Planning a move overseas is a big step, no matter where you are going. There are different social expectations, legal rules, business regulations, tax requirements, and more to figure out.

You need to determine whether you or a key team member is going to make the physical move to head up the overseas expansion, and facilitate this move to be as smooth and efficient as possible. 

Then there are business decisions such as deciding whether to set up a brand-new company, or trade overseas directly under your head company. While there are too many factors to consider in one article, and it is essential to get tailored advice for your situation, you can get a head start by considering an overview of the key concepts that you will need to cover.

1. Operation Zones

Companies in Dubai can choose to operate as free zone companies, offshore companies, or Mainland companies. This decision will have an impact on where you can do business.

If Dubai is going to be your hub for regional or international commerce, then a free zone entity may be the best option. This is because Free Zone Companies can only operate within their Free Zone and abroad, not on the mainland. However, if you are intending to provide goods and services to the UAE, then a Mainland firm would be the required option.

Free Trade Zone Company

There are over 40 zones throughout the UAE that are Free Trade Zones. These zones have special tax, customs, and import regimes. Businesses operating within these Free Trade Zones may be exempt from paying corporate tax as well as import and export taxes. However, they are restricted from doing business with the Mainland.

Mainland

A Mainland business can be set up in Dubai or any other emirates, so they can operate in the UAE as well as internationally.

Offshore Company

If your company is incorporated in the UAE offshore, you can operate with minimal capital requirements and operate on an international basis.

2. Income Taxes

From June 2023 all companies operating in the UAE under a commercial licence are taxed after the first 375,000 AED of their net profits. The tax is charged at a flat rate of 9% and only applies to the profits above this first 375,000 AED. This makes it one of the more appealing corporate tax rates in the world.

Note that Free Trade Zone companies may continue to be exempt from paying corporate tax under their specific free zone incentives. 

In line with the Global Minimum Corporate Tax Rate agreement, multinational firms with profits exceeding EUR 750 million, will have to pay 15% tax. 

From June 2023 businesses operating under the new rules now need to register with the Federal Tax Authority and lodge tax returns for the business on an annual basis.

3. VAT and Excise Tax

Since 2018 a goods and services tax, or a value-add tax, known as VAT, has been applicable at a flat rate of 5%.

There are some exclusions to which items incur VAT, including exports of goods and services, international transportation, some education and healthcare services, investment-grade precious metals, and new construction of residential properties. Some Free Trade Zeons are also exempt from paying VAT for trade within their zones. 

In 2017 the UAE implemented an excise tax. This is an indirect tax that is imposed on goods that are considered to be harmful to either personal health or the environment. This includes a 50% tax on carbonated drinks and a 100% tax on energy drinks and tobacco products.

4. Employer Responsibilities

As an employer you are responsible for paying your employees under the local employment rules and regulations. There are a range of responsibilities that you are required to cover for your employees, including:

• Paying wages in accordance with local laws and regulations. This includes proper job documentation, conditions of labour, and paying wages on time. As there is no individual income tax there is no tax withholding regime to consider.
• Providing health insurance for employees. This is a compulsory requirement for all employers.
• Under UAE law the employer is responsible for paying the travel and recruitment costs, including entry visa, of any employee they are recruiting or moving to the UAE.

5. Moving To Dubai When Expanding Your Business

A visa residency through employment is required for any individual moving to Dubai for work purposes. Note that it is the employer’s responsibility to organise and pay for an employment Visa.

The standard work Visa lasts for two years. This requires an employer sponsor to confirm employment in Dubai.  

A “Green Visa” is applicable for freelancers or self-employed individuals. This requires specialised educational qualifications and evidence of your annual income to prove financial solvency. This Visa is for five years.

Finally, the “Golden Visa” is a residency permit that allows foreigners to live, work, or study in the UAE for 10 years without a sponsor. Investors, entrepreneurs, and more can apply for this Visa. This Visa also allows the immediate family to be sponsored so they can move to Dubai as well.

It is also important that individuals moving to Dubai are aware of local expectations, laws, and requirements, which may be vastly different from your home country.

6. Other Business Responsibilities

As with running a business in any other location, there are essential rules, regulations, licensing, and other requirements that your business needs to be aware of as part of your setup and operation.  Some of these are listed below.

Bank Account

It can take two to four weeks to open a bank account for commercial purposes. While the required documents vary according to the bank and the type of account you open, the Business Manager will need to have their own residency visa in order before you apply.

Trade Licence

Every business that operates in the UAE must have a trade licence, or a business licence. This may be a commercial licence, a professional licence, or an industrial licence, depending on your business activity.

Business Entity

You can set up your business as a sole proprietorship, an LLC company, or a branch office. If operating from a Free Trade Zone your business can be 100% foreign-owned.

7. Double Tax Agreements (DTAs)

The UAE is expanding their list of DTAs throughout the countries of the world in order to facilitate strategic global partnerships. These agreements help ensure that the consequences of being taxed in multiple tax jurisdictions is mitigated via exemptions or reductions in taxation on investments from profits.

While the USA does not have a DTA with the UAE, there is currently a DTA between the UAE and Singapore, as well as the UAE and the UK. Australia is in the process of establishing a DTA with the UAE. 

8. Property Taxes

Although there is no capital gains tax or inheritance tax in the UAE, there is a transfer charge on the transfer of property within the UAE. The rate of charge varies in each Emirate, with a 4% charge applying in Dubai. This transfer fee is typically paid by the buyer of the property.

9. Rental Tax

Although there is no individual income tax in Dubai, there is a rental tax. The tax on rental properties varies between Emirates. In Dubai commercial tenants pay 10% and residential tenants pay 5%. In some locations citizens are exempt from the rental tax.

Foreigners In The UAE

As there is no income tax for individuals, both residents and non-residents of the UAE are not required to lodge an income tax return in the UAE.

However, if you remain a resident of your home country then you will need to lodge a tax return in your country of residence, and this may require the inclusion of income earned from the UAE.

Depending on how your business in the UAE is set up, you may also be required to report this income as foreign income in a local company tax return.

