Singapore has unveiled major tax breaks for law firms that act on international arbitrations as it vies with Hong Kong to become Asia's principal centre for dispute resolution.

Singapore's finance ministry announced the move on 15 February to allow a 50% tax exemption on firms' income on international arbitration work.

Arbitration specialists say the break could be a significant saving and may encourage firms to persuade their clients to settle disputes in Singapore rather than Hong Kong.

As it stands, there is little to separate Hong Kong and Singapore as arbitration centres, but the new tax breaks are the latest in
a line of reforms by the Singapore Government to boost its appeal.

Other recent developments include the creation of a dispute resolution complex to provide state-of-the-art arbitration facilities.

Herbert Smith partner Alastair Henderson, who co-heads the firm's southeast Asian dispute resolution practice, said: "The Singapore Government has consistently tried to modernise its arbitration framework and has a very determined policy to establish itself as the number one arbitration centre in the region. The tax breaks are the latest in a line of these sort of measures."

The cuts come as Singapore's authorities are set to review the current framework that governs how foreign law firms can operate in the jurisdiction.

Foreign firms cannot practise local law but can enter into a joint venture (JV) with a domestic firm. The JV scheme has attracted criticism from both UK and US firms, which want full liberalisation.

The JV scheme was introduced in 2000 and a number of City leaders, including Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer and Link-laters, tied up local deals.

However, Freshfields recently left the jurisdiction, while a number of other JVs have collapsed, including the respective ventures of US firms White & Case and Shearman & Sterling.