Transfer Pricing Solutions Asia  |  October 2026

On 13 October 2026, the Inland Revenue Authority of Singapore updated its guidance on the Global Anti-Base Erosion Rules and the Domestic Top-up Tax. The update explains how Singapore is implementing the new Substance-based Tax Incentive Safe Harbour, and it is one of the more encouraging developments we have seen since the global minimum tax arrived.

For many multinational groups, the big question has been whether Singapore's incentives would still deliver real value once a 15% minimum tax applies. This update offers a welcome and constructive answer: incentives that reward genuine activity and investment in Singapore can continue to make a difference.

A quick refresher

The Global Anti-Base Erosion Rules, part of Pillar Two of the international tax reforms led by the Organisation for Economic Co-operation and Development, aim to ensure that large multinational groups pay at least 15% tax on their profits in each country where they operate. Singapore applies two of these measures for financial years starting on or after 1 January 2025:

• The Income Inclusion Rule, which collects top-up tax at the parent level on low-taxed profits of group entities overseas; and
• The Domestic Top-up Tax, which tops up the tax of Singapore entities to 15% locally, so the revenue stays in Singapore rather than being collected elsewhere.

These rules apply to groups with consolidated annual revenue of at least €750 million in at least two of the four preceding financial years.

The Side-by-Side package

On 5 January 2026, the Inclusive Framework agreed a package of simplifications and safe harbours. Singapore has confirmed it will follow this agreement, including:

• an extension of the Transitional Country-by-Country Reporting Safe Harbour;
• the Substance-based Tax Incentive Safe Harbour and the Side-by-Side Safe Harbour, for financial years starting on or after 1 January 2026; and
• a Simplified Effective Tax Rate Safe Harbour, for financial years starting on or after 31 December 2026.

What the new safe harbour does

Normally, a tax incentive lowers the tax a company pays, which lowers its effective tax rate and can trigger top-up tax. Under the new safe harbour, a group can add the value of qualifying tax incentives back to its covered taxes when calculating the effective tax rate for Singapore. In simple terms, the benefit of a qualifying incentive is no longer "clawed back" through top-up tax, up to a limit.

That limit, the substance cap, is 5.5% of the greater of the group's eligible payroll costs or the depreciation of its eligible tangible assets in Singapore. Alternatively, a group may elect, for at least five consecutive years, to use a cap of 1% of the carrying value of its eligible tangible assets. The more real people and assets a group has in Singapore, the more room it has to benefit.

Which incentives qualify?

A qualifying tax incentive is one that is generally available and calculated by reference to expenditure incurred or tangible property produced in the jurisdiction. Incentives based on income, such as reduced tax rates on qualifying profits, do not qualify.

The Inland Revenue Authority of Singapore has clarified that the following can qualify:

• enhanced deductions and enhanced allowances;
• investment allowances that work as an exemption of income calculated directly by reference to capital expenditure; and
• base deductions for expenditure that would normally not be deductible under sections 14 or 15 of the Income Tax Act 1947 (for example, because it is capital in nature), where the law specifically allows the deduction to encourage activities that support Singapore's economic or social objectives.

Groups may also elect to treat qualified refundable tax credits and marketable transferable tax credits as tax incentives in the year they accrue in the financial statements. The authority has also published a list showing which Singapore incentives qualify, and importantly, which component of each one qualifies. For some schemes, both the base and the enhanced deduction count; for others, only the enhanced portion does.

Why this matters

This is a positive signal for groups that have built real operations in Singapore. Research and development, innovation, training, intellectual property and capital investment incentives can keep their value, rather than being neutralised by top-up tax. It also rewards what Singapore has always encouraged: substance, people and long-term commitment.

That said, the safe harbour is not automatic relief from all top-up tax. It is the tax value of an incentive that counts, the cap must be calculated carefully, and the elections involved have consequences that run over several years. Each group's position will depend on its own mix of incentives, payroll and assets.

Questions worth asking now

• Which of our current Singapore incentives qualify, and which component of each?
• How large is our substance cap, and would the alternative asset-based cap suit us better?
• Should we elect to treat any refundable or transferable tax credits as incentives?
• Does this change how we plan future investment, hiring or research activity in Singapore?
• How will these choices flow into our Domestic Top-up Tax calculations and filings?

Let's talk

At Transfer Pricing Solutions Asia, we help multinational groups make sense of global minimum tax rules and what they mean in practice. If you would like to explore how the Substance-based Tax Incentive Safe Harbour could apply to your group, or simply have a question about any of the points above, we would be delighted to hear from you.

This article is for general information only and does not constitute tax advice. Source: Inland Revenue Authority of Singapore, Global Anti-Base Erosion Rules and Domestic Top-up Tax guidance, updated 13 October 2026.

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