Local Taxation Experts

As there is no individual income tax and corporate tax is new to the UAE, there may be limited access to accountants, and limited experience with the UAE tax regime on a local level.  

It is therefore especially important to seek the advice of International Tax Experts who can help you navigate the new requirements in Dubai, as well as the impact of doing business across multiple borders.

CST have been assisting Australian and expat clients for over 30 years. Helping businesses to set up overseas and connect with local tax experts is an essential part of the support we offer clients around the globe. With the UAE now introducing a corporate tax into their tax regime it is more important than ever that you get the right advice for your expansion into Dubai. 

In June 2023, the Ministry of Finance released a draft of the Income Tax (Amendment) Bill 2023. The contents of this Bill cover the announcements made in the 2023 Budget Statement and amendments which will bring the Singapore Tax Act inline with international standards. 

A key proposal in this Bill is the introduction of taxation on capital gains made from the sale of foreign assets, after 1 January 2024, where the proceeds are received in Singapore without the company having sufficient economic substance in Singapore.  

Section 10L, if enacted by parliament, is to align Singapore with the European Union Code of Conduct Group guidance in respect to these types of transactions.

Companies Affected by the New Legislation

Currently Singapore does not have a capital gain tax regime – meaning that profits derived from capital transactions, such as the sale of real estate, equipment, rights are exempt from taxation. 

The absence of capital gains tax has made Singapore a popular location for companies to hold assets which are based outside of Singapore and exploited for the benefit of the consolidated group. It is important to note that this provision only applies to Singapore companies which are part of a wider consolidated group. Meaning that the use of Singapore as a jurisdiction to establish a special purpose vehicle company may still be appropriate. 

The key points regarding the application of the provision are:

1. The Singapore company which has disposed of the foreign asset must be part of a consolidated group. The company will be a member of a consolidated group if its financial accounts are consolidated by the parent entity.
2. The group in question must have at least one member which operates its business outside of Singapore. 
3. The foreign capital gain is either: 
   • Remitted to a Singapore bank account; or 
   • Applied against any debt incurred in relation to the operations carried out in Singapore; or 
   • The value of any immovable property brought to Singapore which has been acquired using the proceeds from the capital gain.
4. Provision for IRAS to apply the market value to a transaction where it deems that the disposal of the asset was not undertaken on an arm’s length basis.

Exclusion of Some Industries and Exemptions

As a major commercial hub in the world, the proposed Bill does provide for the exclusions of some industries (e.g. financial) and Groups which have been awarded concessionary or exempt tax status. 

Where a company does not fall into these exemption categories, the Bill does define an “excluded entity”, which would not be subject to this change. This definitional exclusion is where the economic substance test comes into play. 

The definition allows for pure equity holding companies, and non-pure equity holding companies. A pure entity holding company’s main function in the group is to hold shares and derive income from dividends and the disposal of shares. 

If the company is a pure equity holding company, to be excluded from Section 10L, it must demonstrate that:

1. The company complies with its annual lodgement obligations, and 
2. The operations are managed and performed in Singapore. 

For a non-pure equity holding company, there are additional conditions to satisfy:

1. The company carries on a trade in Singapore; and
2. Operations are managed and performed in Singapore; and 
3. There is sufficient economic substance in Singapore taking into account: 
   • The number of employees in Singapore performing the operations; 
   • The qualifications and experience of the employees in Singapore; 
   • The amount of business expenditure incurred in Singapore relative to its income; 
   • Whether key business decisions are made in Singapore. 

Should the Bill pass as drafted, a greater emphasis is required on multinational companies to ensure that they establish themselves appropriately in Singapore, with an office, employees, and senior management. Demonstrating the significance of the Singaporean operations will be key to ensuring that concession tax regimes are accessible. 

It should be noted that the introduction of Section 10L is primarily an anti-avoidance measure and not a hindrance to the many businesses that choose to expand to or establish operations in Singapore.

In today’s world we have incredible opportunities to build our business beyond our own shores and reach into expansive international markets. Indeed, the number of expats is growing so fast that if all the expats were members of a country, it would be one of the fastest growing countries in the world.

The United Arab Emirates (UAE) is one of the most popular destinations for expats. As of 2023 the UAE is called home by approximately 10.2 million people. A staggering 85% of the individuals who comprise that population, are expats. When you look at why Dubai is an attractive market for businesses, it’s not hard to see why this temptation to join the shores of the UAE is hard to pass.

In this article we’ll look at the appeal of Dubai as a destination to expand your business to, and what you need to know when you’re ready to expand your business to Dubai.

The Appealing Business Market of Dubai

The simplified and diversified economy of Dubai makes it an attractive place to set up your international business. Some of the key reasons that Dubai is particularly appealing include:

1. Minimal Tax Regime In The UAE

One of the most appealing benefits of doing business in Dubai is a minimal tax regime. Company taxes are low and there is no income tax on individuals and no capital gains tax. 

2. Free Trade Zones

The UAE includes a number of Free Trade Zones, with about 20 located in Dubai. Free Trade Zones are geographical locations where people from any other country can come in and set up their international business, without requiring a local connection. Businesses located in Free Trade Zones can operate their business within their zone and internationally. Each Free Trade zone has their own rules, regulations and incentives. 

This differs from Mainland zones. Mainland Zones have more rigorous entry requirements, including local sponsorships, before your business can set up and operate. These Zones are regulated by the Department of Economic Development (DED). However, a business operating in a Mainland Zone is able to trade within the UAE, as well as internationally.

3. A Robust, Yet Simplified and Diversified Economy With A Strong Exchange Rate and Access To Resources

Balancing a safe and robust standard of governance, with minimal taxation responsibilities,       Dubai offers a world-class infrastructure and is well known as a world-class financial hub for business operations. The local economy is strong and the UAE has a solid exchange rate. 

As a popular location for expats around the world, there is also a rich and diverse supply of experience and professional skills on location. 

Furthermore, the local government is a strong advocate for developing ideas and facilitation of growth and progress. As a technologically advanced nation, Dubai also has access to significant beneficial resources.

4. Limited Restrictions and Regulations On Your Company

There is no restriction on capital repatriations. This means that your company can return any investments to foreign owners, without limitations. 

