Preparing for Pillar Two: Navigating Singapore’s New Global Tax Rules with Expert Support from ForBis

Singapore is moving forward with the implementation of Pillar Two top-up taxes, starting in financial years from January 1, 2025. This move aligns with global tax reforms led by the OECD and G20, ensuring that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on profits in every country they operate in.

A. What is Pillar Two?

Pillar Two is part of a global tax reform initiative designed to prevent large MNEs from avoiding taxes by shifting profits to low-tax countries. It ensures that MNEs with annual revenues of EUR 750 million or more pay at least 15% tax on their global profits.

The key rules for Singapore’s implementation include:

• Income Inclusion Rule (IIR): Singapore-based MNEs must pay additional tax on the profits of their foreign subsidiaries if those entities are taxed below 15%.
• Domestic Top-up Tax (DTT): Foreign MNEs with low-taxed entities in Singapore must also pay a minimum of 15% on their local profits.

B. Impact on Large Local Companies

Singapore-based MNEs with global operations will need to track the tax rates of their foreign subsidiaries and be ready to pay additional taxes if those entities are taxed below 15%. This adds administrative complexity, requiring detailed data collection and compliance.

C. Impact on Small and Medium Enterprises (SMEs)

SMEs are generally unaffected by Pillar Two, as it applies only to MNEs with annual consolidated revenues of at least EUR 750 million. However, SMEs that are part of larger multinational groups may experience indirect impacts through group-wide tax changes.

D. Impact on Foreign Businesses

Foreign MNEs with operations in Singapore will be subject to a minimum 15% tax on their Singapore profits through the DTT. They will also face penalties for non-compliance, including fines and surcharges for late registration or failing to submit mandatory returns.

E. Impact on Businesses

The new tax rules will bring increased administrative burdens, especially for large companies with multinational operations. Businesses will need to enhance their tax compliance systems to handle the additional data required to meet the 2025 deadline. Digital tools and improved processes will be essential to streamline data collection and reporting. Non-compliance could lead to penalties, such as fines or surcharges, with stricter measures for serious violations.

How ForBis Can Help

Navigating the complexities of Pillar Two and the upcoming tax changes can be challenging for businesses of all sizes. ForBis, a leading tax advisory and accounting firm in Singapore, offers specialized services to help businesses stay compliant with the new regulations. Our services include:

• Tax Advisory: Expert guidance on how Pillar Two and other tax rules will impact your business operations.
• Accounting Services: Streamlined accounting processes to ensure accurate tax reporting and data management.
• Compliance Solutions: Tailored digital solutions to help businesses meet the new data and reporting requirements with ease.

Whether you’re a large MNE or an SME, ForBis can provide the support and tools you need to ensure a smooth transition to the new tax regime. Contact us today for a consultation and let us help you stay ahead of the curve in this evolving tax landscape.

Apart from certain types of income sources, income earned in Singapore generally is taxable. Income from employment, business, property, investment, and annuity are some of the types of income sources you may have received. Before you learn how you can reduce your personal income tax, it is very important as an individual to understand, accurately declare and know the tax percentage of your taxable income. 

WHAT IS SINGAPORE RESIDENT INCOME TAX RATES YA2020?

Income tax rate table by IRAS

If your spouse and you belong to income earner of at least $80,000 per annual, then congratulations. This means you are earning above the national average household income. In year 2020, the average household income in Singapore apparently is $9,189. On the other hand, this also means your spouse and you will need to incur 11.5% tax rate for the amount you received above $80,000. Fortunately, the government provides different tax relief schemes that you could tap onto.

HOW CAN YOU REDUCE YOUR PERSONAL INCOME TAX?

Summary

Apart from the above, there are definitely many more tax reliefs designed by the government to cater to a different group of individuals. These tax relief schemes are designed for different needs. For example, contribution to CPF Special Account helps you with your retirement and Medisave allows you to offset your medical insurance and bills. With the right knowledge, you can definitely benefit more while reducing your taxable income. Do email us at support@forbis.com.sg if you have more questions or go to our Forbis Accounting website and we will be glad to share more with you.