Tax Changes For Companies

In the 1993 Budget, I introduced the Overseas Enterprise Incentive (OEI) as part of the Government's effort to encourage the development of an external economy. The OEI provides for tax exemption on income derived from approved overseas investments and projects for a maximum period of 10 years. The OEI also allows the follow-through of tax exempt dividends up to two levels of shareholding, subject to a 100 per cent shareholding requirement.

In 1995, changes were made to the Income Tax Act to allow the follow-through of tax exempt dividends beyond two levels of shareholding for foreign sourced income exempted under the Income Tax Act, provided the 50 per cent shareholding requirement is satisfied. The new rules have worked well. To further support regionalisation, I have decided that the OEI scheme be similarly relaxed. I will therefore be making the following changes to the OEI:

1. Reduce from 100 per cent to 50 per cent the shareholding required for follow-through of tax exempt dividends to the second level of shareholding
2. Extend the follow-through of tax exempt dividends beyond the two levels of shareholding provided the 50 per cent requirement is satisfied. Holding companies at every tier of a group corporate structure will be allowed to onward pay exempt dividends declared out of the qualifying OEI income
3. Waive the 50 per cent shareholding requirement in the dividend paying company for onward payment of exempt dividends on a case-by-case basis.

These changes will apply to dividends received on or after 11 July 1997.