The Inland Revenue Authority of Singapore (IRAS) has updated its guidance on the implementation of the Substance-based Tax Incentive Safe Harbour (SBTI Safe Harbour) in Singapore. The update, published on 13 October 2026, addresses the treatment of qualifying tax incentives under the OECD/G20 Pillar Two Global Anti-Base Erosion (GloBE) framework.
Under the safe harbour, eligible multinational enterprise (MNE) groups may treat qualifying tax incentives as an addition to the adjusted covered taxes of constituent entities when calculating the jurisdictional effective tax rate (ETR), subject to prescribed limits. The measure is intended to recognise certain tax incentives linked to genuine economic substance, while maintaining the objectives of the global minimum tax framework. The guidance is particularly relevant to large MNE groups benefiting from Singapore tax incentives, including those with substantial employment costs or investments in tangible assets.
Background: Pillar Two and Singapore’s Minimum Tax Framework
The OECD/G20 Pillar Two framework seeks to ensure that large MNE groups are subject to a minimum effective tax rate of 15% in each jurisdiction in which they operate. Singapore has implemented Pillar Two through its:
- Multinational Enterprise Top-up Tax (MTT), which gives effect to the Income Inclusion Rule.
- Domestic Top-up Tax (DTT), which applies the domestic minimum top-up tax framework.
These taxes generally apply to in-scope MNE groups with consolidated annual revenue of at least €750 million in at least two of the four preceding financial years, subject to applicable rules and exclusions. Singapore’s MTT and DTT apply to financial years beginning on or after 1 January 2025.
Under the GloBE framework, the jurisdictional ETR is broadly determined by dividing adjusted covered taxes by GloBE income. Where the ETR falls below 15%, additional top-up tax may arise, subject to the applicable adjustments, exclusions and safe harbours. The SBTI Safe Harbour is relevant because certain tax incentives can reduce covered taxes and consequently lower the jurisdictional ETR.
What Is the Substance-based Tax Incentive Safe Harbour?
The SBTI Safe Harbour provides a mechanism for recognising qualifying tax incentives when determining the adjusted covered taxes used in the Pillar Two ETR calculation.
Under the safe harbour, a qualifying amount of tax incentives may be treated as an addition to adjusted covered taxes. This can increase the jurisdictional ETR and potentially reduce the top-up tax otherwise payable. The adjustment is not unlimited. It is subject to a cap based on the MNE group’s eligible payroll costs or tangible assets in the relevant jurisdiction.
Importantly, the safe harbour does not provide a general exemption from the 15% global minimum tax. It is a specific computational adjustment available only where the prescribed requirements are satisfied.
Two Alternative Limits for the Safe Harbour
IRAS’ updated guidance sets out two alternative methods for determining the maximum adjustment.
Option 1 — Payroll or Tangible Asset Depreciation Basis
The adjustment is limited to: 5.5% × the greater of:
- The MNE group’s eligible payroll costs in the jurisdiction; or
- The depreciation of eligible tangible assets in that jurisdiction.
This method links the adjustment to employment costs or depreciation associated with tangible assets.
Option 2 — Tangible Asset Carrying Value Basis
Alternatively, an MNE group may elect to apply a limit of: 1% × the carrying value of eligible tangible assets in the jurisdiction.
The election must apply for at least five consecutive financial years.
The alternative basis may be relevant to groups with substantial tangible asset investments. The two methods are alternatives. An MNE group should assess the applicable election conditions and consequences before selecting the carrying value basis.
Illustration: Calculation of the Safe Harbour Limit
Assume an in-scope MNE group has the following eligible amounts in Singapore:
| Particulars | Amount |
|---|---|
| Eligible payroll costs | S$20 million |
| Depreciation of eligible tangible assets | S$12 million |
| Carrying value of eligible tangible assets | S$150 million |
| Qualifying tax incentives | S$2 million |
Option 1 — 5.5% Basis
The greater of eligible payroll costs and eligible tangible asset depreciation is S$20 million.
Maximum adjustment: S$20 million × 5.5% = S$1.10 million
Option 2 — 1% Carrying Value Basis
Maximum adjustment: S$150 million × 1% = S$1.50 million
The comparison is:
| Calculation basis | Maximum adjustment |
|---|---|
| Option 1 — 5.5% of greater eligible amount | S$1.10 million |
| Option 2 — 1% of eligible tangible asset carrying value | S$1.50 million |
In this illustration, the carrying value method produces a higher limit. However, the actual addition to adjusted covered taxes remains subject to the amount of qualifying tax incentives and the relevant statutory conditions. The five-year election requirement must also be considered before adopting Option 2.