Share capital requirements are minimal, with no minimum amount of capital required for limited liability companies. This ensures that your company can be established with the flexibility to suit your purposes. 

Unlike many countries, there is no requirement to have a physical office established to operate in Dubai. 

Due to the minimal amount of regulations, when compared to other onshore jurisdictions the costs of setup in Dubai are low.

5. Geographically Ideal Location

Geographically, Dubai provides a strategic position for businesses looking to expand to the Middle East, Europe, Asia and Africa. As such it is an ideal location to set up a range of businesses including import/export, logistics, tourism, and more. 

For transportation, Dubai offers access to the largest sea and airports in the world.

6. Strong Connections With the Worldwide Economy and Worldwide Business Standards

The UAE has signed up with the Common Reporting Standard (CRS), as part of the global standard for the exchange of information, including allowing countries to exchange tax data between participants. This helps with the prevention of fraud, and aids in the management of business matters across international borders. 

In essence, Dubai is an appealing place to run a business because of the ease and convenience of doing business there, solid business standards, access to resources, and the simple and low tax regime that applies.

Expanding overseas is a big, and often complicated step for any business to manage. Singapore has many appealing features as a business location, including appealing tax rates, a strong economy, and a desirable location. As it is a move abroad, you may find the tax system is completely different to the one you are familiar with.

There are five key tax items that you need to understand when making the move to expand to Singapore. This includes:

1. Tax residency in Singapore 
2. Tax provisions
3. Foreign income (from Singapore’s perspective)
4. Withholding taxes 
5. Double tax agreements

1. Corporate Tax Residency

In Singapore, corporate tax residency is determined by the location where the business is controlled and managed. Control and management of the company is looked at from the strategic board level of operations, rather than the day-to-day management of the business. This means that while assessing the location of control and management can be complex, the primary way this is assessed is by considering the physical location of company board meetings.

Given the different tax jurisdictions may have different tax laws surrounding residency, make sure you are familiar with your local regulations regarding residency as well. Otherwise you may face unintended conflicts regarding the residency of your company.

For a more in depth look at Corporate Residency in Singapore, read our “Corporate Tax Residency in Singapore: Understanding the Tax Residency of Your Company” article.

2. Inland Revenue Authority of Singapore (IRAS) Can Issue a Certificate of Residence to Allow Companies to Access Double Tax Treaty Provisions

To certify that your company is a Singapore tax resident, you can apply for a Certificate of Residency (COR) from IRAS. This ensures you can claim benefits under a double tax agreement between Singapore and another jurisdiction. 

Note that a COR is not available for nominee companies or companies that are a branch of a foreign company.

Since a nominee company merely acts on behalf of the foreign beneficial owners, the beneficial owner of the income resides in a foreign jurisdiction.

A Singapore branch of a foreign company is controlled and managed by an overseas parent company.

The company must be able to meet the legislative provisions of Singapore corporate residency to be entitled to a COR to be issued.

3. Foreign Sourced Dividends, Branch Profits, and Services Income is Exempt from Singaporean Tax if not Remitted into Singapore

Due to Singapore’s foreign tax laws, there is a significant advantage to a multinational company being based in Singapore.

When your business is a Singapore resident, your foreign income may be completely exempt from Singaporean tax. However, this only applies if the foreign income relates to investments or offshore operations, and the income is not remitted into Singapore.

Note that foreign income generated from business trading or operations related to the business in Singapore is taxable in Singapore, regardless of whether it is remitted to Singapore or not. 

Specified foreign investment income (foreign sourced dividends, foreign branch profits and foreign sourced service income) that is remitted into Singapore is exempt from tax in Singapore. For the exemption to be granted all 3 of the following conditions must be met:

1. The foreign income must have been subject to tax in the foreign jurisdiction.
2. The foreign tax in the country of origin must be at least 15% at the time the foreign income is received in Singapore.
3. The Comptroller of Income Tax must be satisfied that the tax exemption is beneficial to the Singapore tax resident company.

If all of these conditions are met then this income will not be taxed in Singapore when it is remitted.

By excluding these specified foreign investment income from assessment in Singapore, your company may benefit from a reduction in compliance regulations and potentially complex tax calculations.  

For more information on remitting foreign income into Singapore, read our “Remitting Revenue In and Out Of Singapore: Corporate Tax Obligations” article.

4. Withholding Taxes

No withholding taxes are applicable on dividends paid by Singaporean companies to its foreign shareholders. Corporate taxes are paid by the company, which is then able to pass on the net profits to the shareholders as dividends without additional tax requirements.

Withholding taxes may be payable on certain types of payments made by a Singaporean company including royalties, loan interest, management fees, rent for movable property (e.g. ships).

5. Singapore Has a Wide Double Treaty Network

Double tax agreements help ensure that your business does not pay excessive taxes when taxes are required in both a source country and the country of residence. 

Singapore has a wide double treaty network. This assists companies based in Singapore to expand globally by reducing the application of withholding taxes on interest, and dividend and royalty payments made into Singapore.  It also assists foreign businesses expanding into new locations by allocating tax jurisdiction priorities.

Whether your business is a Singapore resident or a foreign resident, you may be impacted by the different tax jurisdictions assessing your Singapore business income.

For more details on the Singapore Double Tax Agreements, read our “An Overview of the Singapore Double Tax Agreement” article.

Expanding to Singapore

Expanding to Singapore, like expanding to any overseas country, can be a complex undertaking. You need to consider local Singapore laws, as well as laws in your country and other countries that the company may be involved with.

If, from a Singaporean perspective, your company is managed and controlled overseas, is a branch of foreign company, or is merely a nominee company with the real beneficiaries being located overseas, you may not qualify as a Singapore resident company. This means your company will miss out on the tax advantages of Singapore residency. 

Talk to international tax experts to get qualified tax advice from all tax jurisdictions to ensure you set up and run your business expansion the way you intend. 

Singapore is a popular location for companies looking for a central base for their international operations. With a corporate tax rate of 17%, reduced even further by tax exemptions, and no capital gains tax, Singapore has one of the lowest and simplest tax systems in the world. 

