The government of Singapore has extended tax breaks to Singapore-based audit, accounting, and law firms to strengthen the country's position as an international hub for headquarters operations and to encourage professional service firms that are structured as partnerships to expand their operations.
The Expansion Incentive for Partnerships scheme, announced on March 31 2004, follows the model of tax incentives already available for corporations but will apply to partnerships, the preferred business structure of most accounting and law firms.
Incentives in Singapore are normally applicable immediately. Firms will have to apply to the tax authorities and prove that they plan to expand their operations in the country. If successful, they will get a 50% tax exemption on qualifying overseas income above a predetermined base, which will be assessed as the average of the profits earned by the partnership for the provision of regional services over the preceding three years.
"Traditionally Singapore has always tried to attract foreign investment from multinational corporations with tax incentives," said Edmund Leow, a tax partner at Baker & McKenzie in Singapore. "They have now realized that professional services firms are very important to the economy as well."
Nicholas Miao, head of KPMG tax services in Singapore, welcomed the new benefits. "This incentive is certainly worth exploring for KPMG in Singapore and the benefit of this tax incentive will be translated into tax savings for individual partners," he said. "There is incentive now to base regional activities in areas like transfer pricing, mergers and acquisitions and cross-border transactions in Singapore."
Singapore competes with many of its neighbours for investment of all kinds, but this is the first time tax incentives have been given to professional services firms. Malaysia introduced a similar incentive from the year of assessment 2002 for companies in selected service areas including the accounting and legal professions. They receive a tax exemption on statutory income of up to 50% of the value of increased imports.
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