Duane Morris & Selvam LLP

Investment Allowance Scheme for Energy-Efficiency Projects (Data Centres)

23 July 2012 – According to the Singapore Economic Development Board ("EDB"), Singapore is currently home to approximately 50% of Southeast Asia's data centre ("DC") capacity. As Singapore is set to become the DC hub for the Asia-Pacific region, Singapore's commercial DC space is expected to grow by 50% over the next five years.

In February 2012, Google Inc. (Nasdaq: GOOG) announced that it will be investing up to US$120 million on a Singapore DC at a 2.45-hectare site in Jurong West, which is expected to be completed in early 2013;
In April 2012, NTT Communications, the international business arm of Nippon Telegraph and Telephone (TYO: 9432) that provides network and security management services, unveiled its US$153.3 million Singapore Serangoon Data Centre, its fourth DC in Singapore; and
In June 2012, Equinix, Inc. (Nasdaq: EQIX), a provider of global DC services, announced an additional investment of S$28.5 million for the launch of phase four of its second Singapore International Business Exchange DC ("SG2").

DCs are energy-intensive facilities and contribute significantly to the carbon footprint. It is estimated that the cost of energy constitutes an average of 12% of a DC's operating costs, and energy cost is projected to increase by more than 20% per annum.

As attention is increasingly focused on energy efficiency for DCs, the Infocomm Development Authority of Singapore ("IDA") has recently introduced the Investment Allowance Scheme for Energy Efficiency Projects (Data Centres)¹ ("Data Centre Incentive") to encourage energy efficiency in DC deployment within Singapore. The introduction of the Data Centre Incentive cannot be more timely, as Singapore continues to strengthen its position as an infocomm and media hub within the region.

The Data Centre Incentive is targeted at existing DCs that retrofit their facilities to improve energy efficiency. The Data Centre Incentive will allow qualifying DC operators to lower the cost of capital expenditure incurred in implementing energy-efficiency retrofits.

The conditions for the Data Centre Incentive include the following:

the company must be operating a DC in Singapore with a minimum capacity of 400m²; and
the DC must comply with the Singapore Standard for Green Data Centres – Energy and Environmental Management Systems (SS 564)².

A company that has been granted the Data Centre Incentive will be entitled to an investment allowance ("IA") between 30% and 50% of the qualifying fixed capital expenditure incurred on the retrofitting of its DC. The fixed capital expenditure must be incurred within the qualifying period of three years to be eligible for the IA. Any unutilized IA may be carried forward for set-off against the chargeable income of the company in future years of assessment.

To apply for the incentive, a proposal detailing the proposed retrofit to the current DC (including the projected energy efficiency gains and the costs of the retrofit) has to be submitted to the IDA.

Should you require any further information on the Data Centre Incentive, please feel free to contact us.

Written by:

David Teo Shih Yee
Director – Corporate and Tax

Duane Morris & Selvam LLP
16 Collyer Quay
#17-00
Singapore 049318

(Tel) +65 6311 3666
DTeo@duanemorrisselvam.com

DUANE MORRIS & SELVAM LLP is a joint law venture between Duane Morris LLP and Selvam LLC.

Notes:

¹ To encourage companies in Singapore to invest more in energy-efficiency projects, the Singapore Parliament amended the Economic Expansion Incentives (Relief from Income Tax) Act, Chapter 86 of Singapore, in November 2010 to include "energy-efficiency projects" as one of the qualifying activities under the Investment Allowance ("IA") Scheme. IA incentivizes investments in qualifying capital expenditures by providing companies an offset against their taxable incomes.

² The Singapore Standard for Green Data Centres – Energy and Environmental Management Systems (SS 564) ("Singapore Standard") was announced at the Green Data Centre Forum on 31 March 2011. The Singapore Standard provides DCs with a framework and methodology to achieve energy efficiency. The first seven organizations to adopt the Singapore Standard are 1-Net, National Library Board, Singapore Telecommunications, Resorts World Sentosa, IBM, Keppel Datahub, and the Nanyang Technological University High Performance Computing Centre.