In addition to the tax advantages, Singapore has a strong local economy, stable government, respected financial industry and desirable geographical location. This all creates a strong incentive for multinational businesses to choose Singapore as a jurisdiction to set up a regional hub, or for the relocation of their global headquarters.

If you’ve weighed your options and chosen Singapore as the location for your business, you need to understand corporate tax residency for Singapore Companies.

Corporate Tax Residency in Singapore

To benefit from the tax advantages of being a Singapore tax resident, your company needs to actually be a resident in Singapore. This means that the actual control and management of your company must be physically located in Singapore.

It is not enough to have the day-to-day management of the business only located in Singapore. When it comes to tax residency, it is the strategic board level of operations that determines the location of the control and management of the company. While properly assessing the location of control and management can be complex, the primary method of assessment is the physical location of company board meetings.

This means that as long as the company’s Board meets in Singapore, the company is likely a Singapore tax resident.

Inland Revenue Authority of Singapore (IRAS) Certificate of Residence

Companies that are controlled and managed within Singapore, can apply for a Certificate of Residency (COR) from IRAS. This gives certainty about your Corporate Residency and ensures you can claim any benefits to which your company would be eligible under an avoidance of double taxation agreements.

Nominee Companies and Branches of Foreign Companies Cannot be Singapore Residents

Note that nominee companies and branches of foreign companies cannot request a COR. This is because nominee companies and branches of foreign companies are merely acting on behalf of their foreign resident owners and therefore not genuinely being controlled and managed within Singapore.

Corporate Tax Rate is 17%

The corporate tax rate for resident Singapore companies is 17%. This makes it amongst the lowest tax rates in the world.  

Singapore charges income taxes on the net profits of your company, meaning you need to calculate your income less eligible deductions to determine the total tax payable. In Singapore, “chargeable income” is the term used for this net taxable profit.

In addition to this low tax rate, companies may be eligible for various tax offsets. These offsets can bring your effective company tax rate down to around 15%.

The  first SG$10,000 of your company’s chargeable income is 75% exempt from tax.

The next SG$190,000 is 50% exempt from tax.

While this is not quite the same as having an initial tax-free amount, it ultimately has a similar effect by ensuring that part of your company income is not taxed.  

In addition to this general reduction in taxes, eligible start-up companies (not including property development and investment holding companies) can access even higher tax exemptions during their initial three years of operations. These companies are 75% exempt from tax on the first SG$100,000 and 50% exempt from tax on the next SG$100,000.

GST is 8% from 1 January 2023 and 9% from 1 January 2024

Any company that has a turnover in excess of S$1million, is required to register for GST. Your company may also be liable for GST registration under the Reverse Charge and Overseas Vendor Registration.

GST is currently charged at a flat rate of 8%, and will increase to 9% from 1 January 2024. However, there are some exemptions on certain goods and services.

For more information on GST, read our “What you need to know about GST in Singapore: Registering, Charging GST and Filing GST Returns” article.

Tax Losses

If your company makes a tax loss you can usually carry this forward to reduce the chargeable income of future tax years.

Alternatively, subject to certain conditions, you may be able to carry back up to SG$100,000 in qualifying deductions to apply against previous year profits.

To carry forward tax losses, at least 50% of your company’s issued shares must remain owned by the same shareholder/s (so that primary ownership and control of the company is the same). Note that shareholders refers to the shareholders of the ultimate holding company.  

To carry losses back, both the same trade and continuity of shareholding tests must be passed. This means that as well as passing the shareholder test, the company’s principal business activities must continue to be the same.

Capital Gains are Not Typically Taxed

One of the biggest tax advantages of a Singapore company is that there is no capital gains tax.

This means that any capital assets held and used in Singapore can be sold without any tax consequences. Note that this typically only applies to assets held for at least two years. Assets that are held for under two years are typically regarded as trading assets (unless sold due to closing the business). An asset may also be considered a trading asset if extensive work was done on the asset to enhance it for sale as this indicates it was purchased with a profit motive, rather than with an intention to utilise it as a long term asset in your business.

For more information on capital vs trading assets, read our “Capital Asset vs Trading Asset: The Differences and Tax Obligations of Each” article.

Foreign Operations

It is important to note that when your Singapore company operates, or sells products or services in foreign locations, the company may also be subject to the foreign tax requirements under those tax jurisdictions. Most countries will have double tax agreements in place to limit the amount of tax to the higher rate of tax applied by either Singapore or the foreign location.

Singapore Tax Residency

In summary, Singapore corporate tax residency is primarily determined by the physical location of the strategic control and management of the company. 

In essence, this means that your board must hold the board meetings in Singapore. As a Singapore tax resident your company will benefit from low corporate tax rates and no capital gains tax. 

However, if the company also trades overseas, there will be foreign taxes to be dealt with. The impact of foreign tax requirements may be mitigated by double tax agreements. Find out more about the double tax agreements in our “An Overview of the Singapore Double Tax Agreement” article. 

Like many tax jurisdictions around the world, Singapore has a number of Double Tax Agreements in place to ensure the amount of effective tax that taxpayers pay on their worldwide income is limited to one jurisdiction only.

Double Tax Agreements are the legal framework outlining which tax jurisdiction has taxation rights over tax residents and income sourced in their jurisdiction. In practice, this typically ensures that the maximum tax a taxpayer pays is the tax payable in the jurisdiction with the higher tax rate.

Why Double Tax Agreements are Necessary

Double Tax Agreements are necessary to ensure that the income of a resident of one jurisdiction, that may be sourced in another jurisdiction, is not taxed twice. Without Double Tax Agreements, it would be possible for gross income to be taxed twice – once in the jurisdiction in which the taxpayer is a resident, and again in the jurisdiction in which the income was sourced. 

A Double Tax Agreement provides rules over whether the source country has taxation rights and limits tax rates for certain types of income. This can provide tax relief or limit the total tax payable in a higher taxing jurisdiction. The key benefit of Double Tax Agreements is that any foreign tax paid is treated as a tax credit against any tax assessment that the local country may assess.

