Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (No. 2) Notification 2003

Statute Details

• Title: Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (No. 2) Notification 2003
• Act Code: ITA1947-S499-2003
• Type: Subsidiary Legislation (SL)
• Authorising Act: Income Tax Act (Chapter 134), section 13(4)
• Enacting date (made): 16 October 2003
• Status: Current version (as at 27 Mar 2026)
• Key provisions: Paragraphs/sections 1–6 (notably Definitions (s 2), Exemption in relation to loans (s 3), Exemption in relation to securities lending or repurchase arrangement (s 5), Exemption in relation to deposits (s 5A), and Amendment of Notifications (s 6))
• Major amendments reflected in the extract: Amended by S 745/2020 (with various effective dates)

What Is This Legislation About?

The Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (No. 2) Notification 2003 is a tax incentive instrument issued under the Income Tax Act. In practical terms, it provides tax exemptions for certain interest and related payments made by a Singapore company that has an approved Finance and Treasury Centre (“FTC”).

The policy goal is to encourage multinational groups to locate treasury and financing functions in Singapore. By reducing the Singapore tax cost of cross-border funding and certain treasury transactions, the Notification supports Singapore’s role as a regional financial hub and facilitates economic and technological development.

Although the Notification is titled as a “(No. 2)” instrument, its operative effect is to define which payments are exempt, from whom the funds must be sourced, and how the borrowed or deposited funds must be used—namely, for the FTC’s “qualifying activities” or “qualifying services” under the FTC concessionary regime in the Income Tax Act and related regulations.

What Are the Key Provisions?

1) Definitions and the FTC framework (section 2)

The Notification’s definitions are central because the exemptions depend on whether the company has an approved Finance and Treasury Centre and whether the relevant counterparties and transactions fall within the defined categories. The term “approved Finance and Treasury Centre” is tied to approval for purposes of section 43G of the Income Tax Act.

The Notification also defines “approved office or approved associated company” for a company with an approved FTC. This concept is linked to approval under section 43G(2)(a) of the Act for applying the concessionary rate in section 43G(1). In other words, not every foreign related party qualifies; the foreign office/associated company must be within the approved structure.

Further, the Notification cross-references transaction concepts such as “securities lending or repurchase arrangement” and “compensatory payment” to the Income Tax Act (notably section 10N(12)). This matters for practitioners because the exemption is not drafted in isolation; it adopts the Act’s technical definitions.

2) Exemption in relation to loans (section 3)

Section 3 provides the core exemption for interest paid by a company with an approved FTC on certain loans. The extract shows that the exemption is framed as applying to interest on or after 18 February 2005 (subject to conditions and Minister-imposed conditions).

Under section 3(1A), the interest is exempt from tax if the loan is from one of the following sources:

• any approved office or approved associated company outside Singapore;
• any bank outside Singapore; or
• any non-bank financial institution outside Singapore that is not the company’s office or associated company.

Section 3(2) then imposes a crucial use-of-funds condition: the funds obtained from the exempt loan must be used for the FTC’s qualifying activities or qualifying services. This is a compliance point—exemption is not merely about the lender; it is also about the deployment of the borrowed funds.

Practitioners should also note that the extract indicates some earlier subsections were deleted by later amendments (S 745/2020). While the current operative logic is visible in the remaining subsections, the deletion history underscores that the concession regime has been refined over time. For advice, it is important to confirm the current version and effective dates relevant to the transaction year.

3) Exemption in relation to securities lending or repurchase arrangements (section 5)

Section 5 extends the exemption concept beyond conventional loans to certain securities lending and repurchase arrangements (commonly “repo” transactions). The Notification distinguishes between different types of payments.

First, section 5(1A) exempts from tax any loan rebate fee or price differential that the FTC company is liable to pay on or after 18 February 2005 in respect of such arrangements, provided the funds obtained under the arrangement are sourced from the same categories as in the loan exemption: approved foreign offices/associated companies, foreign banks, or foreign non-bank financial institutions (subject to the “not its office or associated company” limitation).

Second, section 5(2) imposes the same use-of-funds requirement: the funds obtained under the securities lending or repurchase arrangement must be used (where permitted by the agreement) for the FTC’s qualifying activities or qualifying services.

Third, section 5(3) addresses payments made by the FTC company to the counterparty under these arrangements—specifically borrowing fees or compensatory payments—that are liable to be paid on or after 28 October 2003. The exemption applies if the recipient:

• is not a resident of Singapore; and
• does not have a permanent establishment in Singapore through which the securities lending or repurchase arrangement is entered into.

This is a classic withholding-tax style condition (though the Notification is framed as an exemption rather than a withholding mechanism). For practitioners, the permanent establishment condition is often the most fact-intensive element: it requires analysis of the counterparty’s Singapore nexus and the transaction’s entry/structure.

4) Exemption in relation to deposits (section 5A)

Section 5A introduces a separate exemption for interest on deposits placed with the approved FTC. This is a notable expansion beyond loans and securities transactions.

Under section 5A(1), the interest that the FTC company is liable to pay on or after 25 March 2016 on any deposit placed with the FTC by an approved office or approved associated company outside Singapore is exempt from tax.

The exemption is conditional. Section 5A(2) requires that:

• the deposit is used for the FTC’s qualifying activities or qualifying services; and
• the exemption is subject to such other conditions as may be imposed by the Minister.

