Starting January 2025, large multinational companies (MNCs) operating in the Southeast Asian nation must pay a minimum effective tax rate of 15 per cent. MNCs are defined as those with annual global revenues of 750 million Euros (SGD $1.06 billion). For foreign-owned MNCs with a Singapore business, that means paying 15 per cent on Singapore profits. For Singaporean MNCs, profits made from overseas entities will also be subject to that rate.
Under the previous regime, Singapore had a standard corporate tax rate of 17 per cent but many firms got away with paying less than 15 per cent due to a host of available tax reliefs. The Southeast Asian nation's economy is heavily reliant on large MNCs–a group that makes up more than 70 per cent of total corporate income tax revenue,
according to data from the Organization for Economic Co-operation and Development (OECD).
This new rule is part of a global movement called the Base Erosion and Profit Shifting (BEPS) 2.0 initiative. Spearheaded by the OECD, it looks to ensure large MNCs pay a standard 15 percent tax wherever they operate. So far, Australia, Japan, South Korea, Ireland, Switzerland and other OECD member states have implemented the policy, which seeks to end the global practice of low tax jurisdictions and a company's ability to hide multi-billion-dollar profits.
Singapore has long been considered a tax friendly nation and the country's 2025 reforms could cause some short-term disruptions to its reputation as a fiscal paradise, warned
Ramkishen S. Rajan, Yong Pung How Professor at Lee Kuan Yew School of Public Policy (LKYSPP). "While many countries have agreed to implement the BEPS, some economies may move more slowly than Singapore, which could lead to some foot-loose businesses choosing to shift out, though the extent is not easily qualifiable," he said.
For instance, the United Arab Emirates, Mexico, India and China have yet to signal when it will enforce the 15 per cent rate. The latter two are OECD partners, not members.
"Anytime a policy is rolled out unevenly across countries and jurisdictions, there is bound to be some disruptions as some businesses contemplate switching bases or HQs," said Professor Rajan.
But given the universal nature of BEPS, it might simply be a matter of time until most economies give into the rule. It remains to be seen if MNCs would take the effort to close their Singapore operations and set up shop in a lower-tax jurisdiction just for a temporary period of tax relief.
If any marginal disruptions do emerge, "the government is likely to attempt to try and mitigate these effects via other incentives as long as they are not inconsistent with the BEPS framework," said Professor Rajan. A pioneer tax incentive, refundable investment credit and investment allowance schemes are examples of such offerings.
Overall, Singapore will remain an attractive hub to corporations because it offers a multitude of benefits to MNEs beyond taxes, Professor Rajan pointed out. These include "seamless access to regional and global markets, stability, responsive government policies, [and] a highly digitised economy," he said.
Accountancy giant EY echoed those views.
As more countries embrace BEPS, that will eliminate tax competition and with an even tax playing field, investors will focus more on economic fundamentals, analysts explained in one
report. "Singapore’s long-standing merits in its institutions, infrastructure, labor market and financial and legal systems — qualities it has conscientiously nurtured for decades — would arguably be an even greater source of distinctiveness."
The report dismissed the idea of an exodus of foreign MNEs in Singapore and instead, warned of a separate, more worrying risk, for the tropical nation.
"The bigger forces working against Singapore are less of these evolving tax rules and more of companies’ shift toward decentralized decision-making and ways of working driven by technological advancement and the need for agility," EY warned. This, more than any tax policy, could "erode the relevance of hub locations like Singapore."