input tax. They have suffered in the cost of the business. Now we regret to say that the government has taken the industries feedback and actually as recent as two years ago they've had to change legislation to actually allow as a concession taxpayers industry to claim back the GST input tax. So what we can see at the end of the day is that as of today funds operating in Singapore will not suffer from a GST angle.

Incentives

In terms of the incentives that apply for financial institutions the most popular tax incentive in Singapore for the finance sector is actually what we call the finance sector incentive or FSI for short. Now just in a very simple manner, the FSI scheme actually allows a tax incentivization in a price of lower concession tax rate of either 5 percent or 10 percent for the qualifying income of our banking clients. Now that compares very favorably against the normal tax rate of 17 percent and the icing on the cake is that the whole slew and whole scheme of qualifying activities is actually very widespread. So what we see is that for most of the banking activities undertaken by our clients they do inevitably either drop into the 10 percent tax bracket or the 5 percent bracket. So you can see it's actually very comprehensive. It's a very, very taxpayer friendly tax incentive.

Ease of compliance

The government has recognized that in recent years there is a need for the Singapore tax rules to go through a process of simplifying of their tax administration process. Now, they have actually taken into feedback or taken to -- we got the feedback from the industry where taxpayers feel that the tax compliance process can be further simplified especially from the administrative angle. So what we have seen in recent years is that the government has responded to that. They have simplified a few rules. For example, they'll look at the kind of forms, the number of forms that the taxpayer has to file and the kind of timeline that they've given and they've tried to whenever possible listen to the crowd to make the rules more flexible, more friendly and if the taxpayer do have a problem they're happy to listen to the taxpayer's case and hopefully work out something that is more palatable for both parties. So we do see a lot of flexibility from the authorities in terms of applying the tax compliance process.

The future

I think in terms of my views in terms of the future trends for the financial industry in Singapore I think as we are all aware the complexity of the transactions undertaken by the banks will only grow more voluminous by the day and they'll get only more and more complex. And in terms of the trends in Singapore, as some of you may be aware, the tax rules in Singapore while they are quite advanced but they aren't exactly quite catching up with the evolution or the evolvement in the financial marketplace. So for instance, there are new financial transactions for which there are no specific tax code to govern the taxation of those complex transactions. So we do see that the tax rules are, in a certain sense, always are a two or three steps behind in terms of catching up with the evolution in the financial marketplace. The authorities are aware of that and as I've mentioned they're always collaborating, listening to the crowd and they hope to make up for lost time.