Effect on the Jurisdictional Effective Tax Rate
The SBTI Safe Harbour can affect the computation of the jurisdictional ETR. Consider the following simplified illustration:
| Particulars | Without safe harbour | With safe harbour |
|---|---|---|
| GloBE income | S$20 million | S$20 million |
| Adjusted covered taxes before safe harbour | S$2.60 million | S$2.60 million |
| Qualifying safe harbour adjustment | — | S$1.10 million |
| Adjusted covered taxes after adjustment | S$2.60 million | S$3.70 million |
| Jurisdictional ETR | 13.0% | 18.5% |
In this example, the safe harbour adjustment increases the calculated ETR from 13.0% to 18.5%. This may reduce or eliminate the top-up tax otherwise arising under the simplified assumptions.
The illustration is not a complete GloBE computation. Actual top-up tax calculations may also require consideration of substance-based income exclusions, deferred tax adjustments, other safe harbours and applicable Pillar Two provisions.
Qualifying Tax Incentives and Economic Substance
The safe harbour is intended to address qualifying tax incentives linked to economic activity. However, not every tax incentive automatically qualifies.
MNE groups must establish whether their incentives satisfy the applicable requirements, including the relevant definition of qualifying incentives and the prescribed computational rules. The availability of the safe harbour should not be determined solely by whether an incentive is granted by a government agency or whether the recipient has employees or tangible assets. Businesses should assess the detailed conditions and supporting documentation before including any incentive amount in adjusted covered taxes.
Practical Implications
A. Reassessment of Pillar Two exposure
MNE groups benefiting from Singapore tax incentives should evaluate whether the SBTI Safe Harbour affects their jurisdictional ETR and potential DTT or MTT liabilities.
B. Review of existing tax incentives
Groups should identify which incentives may qualify and determine the relevant amounts for the safe harbour computation.
C. Payroll and tangible asset data
The calculation requires reliable information on eligible payroll costs, depreciation and carrying values of eligible tangible assets. Finance and tax teams should establish procedures to obtain and reconcile these amounts.
D. Evaluation of the five-year election
Groups considering the 1% carrying value method should assess its implications over the minimum five-year election period rather than selecting it solely because it produces a higher limit in one year.
E. Coordination with financial reporting
Pillar Two computations may require information from tax, accounting, human resources and fixed asset systems. Groups should ensure that the data used is consistent with the applicable GloBE definitions and supported by appropriate documentation.
Recommended Actions
In-scope MNE groups should consider the following steps:
- Identify qualifying incentives: Review Singapore and overseas tax incentives to determine whether they meet the SBTI Safe Harbour requirements.
- Calculate the available limits: Determine the relevant eligible payroll costs, depreciation and tangible asset carrying values.
- Compare the alternative methods: Assess the 5.5% method against the 1% carrying value election.
- Evaluate the five-year commitment: Consider future investment, employment and asset profiles before making the alternative election.
- Update Pillar Two models: Incorporate qualifying adjustments into the jurisdictional ETR and top-up tax calculations.
- Maintain supporting documentation: Retain incentive approvals, payroll schedules, fixed asset records and relevant calculations.
- Monitor further guidance: Review subsequent IRAS and OECD clarifications on implementation, eligibility and reporting requirements.
Conclusion
IRAS’ updated guidance on the Substance-based Tax Incentive Safe Harbour introduces an important consideration for MNE groups subject to Singapore’s Pillar Two minimum tax regime. By allowing qualifying tax incentives to be treated as additions to adjusted covered taxes, subject to prescribed limits, the safe harbour may reduce the impact of certain incentives on the jurisdictional ETR and potential top-up tax liabilities.
The two alternative limits—5.5% of the greater of eligible payroll costs or eligible tangible asset depreciation, or 1% of eligible tangible asset carrying value under a minimum five-year election—require careful assessment. MNE groups should review their qualifying incentives, available substance data and election options to determine the potential implications for their Pillar Two calculations.
Technical point
The SBTI Safe Harbour should be distinguished from the existing Substance-based Income Exclusion (SBIE) under the GloBE Rules. The SBTI Safe Harbour affects adjusted covered taxes, whereas the SBIE reduces the amount of excess profit potentially subject to top-up tax. They operate at different stages of the Pillar Two calculation. The illustrative calculations above should be treated as simplified examples, not as confirmation that any particular Singapore tax incentive qualifies for the safe harbour.
This article provides general technical information and does not constitute tax advice. Eligibility for the SBTI Safe Harbour and the amount of any adjustment depend on the applicable legislation, qualifying incentive definitions, election requirements and detailed Pillar Two computation rules.
Source: IRAS 13 October 2026.