What is the G-7 Tax Deal, And How Does it Affect Businesses in Singapore?
Whenever there is any change in the global tax-related rules and regulations, it impacts countries in many different ways. Similarly, the recent tax deal of the Group of Seven (G-7) nations is expected to affect businesses in Singapore in many different ways. The purpose of this post is to discuss this new tax deal and its potential effects.
Overview of the G-7 Tax Deal
The primary reason that led to the G-7 tax deal is that the finance ministers from the advanced economies in G7 agreed that there should be a global minimum corporate tax. The rate of this tax is decided at 15%.
According to the experts, this deal can heavily impact the large multinational corporations (MNCs) in Singapore. It will lead to a significant reduction in the Singapore tax incentives provided to large-scale businesses. However, it is still early to predict the exact impact of the G-7 tax deal on Singapore’s investment opportunities and overall attractiveness to global businesses.
According to the new deal, the countries have also got the right to tax MNCs up to 20%, whether the corporation is physically present in the market or not. This kind of step will lead to a massive change in the way corporations do business because online shopping and international shipping are more popular than ever before, especially due to the pandemic.
Experts’ Take on G-7 Tax Deal
Tax experts all over the world are of the opinion that no one should be surprised by these new measures because the existing global tax rules were implemented way back in 1920. The rules and regulations have not kept up with the times.
As a result, G7 and other economies are trying to implement new tax rules to tax the corporations that are selling a wide range of products and services remotely. This deal is considered to be a major step by G-7 to modernize the tax rules in this digital era. Moreover, you should remember that the deal has been finalized after years of negotiations by the OECD to formulate rules related to taxing digital services.
Singapore’s Response
The Finance Minister of Singapore, Lawrence Wong, has previously said that it is still too early to evaluate the impact of the G-7 tax deal on Singapore. However, the country and the authorities concerned are fully ready to make any required changes when the deal is finalized and the rules are implemented globally.
Singapore is one of the most attractive countries to international investors because its tax system has kept up with the times and complied with international regulations. Therefore, a similar pattern can be expected in this situation.
Current Corporate Tax Rate
The corporate tax rate in Singapore is currently 17%. However, the effective tax rate of most of the companies is much lower than 17% or even the proposed global tax rate of 15%. The reason behind such a low tax rate is a wide range of Singapore tax incentives.
If a global corporate tax of 15% is introduced, the MNCs will begin to evaluate the overall impact of the global tax rate against the efficiency of operating their business from Singapore.
Finalization
The G-7 tax deal has been agreed upon and finalized by 132 countries around the world at the recent G20 Summit that took place on 10 July 2021.
The Bottom Line
It may be too early to predict the impact of the G-7 tax deal on Singapore’s economy and different types of businesses. Since the new tax deal has been agreed upon and finalized, every corporation should start planning in advance and obtain help from the experts via outsource accounting services in Singapore.
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