Example of Taxation With Foreign Tax Credits

For example, imagine a corporate Singapore resident taxpayer earns $10,000 in Australia.

Let’s assume Australia taxes this at 30%, meaning the resident pays $3,000 in taxes.

Let’s assume Singapore also taxes this income at 17%, meaning the resident pays $1,700 in taxes.

This would leave the corporate taxpayer only $5,300 of their income after taxes.

A Double Tax Agreement helps prioritise who has taxing rights over this $10,000 income. In this example let’s say Australia, as the source country, has taxation rights. This means that the corporate taxpayer is still taxed the $3,000 in Australia. Singapore can still tax the taxpayer, however they allow a credit for the tax already paid in Australia. Since the Australian tax paid exceeds the tax payable in Singapore, they do not pay any additional taxes.

If the scenario was flipped and the company was an Australian resident corporation earning income in Singapore, Singapore would have initial taxation rights. The taxpayer would then pay $1,700 in Singapore taxes. The income could then be taxed in Australia, but the $1,700 already paid would be credited as tax already paid. This means the corporate taxpayer would only have to pay $1,300 in Australian tax so that they have paid a net total of $3,000, meeting Australia’s tax rate.

Tax Treaty with Australia

The Australia-Singapore Double Tax Agreement (DTA) gives tax relief to Australian and Singapore tax residents.

For Australian residents, the DTA covers income tax and petroleum resource rent tax relating to offshore profits.

For Singapore residents, the DTA covers income tax.

Under the DTA the foreign country is only able to tax interest income at 10%. This means that if a Singapore resident earns $1,000 interest income in Australia they will be taxed at the flat rate of 10% and pay $100 in tax. This is much lower than Australia’s usual foreign tax rate. In a similar vein, royalties and dividends have capped, flat rates of tax applied to them.

The DTA limits profits of a business enterprise so that they can only be taxed in the country where the business operations are carried out, unless there is a permanent establishment in the other country. This ensures that incidental sales made in the other country are only taxed in the resident country.

An additional provision in the DTA recognises that Singapore authorities may reduce tax payable by a non-resident on interest and royalties to NIL. To ensure the non-resident receives the benefit of this provision, Australia still credits the taxpayer as if they had paid the agreed flat tax rate in Singapore.

Example of where certain income types are taxed

Tax Treaty with USA

Singapore does not have a Tax Treaty with the USA.

This means that taxpayers who are a resident in one of these countries and earn income in the other could be taxed in both countries.

Both the US and Singapore have unilateral exclusions or foreign tax credit policies in place which help ensure that double taxation is reduced or eliminated.

Tax Treaty with the UK

The Singapore-UK DTA ensures that a foreign resident of either country is allowed tax credits against any tax paid against income derived from the other country.

For UK residents the taxes covered are income tax, corporation tax, and capital gains tax.

For Singapore residents the taxes covered are income taxes.

Example of where certain income types are taxed

The Impact of Singapore’s Double Tax Agreements

Double Tax Agreements can vary country to country. This means it is important to look for the specific provisions of the relevant countries in relation to any income earned from the foreign country.

The primary relief offered by DTAs is the provision for foreign tax paid to be deemed a tax credit against any tax assessment in the country of residence.

Additional relief can be found through limits on taxation rates on the foreign source income, exemptions from taxation in the foreign country, tiebreaker rules on determining residency, and other concessions.

Where no Double Tax Agreement exists, Singapore typically applies a unilateral foreign tax credit towards foreign tax that has been paid on any foreign income that is assessable in Singapore. 

Understanding and applying the relevant provisions will help ensure there are limits on the total tax you pay on foreign income.

In addition to being assessed for Singapore taxes on foreign sourced income that is incidental to their Singapore based operations, a Singapore resident company is also required to pay Singapore taxes on any foreign sourced income that is remitted into Singapore.

When is Foreign Income Taxable to a Singapore Company?

Foreign income is taxable to a Singapore Company when it:

1. is received through a Singapore partnership
2. is incidental income to the trade or business carried out by your company. This would mean that any online orders from foreign clients, being incidental to your primary operation in Singapore, would be included in your Singapore tax assessment.
3. is remitted into Singapore.

It is important to understand the difference between operating your business in Singapore and operating your business overseas. If your business is carried on in Singapore then all income relating to this business is taxable in Singapore, even if you make sales overseas and don’t bring that money into Singapore. Conversely, income that is generated from a business located and run in a foreign country will only be taxed in Singapore if it is remitted into Singapore.

The rule regarding remittance of foreign sourced business income applies to both resident and non-resident companies.

Mitigating the Tax Impact on Taxable Foreign Income

Double tax agreements or unilateral tax credits in respect of foreign tax that has been paid, will mitigate, or even eliminate the impact of being taxed in multiple tax jurisdictions. This means that if the foreign tax paid is higher than Singapore taxes, there is unlikely to be any additional tax impact on foreign income that is also taxed in Singapore.

In addition, where certain conditions are met, foreign dividends, foreign branch profits, and foreign service fees remitted into Singapore may remain exempt from Singapore tax. 

Foreign sourced dividends, branch profits, and services income is exempt from Singaporean tax if not remitted into Singapore.

Foreign Investment Income Remitted into Singapore

Specified foreign investment income (foreign sourced dividends, foreign branch profits and foreign sourced service income) that is remitted into Singapore is exempt from tax in Singapore. For the exemption to be granted all 3 of the following conditions must be met:

1. The foreign income must have been subject to tax in the foreign jurisdiction.
2.  The foreign tax in the country of origin must be at least 15% at the time the foreign income is received in Singapore
3. The Comptroller of Income Tax must be satisfied that the tax exemption is beneficial to the Singapore tax resident company.

If all conditions are met, then this income will not be taxed in Singapore.

By excluding such specified foreign investment income from assessment in Singapore, your company may benefit from a reduction in compliance regulations and potentially complex tax calculations.

Singapore Business Income that is Remitted Overseas

If your Singapore resident company remits Singapore sourced income to an overseas bank, business branch, subsidiary, or other recipient, the tax laws of that tax jurisdiction will determine if taxes are also assessed at that location.