Section 5A(3) defines “deposit” for these purposes as a sum of money (not a loan) paid on terms under which it will be repaid (on demand or at an agreed time/circumstances) and which are not referable to the provision of property or services or to the giving of security. This definition is important to prevent re-characterisation: parties cannot simply label a financing instrument as a “deposit” if, in substance, it is a loan or otherwise falls outside the definition.

5) Amendment of earlier notifications (section 6)

Section 6 is a housekeeping provision. It deletes specific paragraphs of earlier “Consolidation” notifications with effect from 5 September 2000. The extract indicates deletions of:

• Paragraph 4 of the Income Tax (Exemption of Interest and Other Payments on Economic and Technological Development Loans) (Consolidation) Notification (N 5);
• Paragraph 3 of the same (Consolidation) Notification (N 6); and
• Paragraph 5 of the Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development Loans) (Consolidation) Notification (N 10).

For practitioners, this matters when tracing historical exemptions and ensuring that the correct instrument is applied to transactions in earlier periods. It also signals that the Notification is part of a broader consolidation and refinement of the FTC-related exemption regime.

How Is This Legislation Structured?

The Notification is structured as a short set of operative provisions:

• Section 1 (Citation): sets out the short title.
• Section 2 (Definitions): defines key terms, including the FTC approval concepts and cross-references to the Income Tax Act and FTC concession regulations.
• Section 3 (Exemption in relation to loans): exempts interest on qualifying loans sourced from specified categories of non-Singapore counterparties, subject to use-of-funds conditions.
• Section 4 (Deleted): indicates a previously existing provision that has been removed (as reflected in the extract).
• Section 5 (Exemption in relation to securities lending or repurchase arrangements): exempts specified fees and price differentials, and separately exempts borrowing fees/compensatory payments paid to non-residents without Singapore permanent establishments.
• Section 5A (Exemption in relation to deposits): introduces an exemption for interest on deposits placed by approved foreign offices/associated companies, again subject to use-of-funds and other Minister-imposed conditions.
• Section 6 (Amendment of Notifications): deletes specified paragraphs of earlier consolidation notifications effective from 5 September 2000.

In addition, the definitions section includes transitional alignment to the FTC qualifying activities/services regulations—reflecting that the qualifying activities/services definitions depend on the date of approval (before or after 21 February 2017).

Who Does This Legislation Apply To?

The Notification applies to a company with an approved Finance and Treasury Centre under the Income Tax Act. The exemptions are not general; they are transaction- and counterparty-specific. The company must be within the FTC regime and must satisfy the conditions relating to the source of funds and the use of those funds for qualifying activities/services.

For counterparties, the Notification distinguishes between:

• approved foreign offices/approved associated companies (which must be approved under the FTC framework);
• foreign banks and foreign non-bank financial institutions (with an additional restriction for non-bank financial institutions not being the company’s office/associated company); and
• non-resident recipients without a Singapore permanent establishment for certain securities lending/repurchase payments.

Accordingly, eligibility is a combination of (i) the FTC company’s approval status, (ii) the counterparty’s status and location, and (iii) the transaction’s economic substance and compliance with use-of-funds conditions.

Why Is This Legislation Important?

This Notification is important because it operationalises a key element of Singapore’s FTC tax incentives: it provides targeted exemptions that reduce the tax friction on treasury funding flows and certain capital market transactions. For multinational groups, these exemptions can materially affect the after-tax cost of financing and the structuring of intra-group funding and treasury operations.

From an enforcement and compliance perspective, the Notification’s conditions create clear practitioner focus areas. The most recurring issues are:

• Approval status and scope: whether the company’s FTC is approved under the relevant provisions, and whether the foreign offices/associated companies are “approved” for the purposes of the concession.
• Source-of-funds requirements: whether the lender/counterparty fits within the defined categories.
• Use-of-funds requirements: whether the borrowed/deposited funds are used for qualifying activities/services (and whether the agreement permits such use, particularly for securities lending/repo arrangements).
• Permanent establishment analysis: for borrowing fees/compensatory payments under securities lending/repo arrangements, whether the recipient has a Singapore permanent establishment through which the arrangement is entered into.

Finally, the amendment history reflected in the extract (notably S 745/2020) highlights that the concession regime has been updated over time. Lawyers advising on historical transactions, audits, or tax rulings should therefore verify the applicable version and effective dates for each payment type.

Related Legislation

• Income Tax Act (Chapter 134) — particularly section 13(4) (power to make notifications), section 43G (approved Finance and Treasury Centre concession framework), and section 10N(12) (definitions for securities lending/repurchase and related payments).
• Income Tax (Concessionary Rate of Tax for Approved Finance and Treasury Centre) Regulations — including the 2017 regulations referenced in the Notification’s definitions (for approvals given or extended before/after 21 February 2017).
• Income Tax (Exemption of Interest and Other Payments on Economic and Technological Development Loans) (Consolidation) Notifications (N 5, N 6, N 10) — as amended/deleted by section 6 of this Notification.

Source Documents

• Official Text — Singapore Statutes Online
• Archived Copy — Litt Law CDN

This article provides an overview of the Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (No. 2) Notification 2003 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.