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What is the Global Tax Deal and how will you be affected?

Back in July 2021, G20 Finance ministers, Singapore Included, gave their backing to global tax reform. 

If you are running a Multinational Corporate (MNC), listen up as you are most likely affected when the deal takes effect in 2023.

If you are running a Small-Medium Enterprise (SME), feel free to let off a sigh of relief as you will not be directly affected by the deal. Read on to find out how this deal might indirectly affect your business. 

Who is affected by the global tax deal?

The global tax reform is currently targeted at MNCs that meet certain revenue and profitability. 

Around 1800 MNCs in Singapore would meet this criterion.

What is the global tax deal and Who is Affected?

There are 2 pillars that form the global tax deal 

Pillar 1: Re-allocating taxing rights of MNCs from where they conduct their substantial activities to where their customers are.
Who is affected: MNCs with revenue over 20 billion euros and over 10 % profitability

Example
Your MNC with revenue over 20 billion euros (SGD 31.9 billion~)  have a 15% profitability. 5% of your profits will be taxed in the region where your sales are made but not the MNCs operating country.

Pillar 2: Implement a global minimum tax rate of 15%
Who is affected: MNCs with above 750 million euros (SGD 1.2 billion~)

Example
If your MNC with revenue over 750 million euros (SGD 1.2 billion~) is paying an effective tax rate of 10% you will be required to pay an additional 5% to match the global minimum 15% deal.

This change is intended to prevent MNCs from profit-shifting to low tax rate countries. Multinationals operate in multiple countries but usually pay taxes on profits in low tax rate countries. 

The global tax deal will enforce MNCs to pay tax based on profit to the country where the goods are sold and also implement a minimum of 15% tax to combat low tax haven countries such as Ireland. This deal is targeted especially at technology giants such as Facebook, Google, Amazon and Apple.

Isn’t Singapore’s tax rate 17%? How are MNCs affected?

Currently, a majority of MNCs in Singapore enjoy tax reliefs which result in their tax rates being lower than 17% or even lower than the proposed minimum tax rate of 15%.

Should an SME be worried about its taxation in the future?

As the global tax deal is currently targeted at MNCs to curb Base Erosion and Profit Shifting practices (“BEPS”), there should be no immediate adverse implications for SMEs at the moment and the details of the global tax deal will only be finalized at the next G20 Meeting in October 2021.

Our Insights

The Singapore Government acknowledges that the global tax reform will have 2 implications in relation to each of the pillars. 

  • Singapore as a hub market will stand to lose corporate tax revenue as Pillar 1 is beneficial to countries with a larger market.
  • Singapore might see a curb in its usage of tax incentives as a tool to attract larger MNCs to invest.

If you are running an SME,  this might not affect your SME directly, a decrease in MNC investing in Singapore might affect the Singapore market. As we heavily benefit from new businesses entering and investing in our market, such new regulations might end up hurting SMEs in Singapore overall.

Next, If your company is currently under any tax incentives such as Global Trader Programme, there might be changes to the percentages and aid of the schemes depending on how Singapore choose to implement the new regulations. 

Want to know if the tax deal might affect your business in greater detail? Engage us to receive our bespoke solutions and advice.