So far as Singapore taxes are concerned, income earned under Singapore’s tax jurisdiction will be taxed in Singapore. Any double tax agreements between the foreign jurisdiction and Singapore, will likely ensure that your company is not excessively taxed on such income.

Summary of Corporate Tax Obligations in Singapore

In summary, a Singapore resident corporation will be assessed on any locally earned income, any incidental business income earned overseas, and any foreign income that is remitted into Singapore.

This does leave open an opportunity for a Singapore based business to operate branches that are set up and run in an overseas location, without having to be concerned with Singapore taxes.

However, it should be noted that Singapore has one of the lowest tax rates in the world. As long as there is a double tax agreement in place or a unilateral tax credit applied in relation to foreign taxes paid, then remitting the foreign income into Singapore may not result in additional tax obligations.

Setting up your business overseas is one of the most exciting things that many of us will do in our business career.

Not only are we, as business Founders or C Suite executives, moving with the business – but the idea that we are taking our business proposition to a new foreign market is a thrill and a bit daunting in many respects.

Establishing my business in Singapore in March 2004 was a completely foreign experience in so many respects. There were many logistical challenges to deal with including adjusting to a new business environment, a new regulatory regime and building a totally new market for our product and services.

For most of you setting up or moving a business you will be pre-occupied with establishing revenue earning operations.

This means that often tax and other planning is left until you arrive.

This, of course, is way too late.

This article covers some issues to address ahead of time.

Expecting The Unexpected

Make sure you really examine how to manage a number of common risks as you expand into your new markets including:

• The real financial cost of expansion (it will take longer and cost a lot more to break even)

• The cultural divide between domestic and foreign markets (get a copy of the book The Culture Map by Erin Meyer) which is to say that the way people understand communication and make decisions is often a major reason why the business will not succeed in the new location

• Regulatory differentials between domestic and foreign markets (expect the approach of the regulator in your new country to be vastly different from your home country)

• Download a copy of my book ‘Expatland’ from our Expatland website 

Setting Up Business

Planning your overseas expansion generally requires you working with your accountants in both countries for between six and twelve months before you head overseas.

One of the key things to understand is that if a subsidiary or a branch pays tax overseas there is some form of tax credit when profits are remitted to the parent company.

Sometimes the best country to pay tax in is where the majority of shareholders live. 

This is so that shareholders might be able to get a credit for tax paid by the company.

Foreign tax paid at the company level is generally not something that shareholders in another country get a tax credit for.

You need to spend some time thinking about the best form of business structure also. 

In my experience, while the main forms of business entities can vary from country to country, those countries with English common law regimes, generally have similar types of structures.

Many countries have structures that provide limited liability to owners but are treated as ‘flow-through’ vehicles for tax purposes, so only the owners are taxed. A classic example is a US LLC (limited liability company).

Other Tax Issues To Consider

Your focus should be on the key issues to consider on departure such as:

Issue 1: How does the foreign country tax system work?

In a number of countries, the US being a prime example, there can often be three levels of tax. For example, in New York, there is federal tax, state tax and city tax to contend with. In other countries like Hong Kong, foreign income is exempt from tax.

Issue 2: Transfer pricing issues

What transfer-pricing issues will you have to deal with. Having prices above or below market value for transactions between related companies is a major tax risk in the present global environment.

As an example, recently a prospective client in the global travel business told us that they had a ‘back office’ for their IT department in San Francisco. 

They then told us that their previous accountant had told them they did not have to worry about filing a US tax return – because the branch was not charging any expenses back to Australia and they were just covering their direct costs!

Great news, they thought, until we had to tell them that it was totally incorrect.

Upon a review of the facts of the case, it actually turned out that they had a ‘permanent establishment’ in the US. This gave them a US tax filing obligation.

The previous accountant also completely missed that transfer pricing rules demand that a market price be charged by the San Francisco office to the head office for the services being provided to head office.

Our client had no idea about these issues.

This is one of the challenges we regularly face when dealing with clients coming to us from domestic-only focused firms.

Firms that focus only on single country tax systems with little or no expertise in international tax, nonetheless, often seek to advise clients going overseas. 

Rather than admitting ‘they don’t know what they don’t know’ and looking to work with a specialist firm to get some outside help, they try to do it in-house.

Usually, this leads to expensive mistakes.

Issue 3: Using debt or equity to fund the foreign expansion

In using capital to start your foreign business, one of the key issues to consider is how to get money into your foreign business operation and then how to get profits out.

Many people are tempted to take the view that lending money into the foreign business is easier because it can be ‘repaid’ with little or no complexity. 

The general thinking being that money that goes in as a loan can come out as a loan, right? 

Well, it is not always that simple.

Many foreign countries have rules that require the payment of interest on inter-company loans.

Issue 4: How to send profits to the home country

Having considered how to fund your foreign business and make it profitable, the next question to think about is how profits can be remitted to your home country.

There are a number of techniques that can be used to send profits home. These include dividends, interest, or royalty payments. 

Other techniques include management fees and head office recharge. 

One of the issues to consider here, includes the likely imposition of a foreign withholding tax on payments out of the country. 

Planning profit repatriation is a key issue to consider.

Issue 5: Review your intercompany pricing model don’t assume

Many businesses – especially large American businesses adopt a ‘one size fits all’ approach.

Rather than take a country-by-country approach to looking at how to price transactions between group companies, larger businesses just assume they can apply a Group Policy across the board.

That is not acceptable in most advanced tax regimes.

Consider the real-life case study that I dealt with recently.

CabinetMaker Inc (not their real name)

‘We don’t do things that way’ was what the US-based CFO told me when I suggested they get an arm’s-length review of their ‘global transfer pricing model’ by an Australian transfer pricing specialist.

‘CabinetMaker Inc’, was supplying IT products and services from the US to Australia.

They decided that the Australian company would, ‘just like all other overseas subsidiaries’, receive an 8 per cent payment from the US office for the services it provided the US office from Australia.

A couple of months before, the CFO had called me following a referral from a US client.

Given we have a US–Australia tax specialisation, they called us to see if we would prepare their Australian income tax return for their sole Australian company.

