IRAS has revised its online guidance on the GloBE Rules and the Domestic Top-up Tax to reflect a new safe harbour, which forms part of the Side-by-Side package.
The Inland Revenue Authority of Singapore (IRAS) has updated its guidance page on the Global Anti-Base Erosion (GloBE) Rules and the Domestic Top-up Tax (DTT) to include the substance-based tax Incentive Safe Harbour. The safe harbour belongs to the Side-by-Side package agreed by the Inclusive Framework (IF) on 5 January 2026. The page also sets out general guidance on how Singapore will implement the package.
Purpose of the rules
The GloBE Rules are meant to ensure that large multinational enterprise (MNE) groups pay a minimum level of tax on income arising in every jurisdiction where they operate. A top-up tax applies when the effective tax rate (ETR) of a jurisdiction, calculated on a jurisdictional basis, is below 15%.
The rules fall under Pillar Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Singapore was among more than 135 jurisdictions that joined the multilateral consensus of 8 October 2021. The GloBE Model Rules were released on 20 December 2021 and the Commentary on 14 March 2022.
Singapore’s rollout
Budget 2024 announced that Singapore would introduce the Income Inclusion Rule (IIR) and the DTT for financial years starting on or after 1 January 2025. The Undertaxed Profits Rule (UTPR) will be considered later.
Both measures cover MNE groups with consolidated revenue of at least EUR 750 million in two of the four financial years preceding the year in question. For the financial year 2025, the test years are 2021 to 2024.
Side-by-Side package
The package has four parts: a Simplified ETR Safe Harbour; an extension of the Transitional Country-by-Country Reporting Safe Harbour; the Substance-based Tax Incentive Safe Harbour; and a Side-by-Side system, made up of a Side-by-Side Safe Harbour and a UPE Safe Harbour.
The transitional safe harbour will now run to financial years beginning on or before 31 December 2027, excluding any year that ends after 30 June 2029. Singapore will adopt the Substance-based Tax Incentive Safe Harbour and the Side-by-Side Safe Harbour for financial years commencing on or after 1 January 2026. It will not adopt the UPE Safe Harbour, as it has not implemented the UTPR.
The Simplified ETR Safe Harbour will apply from financial years commencing on or after 31 December 2026. For DTT purposes, groups may elect either Singapore’s local accounting standards or an Acceptable Financial Accounting Standard used for their consolidated financial statements, subject to the election requirements.
How the new safe harbour works
The safe harbour lets a group add qualified tax incentives (QTIs) to the adjusted covered taxes of its constituent entities in a jurisdiction when calculating the ETR. The addition is capped at 5.5% of the greater of eligible payroll costs or depreciation of eligible tangible assets. Alternatively, a group may elect, for at least five consecutive financial years, a cap of 1% of the carrying value of eligible tangible assets.
A QTI is a generally available incentive calculated on expenditure incurred or on the volume of tangible property produced in the jurisdiction. Income-based incentives are excluded. Groups may also treat a Qualified Refundable Tax Credit or a Marketable Transferable Tax Credit as a tax incentive in the financial year it accrues in the financial statements.
What qualifies in Singapore
Under the Administrative Guidance, enhanced deductions, including enhanced allowances, can qualify, as can investment allowances that work as an income exemption calculated directly from capital expenditure.
A base deduction may also qualify where the expenditure would otherwise be non-deductible under section 14 or 15 of the Income Tax Act 1947, that is, where it is capital in nature or not wholly and exclusively incurred in the production of income. The deduction must be specifically allowed in legislation to encourage activity that advances Singapore’s economic or social objectives.
IRAS has published a list of QTIs and encourages businesses to consult the OECD’s GloBE Model Rules, Commentary and administrative guidance.
