Singapore to implement 15% minimum effective tax rate in 2025

MNEs in Singapore will apply the 15% effective tax rate from 1 January 2025 or the start of new financial year in 2025, according to the Budget 2023 for Singapore.

The application of 15% minimum effective tax rate was introduced by the OECE/G20 Inclusive Framework on base erosion and profit shifting (BEPS) in early February in its Agreed Administrative Guidance for the Pillar Two GloBE Rules (111-page /1.26MB PDF).

BEPS refers to tax planning strategies that take advantage of tax loopholes and mismatches to shift profits indirectly to low-tax areas where there is little or no economic activity, or to erode the tax base via allowable deductions such as interest or royalties.

The Inclusive Framework was set up in 2016 to make sure interested countries can participate equally in developing standards on BEPS related issues. To avoid the cost due to BEPS, the Inclusive Framework approved a two-pillar solution (Pillar Two) to reform international tax systemin 2021.The Inclusive Framework members agreed on a system of Global anti-Base Erosion (GloBE) rules, which is for making sure MNEs pay a minimum level of tax on their income. Singapore joined the two-pillar plan in 2021.

Tax and private wealth expert Valerie Wu of Pinsent Masons MPillay, the Singapore joint law venture between Pinsent Masons and MPillay, said: “Pillar Two is likely to impact a significant number of multinationals with Singapore operations given that many now benefit from one or more of the nation’s tax incentive programs. We suggest that these businesses pro-actively assess the potential implications and seek advice to help navigate the complexities of the minimum effective tax rate rules.”