Currently, Section 13(4) of the ITA provides for tax exemption on payments made by a financial institution on qualifying derivatives to a person that is neither a Singapore resident nor a permanent establishment in Singapore. "Qualifying derivatives" refer to financial derivatives whose payoffs are linked to the payoffs or performance of any financial assets, securities, financial instruments or indices (but excludes commodity derivatives). More importantly, the definition of "qualifying derivatives" for the purpose of the tax exemption only covers financial derivatives that are traded "over-the-counter".
The tax exemption is expected to expire on 19 May 2012.
It is proposed that the tax exemption be extended to 31 March 2021.
The extension of the tax exemption is to cover:
i. Payments liable to be made during the period from 20 May 2012 to 31 March 2021 on contracts taking effect, extended or renewed before 20 May 2012; and
ii. All payments liable to be made on contracts taking effect, extended or renewed from 20 May 2012 to
31 March 2021.
20 May 2012
While the extension of the tax exemption to encourage further growth of the derivatives market in Singapore is a welcome move, it remains to be seen if the Government will seek to align the tax exemption with the enhancement introduced in 2008 to the FSI-Derivatives Market incentive, where the definition for "qualifying derivatives" was expanded to include exchange-traded financial derivatives.
The MAS is expected to release further details by 30 April 2012.
|