The company in Australia had a ‘representative office’ function.

Its purpose was to source leads in the Australian market and then refer those leads to the US office to complete the sales process and the forming of the business relationship.

The US company was being very careful that what it did in Australia did not give it a ‘taxable presence’.

All reasonably standard stuff they thought.

When I asked how they arrived at the 8 per cent, they mentioned that they had a pricing model in Chicago.

They said that the ‘Chicago model’ was used globally to justify how 8 per cent was ‘payment enough’ for sourcing sales in Australia.

I persisted with a few questions, as follows:

So, with three questions, I could see that CabinetMaker Inc. was relying on a home country pricing model developed with no understanding of the Australian market.

A fatal mistake to make when you are a new company expanding abroad.

I attempted to acquaint them with the realities of doing business away from the US.

They were in another country now and they had to adapt to the differences in the market.

Needless to say, when the CFO hit me with the comment, ‘I will take it to the Board of Directors and come back to you’, I heard nothing more from them.

The aftermath to the above is that recently a story broke in the Australian media that the company, a subsidiary of a US tech company, was being audited by the Australian Taxation Office.

The media reports noted that their transfer pricing practices were suspect.

The global giant failed to adapt its pricing model between group companies and did not want to listen to advice.

They did not want to unlearn what they thought they knew.

They persisted in trying to apply an overseas model without adapting to their new surroundings. 

As a result, their business practices were found wanting in Australia and abroad.

The above mistake is reasonably common; that is, companies expanding abroad believe they can bring their own way of doing business with them. 

Nine times out of ten that is incorrect.

When companies expand to a new country, it pays to go back to first principles, get proper advice and assume nothing. 

Adapting to your new surroundings is essential.

We understand that business owners and entrepreneurs require specific advice from experienced professional advisers in multiple jurisdictions and that a migration tax plan has to be prepared for a company – just as it does for an individual.

Examples Of Unintended Arrival

Example 1 

A foreign company establishes a branch in the arrival country.

This occurs when senior directors of a foreign company remain directors of the foreign company and they change their personal tax residence.

As is commonly the case, the directors continue to ‘run the foreign company’ from their new location. They often do this without realising that they have unwittingly brought the foreign company into the purview of their arrival country.

This triggers tax filing and other reporting obligations.

Example 2

Shareholders leave their home country to live abroad, and while they may not be directors of the foreign company, they remain nonetheless individual shareholders.

In this instance, many tax regimes will demand that tax be paid on the earnings of the foreign company as the profit belongs to the shareholders now living in their new country.

This tax exposure would arise by the ‘controlled foreign corporation’ legislation that many countries have.

If one or both of these unintended actions has occurred, then there is a need to value the assets of the company and understand the value of the shares in any foreign company.

Often, the ‘starting cost base’ of the company assets is relevant because that is the basis upon which future capital gains are calculated. 

Most clients miss this step unless properly advised.

Companies that ‘arrive’ on an unintentional basis now have two tax returns to do one in their home country and one in their arrival country!

Planned Arrivals

When we have an opportunity to work with clients ahead of their departure, we can plan how best to ‘move the company’.

Taking your business abroad is an exciting time for most people. Full of challenges and new opportunities, it is often a make-or-break time for a corporate group.

My view is that if you undertake a proper tax planning exercise covering some or all of the above issues before you leave, then the thrill of setting up your business overseas will not be overshadowed by unintended tax and business issues.

In most jurisdictions, the sale of a capital asset is subject to capital gains tax law, while the sale of trading assets are subject to revenue laws. This distinction is a very important one as the way that revenue and capital items are taxed is very different in Singapore.

Capital Gains Tax in Singapore

There is no capital gains tax regime in Singapore.

This means that if you sell assets that are capital in nature there is no tax consequence from this sale, regardless of whether you make a profit or a loss on the sale.

Therefore, typically the sale of passive investments, such as real estate and share portfolios, are sold without any tax implications in Singapore. 

However, it is important to understand when assets may actually be considered trading assets as these assets would be covered by revenue laws instead. Where such assets are covered by revenue laws, their disposal will attract income tax consequences.

Assets Used as a Trading Asset

In Singapore there are rules that indicate an asset is a trading asset rather than a capital asset. These rules help ensure that a business doesn’t take advantage of the lack of capital gains tax by purchasing an asset with the express intent to turn this asset over for a profit instead of holding it as a long term, capital appreciating asset.

There are five specific factors, colloquially known as “badges of trade”,  that are considered in determining whether an asset might be a trade item. These are the holding period, frequency of sale, purpose of transaction, extent of enhancement work, and reason for the sale.

Holding Period

A short term holding period indicates that the asset was more likely purchased for profit-seeking activities. In general, capital assets must be held and used for their purpose for a minimum of two years in order to be considered capital in nature. Assets sold within two years of purchase are typically treated as revenue assets, unless there was a specific reason for the sale that caused the asset to be sold within two years.

Frequency

If you frequently purchase and sell the assets in question, this indicates you are trading these assets, rather than purchasing them for use in a going concern. This can include significant assets such as property, shares, and other investments. Where your business frequently purchases and then sells real estate, the Inland Revenue Authority of Singapore will presume that you are in the business of trading real estate, rather than owning these assets for long term capital growth.

Purpose of Transaction

When an asset is not used for its intended purpose, this indicates that the asset was not actually purchased to be used as an asset.

A simple example would be purchasing a warehouse. If you leave the warehouse unused and vacant, then it has not actually been used for the purpose of a warehouse. Consequently, the sale of the warehouse is more likely to be a profit-generating motive. Conversely if the warehouse was purchased and used as a warehouse it is more likely to be an asset use motive.

Extent of Enhancement Work

When an asset is purchased, then significant resources are spent enhancing or renovating it prior to selling it, this would indicate the reason for the purchase was a profit motive. If an asset is purchased and renovated to be fit for specific use as a business asset, rather than for resale value, then this would more likely indicate an asset use motive.

