Statute Details
- Title: Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) Notification 2013
- Act Code: ITA1947-S5-2013
- Legislation Type: Subsidiary Legislation (sl)
- Authorising Act: Income Tax Act (Chapter 134), in exercise of powers under section 13(4)
- Citation: Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) Notification 2013
- Deemed Commencement: 20 May 2012
- Key Provisions (as provided): Section 1 (citation and commencement), Section 2 (definitions), Section 3 (exemption)
- Current Version Status: Current version as at 27 Mar 2026
- Notable Amendments (from timeline): Amended by S 575/2021 (w.e.f. 01/04/2021) and S 328/2024 (multiple dates, including w.e.f. 04/11/2022 and 15/04/2024)
What Is This Legislation About?
The Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) Notification 2013 (“Notification”) is a targeted tax relief instrument issued under the Income Tax Act. In plain language, it provides that certain payments made by financial institutions to non-residents can be exempt from Singapore tax when those payments arise from specified over-the-counter (OTC) financial derivatives.
The policy rationale is economic and technological development: Singapore seeks to remain competitive as a financial hub by encouraging cross-border derivatives activity, while still maintaining guardrails through conditions (such as arm’s length requirements for related-party transactions and compliance undertakings for institutions that are exempt from regulatory licensing/approval).
Although the Notification is framed broadly as an exemption for “interest and other payments”, the operative text provided focuses on exemptions for payments on OTC financial derivatives. The relief is time-bound and contract-specific, with a defined window running from 20 May 2012 through 31 December 2026 (and with later carve-outs for certain variations effective from 1 January 2027).
What Are the Key Provisions?
1. Citation and commencement (Section 1)
Section 1 allows the Notification to be cited as the “Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) Notification 2013”. Importantly, it is deemed to have come into operation on 20 May 2012. This backdating matters for practitioners assessing whether payments made earlier fall within the exemption period.
2. Definitions (Section 2)
Section 2 defines key terms used in the exemption. The extract includes definitions for:
- “Authority”: the Monetary Authority of Singapore (MAS) established under the Monetary Authority of Singapore Act 1970.
- “financial derivatives”: derivatives whose payoffs are linked to payoffs/performance of financial assets, securities, financial instruments, or indices, but excluding derivatives linked wholly to commodities.
- “financial institution”: an institution licensed or approved by MAS (or exempt from such licensing/approval) under any Act administered by MAS; it also includes an approved Finance and Treasury Centre referred to in section 43E of the Income Tax Act.
These definitions are crucial because the exemption is not available to all payers or all derivative types. The payer must be a “financial institution” as defined, and the underlying instrument must fall within “financial derivatives” (with the exemption text expressly addressing over-the-counter financial derivatives).
3. Core exemption for non-residents on OTC financial derivatives (Section 3(1))
Section 3(1) provides that there shall be exempt from tax any payment made by a financial institution to a person who is not resident in Singapore and who does not have a permanent establishment (PE) in Singapore, where the payment is liable to be made under specified OTC derivative contract scenarios.
The exemption is structured around three categories of contract timing and events:
- Contracts taking effect before 15 February 2007 (and extensions/renewals taking effect before that date): exemption applies for payments liable to be made during 20 May 2012 to 31 December 2026.
- Contracts taking effect during 20 May 2012 to 31 December 2026: exemption applies for payments liable to be made under those contracts (including extensions/renewals taking effect within the same window).
- Variations taking effect from 4 November 2022 to 31 December 2026: exemption applies where the OTC derivative contract is varied during that period, and the payment is made on or after the date the variation takes effect.
Practically, this means the exemption is not simply “for all OTC derivatives”. It is tied to the lifecycle of the contract—original effective date, renewal/extension effective date, and (for later amendments) variation effective date.
4. PE-related extension and an important restriction (Sections 3(1A) and 3(1B))
Section 3(1A) extends the exemption even where the non-resident has a PE in Singapore, but only in a specific situation: the payment is made under a contract for OTC financial derivatives not entered into through that PE operation. In other words, the exemption can still apply if the derivative contract is not connected to the Singapore PE through which the non-resident carries on operations.
