5-10-2023 (SINGAPORE) In a move to strengthen its legal framework against money laundering and illicit economic activities, Singapore’s Parliament addressed a S$2.8 billion money laundering case during its sitting in October 2023. Multiple ministerial statements were issued, and Members of Parliament asked for clarifications. Two amendment bills were also passed during these hearings.
Income Tax (Amendment) Bill
The first bill, passed on October 3, 2023, amended the Income Tax Act. It brings changes to Singapore’s tax regime as announced during Budget 2023, along with other amendments resulting from recent policy reviews.
One significant change relates to the taxation of foreign-sourced disposal gains. Starting from January 1, 2024, foreign-sourced disposal gains will be taxable in Singapore when received by entities of multinational enterprise groups that lack “economic substance” in the country. This includes gains from the sale or disposal of foreign assets, including those linked to intellectual property rights.
The objective of this amendment is not to tax capital gains in Singapore but to align the country’s tax regime with international norms. The move addresses international tax avoidance risks related to non-taxation of disposal gains in the absence of real economic activities.
According to Senior Minister of State for Finance Chee Hong Tat, the new tax treatment is consistent with international standards and is in Singapore’s interest as a small, open economy to have tax rules that stand up to international scrutiny. Industry guidelines on assessing economic substance will be published by the Inland Revenue Authority of Singapore (IRAS) by the end of 2023.
Free Trade Zones (Amendment) Bill
The second bill, passed on October 4, 2023, introduces amendments to the Free Trade Zones (FTZ) Act. Businesses operating within FTZs enjoy various benefits, including customs duties and taxes exemptions on re-exports, simplified customs procedures, streamlined logistics, and more.
These amendments create a new licensing regime for FTZ operators, outline responsibilities for cargo handlers, and provide more enforcement powers for Customs authorities.
The necessity for these updates arises from growing global concerns about FTZs being misused for illicit activities like weapons proliferation and trade-based money laundering. Illicit actors have often disguised their actions as legitimate trade by falsely declaring cargo manifest data or swapping legitimate goods with contraband.
Under the new licensing regime, only FTZ operators meeting the requirements will be granted a license, subject to the provision of necessary security measures like CCTVs and fences. Cargo handlers and agents do not need licenses but will have regulated responsibilities.
Customs authorities will also see enhanced enforcement powers. The Director-General of Customs will gain authority in areas such as granting, renewing, suspending, or revoking licenses, ordering the removal of dangerous goods, and detaining goods for inspection. Customs officers will be granted more authority for investigations and enforcement.
Concerns and Singapore’s Response
Some Members of Parliament expressed concerns about the impact of these amendments on businesses’ operational efficiency and overall competitiveness as a trading hub. In response, Chee Hong Tat emphasized Singapore’s commitment to maintaining a business-friendly operating environment while preventing misuse by bad actors for illicit activities. Singapore aims to balance its reputation as a trusted trading hub with robust measures to combat financial crime.