Reason for Sale

The reason for selling the asset is also considered. If an asset is sold with a profit-making motive, it is more likely to be considered a trading asset. However if it is sold after being used for its intended purchase as an asset then it would be exempt from tax as a capital asset.

This factor is an important one. Even if a property is sold within two years, there could be a specific reason that indicates the property was still a capital asset. For instance, the sale may have been required due to liquidating the business, government acquisition, or other closure or reduction of business operations. In such situations, the sale would still likely be a capital gain because the underlying reason for the sale was not profit-generation.

Summary of Capital vs Trading Assets

The facts of the way an asset is used and the motivations for purchasing the asset determine if the asset is capital or revenue in nature. When an asset is purchased and used for a profit-motivation rather than an asset use motive, it is treated as a trading asset, or revenue in nature, rather than as a capital asset under capital gains rules.

The table below outlines the likely scenarios of how an asset could be classified.

Goods and Services Tax (GST) is a broad tax levied on the consumption of most goods and services that are sold in Singapore. Many countries have a similar, or even identical, tax as Singapore’s GST, although it may be known as a Value-Added Tax (VAT) in some countries. The Inland Revenue Authority of Singapore (IRAS) governs the application of GST and requires all GST registered businesses to file GST returns with them.

GST is only levied on goods and services that are sold within Singapore. This includes imported goods. However, exported supplies and services provided overseas do not attract GST.

The Rate of GST

The current GST rate (in 2023) is 8%. This is being increased to 9% from January 2024.

In simple terms this means if the cost of a product is $100 then the consumer would actually pay $108 including GST.

What Goods and Services GST Applies to

GST applies to most goods and services sold in Singapore, however there are some exemptions.

The exemptions include most financial services, the sale and lease of residential property, and the importation and local supply of investment-orientated precious metals.

How GST is Charged and Remitted

The business selling goods or services is responsible for both the collection of GST from customers and remittance of the GST to IRAS.

GST registered businesses are required to track their sales and the amount of GST they collect through their regular record keeping. This information is then reported to IRAS through the lodgement of a GST return. GST returns are lodged with IRAS on either a monthly or quarterly basis.

The GST that a business collects is known as output tax.

Conversely, the GST that a business pays in the course of making business purchases is known as input tax.

Lodgement of a GST Return

When a GST return is lodged, the business reports the total output tax collected and claims a credit for all the input tax that they have paid. The net amount of GST that the business pays is the total amount of GST that the business must remit to IRAS.

In the event that the business pays more input tax than they collect in output taxes, IRAS will owe the business a refund.

Businesses who fail to lodge their GST return on time are subject to a 5% late lodgement penalty. IRAS will also issue a demand notice for the outstanding payment. If the company fails to pay after 60 days from the date of their demand notice, future penalties of 2% each month may be applied. The maximum penalty for late GST payments is capped at 55%.

Evasion of tax payments can result in fines and imprisonment.

Who Needs to Register for GST

All businesses with an annual turnover in excess of SG$1million are required to register for GST. Any business with a lower turnover can voluntarily register.

This turnover threshold only applies to businesses who are not GST exempt. Exempt businesses are businesses that deal with goods or services that are exempt from GST. This includes businesses that provide financial services, sell or lease residential property, or import and supply investment-orientated precious metals. To be given a registration exemption from IRAS, at least 90% of the company’s total revenue must be GST exempt and the net balance of GST collected must be negative (otherwise resulting in a refund).

Once a business is registered for GST they are required to remain registered for a minimum of two years.

If a company decides to voluntarily register for GST the company director(s) must complete e-Learning courses in “Registering for GST” and “Overview of GST”. They are exempt from needing to complete these courses if they have already completed these courses within the past two years, or they have experience managing another GST registered business, or have their GST returns prepared by an individual who is an Accredited Tax Adviser (ATA) or Accredited Tax Practitioner (ATP).

IRAS can also impose additional conditions for GST registration and compliance. When a company fails to meet these requirements, IRAS may cancel the company’s GST registration.

How to Register for GST

A company can register for GST online through their myTax Portal or they can post a paper application to IRAS. Alternatively, they can engage a designated filing agent to submit the application on their behalf.

The company cannot charge GST until they have received approval from IRAS.

Once registration is approved, IRAS will send a letter that includes the company’s GST registration number and the effective date of GST registration.

The effective date of GST registration is the date that the business must commence charging and collecting GST from.

What Happens When You Fail to Register for GST on Time

To understand what happens if you fail to register for GST on time we present this real life case study. Names and specific identification have been hidden or changed for anonymity.

The case:

An Australian company incorporated a company in Singapore to act as the local contracting party for services to be provided in Singapore.

As an Australian company, they were familiar with the Australian approach to GST registration. This differs from the Singapore requirements in that, in Australia, GST registration can be backdated and it can be made on a voluntary basis without additional requirements.

The threshold for GST registration in Australia is AU$75,000 and only applies to GST taxable goods and services. In both countries GST registration is considered voluntary registration when the annual turnover is below the relevant threshold.

Unlike Australian registration, voluntary registration in Singapore needs to be approved. In some cases, approval for voluntary registration needs to be accompanied by a bank guarantee for future payments of GST to IRAS. 

The Singapore company, in our case, proceeded to provide services with GST included in the price. However, they did this without formally registering for GST in Singapore.

In Singapore this is regarded as a severe contravention of the GST laws. This is because GST registration must be approved and the commencement date confirmed, prior to the business charging GST.

The company attempted to backdate the registration, which is not permitted in Singapore.

IRAS consequently imposed fines and potential action against the directors.

Summary of GST Registration Requirements in Singapore

In summary, it is important to be aware of the requirement to register for GST.

If you intend to register on a voluntary basis, understand that this is not automatic, and you need to meet the required conditions and be approved for registration. Otherwise, you must keep an eye on your quarterly turnover and register as soon as your projected turnover will hit the required turnover threshold.

GST applies to most goods and services sold in Singapore, with exemptions for financial services, residential property and importing of investment-oriented precious metals.

Once you receive your registration letter from IRAS, you can commence charging GST from the date indicated as your registration date.

Failure to follow the requirements for GST registration can result in fines and other penalties for all Directors of the Singapore company.