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In line with the reduction in corporate tax rate to 25.5% announced by the Minister for Finance in his Budget Statement on 25 Feb 2000, the tax rate under the Income Tax Act for non-residents and certain payments which is presently pegged at 26% will be correspondingly reduced to 25.5% with effect from the Year of Assessment 2001. This change will apply as follows:

(a) Non-Resident Tax Rate
At present, non-residents are required to pay tax on their chargeable income at the rate of 26%. This rate will be reduced to 25.5%.

(b) Withholding tax Rate
Currently, certain payments to non-residents are subject to withholding tax at the rate of 26% or 15%. Such payments include interest, royalties, rents for movable property and technical fees. The withholding tax rate of 26% will be reduced to 25.5%. The withholding tax rate of 15%, which is generally applicable to interest, royalties and rents for movable property, will remain unchanged.

(c) Tax Rate for Trustees and Executors
A trustee (other than the trustee of an incapacitated person) and an executor are currently taxed at the rate of 26% on the income of the trust and estate respectively. This rate will be reduced to 25.5%.

(d) Deduction of Tax from Dividends
Every company which is resident in Singapore is required to deduct tax at the rate of 26% from the amount of any dividend paid to its shareholders. A resident company paying dividends may utilise the tax which it has paid on its corporate profits towards payment of the deduction required. If the corporate tax paid equals or exceeds the amount of tax which is to be deducted from the dividend, no further payment from the company is needed. This rate of the tax deduction from dividends will be reduced to 25.5% for dividends paid on or after 1 Jan 2000. (A brief on this requirement is attached).

(e) Tax Rate for Bodies of Persons
Bodies of persons eg. societies, clubs and associations, are taxed under part B of the Second Schedule to the Income Tax Act. The tax rates range from 6% for the first $2,500 of chargeable income to 55% for chargeable income in excess of $100,000. To ensure that bodies of persons who are taxed under this Schedule need not pay tax at a rate higher than companies, the highest effective rate of tax imposed under this Schedule is presently capped at 26%. This cap on the highest effective rate will be reduced to 25.5%.

NOTE ON DEDUCTION OF TAX FROM DIVIDENDS

Under section 44 of the Income Tax Act, every company resident in Singapore is required to maintain an account known as the section 44 account where tax paid by a company on its profits is reflected as a credit. Tax deducted from dividends paid by the company to its shareholders is entered as a debit to this account. Where the debit balance exceeds the credit balance, the excess is to be paid by the company to the Inland Revenue Authority of Singapore as a charge. This charge may be used to set-off tax assessed on the company's profits subsequent to the charge. Where the debit balance is equal to or less than the credit balance, no additional payment needs to be made. Hence the section 44 account will determine the maximum amount of dividend that a company can distribute to its shareholders without having to pay any charges to the Inland Revenue Authority.

2 The following examples illustrate the operation of the section 44 account: Assuming that a Singapore resident company has a chargeable income of $5,000 for the Year of Assessment 2001. Income tax payable on the chargeable income at 25.5% is therefore $1,275.

Example 1

Assuming that a gross dividend of $6,000 was declared and paid by the Singapore resident company, the section 44 account would be as follows:

Section 44 Account