Tax Changes For Companies

Tax Incentives to Promote the Bond Market

In the FY98 Budget, I announced several tax incentives to promote the development of an active bond market. The incentives included tax exemption on interest income earned by non-residents from qualifying debt securities and on fee income derived by financial institutions from arranging debt securities in Singapore. I am now pleased to announce further refinements to these bond market tax incentives.

Currently, tax exemption on interest from qualifying debt securities paid to non-residents only applies if the non-residents do not have permanent establishments in Singapore. To facilitate a wider distribution of qualifying debt securities, I have decided to extend the tax exemption to include non-residents who have permanent establishments in Singapore, provided that such non-residents do not purchase the securities using funds from Singapore operations.

Qualifying debt securities are currently defined as debt securities which are substantially arranged by financial institutions in Singapore. In some cases, this condition gave rise to uncertainties about the availability of the incentives. This is because the global character of institutions and markets makes it necessary for the arrangers to use staff based outside Singapore, or employed by affiliated companies, to successfully execute the transaction. To rectify this situation, I have decided to create an "Approved Bond Intermediary" (ABI) scheme to complement the existing regime. Under the ABI scheme, the Monetary Authority of Singapore (MAS) will evaluate a financial institution's debt origination and trading capabilities in Singapore on an overall basis. Once a financial institution has been awarded ABI status, all debt securities lead managed by it would be treated as "qualifying debt securities". There would be no need for an ABI to satisfy, on a transaction-by-transaction basis, the current test of "substantial arrangement in Singapore". This will enable ABIs to provide their clients with greater certainty regarding our tax incentives, and will also serve to emphasize Singapore's goal of encouraging financial institutions to increase their debt market capabilities here.

The above refinements will be effective from 27 February 1999 up to 27 February 2003. ABI status may be awarded to financial institutions upon application to MAS. MAS will publish further details in a circular.