However, Section 3(1B) introduces a restriction. The exemption does not apply to a payment on OTC financial derivatives where the payment is liable to be made under a contract mentioned in Section 3(1)(b) or (c) that is varied with effect from a date on or after 1 January 2027, and the payment is made on or after the variation effective date. This is a forward-looking anti-avoidance style limitation: it prevents taxpayers from preserving exemption by varying contracts after the cut-off.
5. Conditions attached to the exemption (Section 3(2))
Even where the contract timing criteria are met, the exemption is conditional.
(a) Declaration/undertaking for first payment where the financial institution is exempt from MAS licensing/approval
For a first payment on any OTC financial derivatives by a financial institution that is not an approved Finance and Treasury Centre under section 43E of the Act and is exempt from licensing or approval under any Act administered by MAS, the financial institution must submit to the Comptroller on or before the date of such payment:
- a declaration that it is exempt from licensing/approval under a specified provision of the relevant MAS-administered Act (from a specified date); and
- an undertaking to notify the Comptroller immediately if it ceases to be such an exempt financial institution, and to comply with obligations under sections 45 and 45A of the Income Tax Act.
This condition is operationally significant: it creates a compliance step tied to the first exempt payment and links tax relief to regulatory status and ongoing obligations.
(b) Arm’s length declaration for related-party derivative transactions
For a payment on OTC financial derivatives where the contract is entered into with a related party of the financial institution, the exemption is subject to two requirements:
- the transaction must be carried out at arm’s length; and
- the financial institution must submit a declaration to the Comptroller that the transaction was arm’s length, together with its tax return for the year of assessment for the basis period during which the payment was made.
For practitioners, this effectively imports transfer pricing discipline into the exemption process. It also affects timing: the declaration must be filed with the tax return for the relevant YA/basis period.
How Is This Legislation Structured?
The Notification is concise and follows a standard subsidiary legislation format:
- Section 1 sets out the citation and deemed commencement.
- Section 2 provides definitions of key terms (Authority, financial derivatives, financial institution).
- Section 3 contains the substantive exemption, including:
- the main exemption for non-residents without a Singapore PE (Section 3(1));
- an extension where the non-resident has a PE but the derivative contract is not entered into through that PE (Section 3(1A));
- a restriction for certain variations effective on or after 1 January 2027 (Section 3(1B)); and
- conditions and compliance requirements (Section 3(2)).
Notably, the extract does not show separate “Parts” or “Schedules”; the operative content is contained within these sections.
Who Does This Legislation Apply To?
The exemption applies to payments made by a “financial institution” to a person who is not resident in Singapore. The recipient must generally not have a permanent establishment in Singapore (or, under Section 3(1A), the PE exists but the derivative contract is not entered into through that PE operation).
Accordingly, the Notification is most relevant to:
- Singapore-based financial institutions (including MAS-licensed/approved entities and certain exempt entities);
- non-resident counterparties receiving payments under OTC derivative contracts; and
- groups where derivative contracts are entered into with related parties, requiring arm’s length documentation and declarations.
Why Is This Legislation Important?
This Notification is important because it provides a structured pathway for Singapore tax exemption on certain cross-border derivative payments—an area that can otherwise be exposed to withholding or other tax consequences under the Income Tax Act framework. For financial institutions, it can materially affect pricing, net returns, and structuring decisions for OTC derivatives.
From a compliance perspective, the Notification is not “automatic”. It requires practitioners to check:
- whether the payer qualifies as a “financial institution”;
- whether the derivative qualifies as “financial derivatives” and is an OTC derivative;
- whether the recipient is a non-resident and whether a Singapore PE exists (and if so, whether the contract is entered into through that PE);
- whether the contract’s effective/renewal/variation dates fall within the relevant windows; and
- whether conditions are met—particularly the Comptroller declaration/undertaking for exempt-from-licensing institutions and the arm’s length declaration for related-party transactions.
Finally, the restriction in Section 3(1B) (variations effective on or after 1 January 2027) signals that the exemption regime is dynamic and subject to policy recalibration. Practitioners should therefore monitor contract amendments and ensure that post-2026 variations do not inadvertently trigger loss of exemption.
Related Legislation
- Income Tax Act (Chapter 134) (including section 13(4), and referenced provisions sections 43E, 45, and 45A)
- Monetary Authority of Singapore Act 1970 (definition of MAS as “Authority”)
Source Documents
This article provides an overview of the Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) Notification 2013 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.