Singapore's Budget 2025 introduces measures to strengthen the social compact and uplift targeted segments of the community, coupled with initiatives to drive new frontiers of innovation and technology, energize enterprise ecosystem and accelerate infrastructure developments, with the aim to position Singapore for the next lap of sustainable growth.

The Budget has been released on the heels of Singapore's strong rebound from the COVID-19 pandemic, with the end of 2024 showing economic growth of 4.4% and a budget surplus of 2.6 billion Singapore dollars¹ (SG$2.6b). The Government's revenue collections were better than expected, mainly due to an uptick in corporate income tax collections at close to SG$31b, being the single largest contributor to total revenue collections.

Budget 2025 specifically calls out investments in productivity in the Technology, Life Sciences and Semiconductor sectors as focus areas, in addition to emphasizing the importance of investments in Artificial Intelligence.

The Budget announces no changes on the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two front. However, the Government acknowledges significant uncertainty, which could have an impact on tax collections, driven by the recent developments in the United States and whether multinational enterprises (MNEs) will continue to invest in Singapore. The Government notes certain tax policy changes and will react to the extent necessary in the best interests of Singapore.

Some key tax measures that may be of interest to businesses are summarized below.

Corporate Income Tax (CIT) rebate

To provide support for companies' cash-flow needs, a CIT rebate of 50% of tax payable will be

granted in Year of Assessment 2025. The CIT rebate may be paid out as a cash grant (subject to a cap of SG$2k and meeting local employee conditions) and/or as a rebate. The maximum benefit that a company can receive is SG$40k.

Enhancement to Section 13W tax non-taxation of ordinary share disposal gain

Section 13W of the Income Tax Act (ITA) provides upfront certainty of non-taxation of companies' gains from the disposal of ordinary shares during the period 1 June 2012 to 31 December 2027, if certain conditions are met, such as minimum shareholding (at least 20% shareholding) and minimum period of ownership (continuous period of 24 months).

To provide greater certainty to companies, Section 13W of the ITA will be enhanced for disposal gains derived on or after 1 January 2026. As a result:

• The 31 December 2027 sunset date is removed.
• The scope of eligible gains is expanded to include gains from the disposal of preference shares that the investee company accounts for as equity under the applicable accounting principles.
• The assessment of the shareholding threshold may be done on a group basis.

Introduction of tax deduction for innovation activities under approved cost-sharing arrangements (CSA)

To support collaborative innovation activities, a 100% tax deduction will be introduced for payments that companies make under an approved CSA for innovation activities, effective from 19 February 2025. Previously, payments made under a CSA for innovation activities that did not meet the definition of "research and development" under section 2 of the ITA have not been tax deductible. The Singapore Economic Development Board (EDB)² will provide further details in the second quarter of 2025.

Introduction of additional concessionary tax rate tier (CTR) for Financial Sector Incentive (FSI) regimes

Approved incentive recipients under the FSI regime are eligible for a CTR of 10% or 13.5% on qualifying income. An additional CTR tier of 15% will be introduced with effect from 19 February 2025 for the FSI-Standard Tier, FSI-Trustee Company and FSI-Headquarter Services regimes.

Introduction of tax incentives recommended by Equities Market Review Group³

To encourage new listings in Singapore and increase investment demand for Singapore-listed equities, the following tax incentives will be introduced:

• Listing CIT rebate of 10% or 20% for new corporate listings in Singapore, subject to a rebate cap
• Enhanced CTR of 5% for new fund-manager listings in Singapore
• Tax exemption on fund managers' qualifying income arising from funds investing substantially in Singapore-listed equities

Enhancements to maritime and shipping tax regimes

Under the Maritime Sector Incentive (MSI) regime, ship operators, maritime lessors and providers of certain shipping-related support services can enjoy various tax concessions by way of exemption, CTR or the alternative net tonnage basis of taxation, subject to conditions. In addition, withholding tax (WHT) exemption is granted on qualifying payments made by qualifying MSI entities to non-tax residents in respect of qualifying financing arrangements to finance the construction or purchase of qualifying assets, subject to conditions.

The above MSI regime (including the WHT exemption) was scheduled to lapse after 31 December 2026. To continue developing Singapore as an international maritime center, the MSI regime (including the WHT exemption) will be extended till 31 December 2031.

To ensure the MSI remains relevant, the qualifying scope of various MSI regimes will also be updated with effect from 19 February 2025, to provide various expansion of scope to the relevant incentive/award to include, among others, emission management services, distribution of renewable energy generated offshore and maritime technology services.

Additionally, broad-based WHT exemption for specified ship/container lease payments would be extended to agreements entered into on or before 31 December 2031.

Implications for MNE groups

A key focus of Budget 2025 is the advancement of Singapore's growth frontier. This is reflected in the various tax and non-tax measures announced, including enhancements to relevant tax regimes (some of which have been summarized above) to ensure the continued development of Singapore as a globally competitive economy as well as a stronger enterprise ecosystem.

MNE groups operating in Singapore should note these upcoming changes and understand how they may be relevant to their business and tax strategies. These changes and enhancements could potentially benefit incumbent organizations in Singapore and future players and investors with plans for growth in specified activities or sectors. Further details regarding some of these changes and enhancements would be announced by the Singapore government in due course.