The US has similar payroll tax requirements to Australia. From withholding taxes on wages, to payment of payroll taxes assessed on wages paid, and lodgement of employee forms, there is a range of compliance requirements that your company must fulfill.

There are a wide variety of payroll tax considerations, including tax withholding and taxes payable on the amount of wages. These taxes are levied to fund social security, Medicare, unemployment and disability benefits, and other State and Local requirements.

Withholding Taxes

• Employers are responsibility for withholding taxes from wages and paying this to the Federal government.
• Some States also require withholding taxes to be withheld in relation to the income taxes on employee wages.
• Employers must typically make regular payroll tax deposits and file quarterly payroll tax returns with the IRS.
• State and Local tax agencies often have their own reporting and payment requirements.
• Withholding taxes go towards the individual employee’s income tax obligations.

Payroll Tax Requirements

Federal Insurance Contributions Act (FICA) Taxes

• Funds social security and Medicare.
• Social security tax rate is 6.2% for the employee plus 6.2% for the employer.
• Medicare tax rate is 1.45% for the employee plus 1.45% for the employer.
• Additional Medicare is payable at 0.9% for the employee when their wages exceed $200,000 in a year.

Federal Unemployment Tax Act (FUTA) Taxes

• Funds state workforce agencies and unemployment insurance.
• FUTA is payable by the employer and is calculated at 6% on the first $7,000 paid to each employee.
• Payment of state unemployment taxes can often be used as a tax credit to bring the FUTA tax rate down to as low as 0.6%.

State Payroll Taxes

• State Payroll Taxes may apply depending on the location of your business.
• The most common State tax is State Unemployment Tax (SUTA), which is payable by the employer.

Local Payroll Taxes

• Additional payroll taxes may be payable based on the zip code, county or municipality where your business is located.

Employee Forms

• At commencement of employment, employees fill out a Form W-4. This guides employers on how much income tax to withhold.
• At the end of each year, employers must provide employees with Form W-2, which reports the employee’s annual wages and tax withholdings.
• On commencing employment, employers are required to verify an employee’s eligibility to work in the US. This is typically done through the I-9 Form.

Other Payroll Considerations

• Workers Compensation Insurance
• State Disability Insurance
• Paid Leave
• Health Care Costs for Employees
• Retirement Plan Contributions 
• Reimbursements and Stipends

Penalties For Missed Or Late Payments

The IRS may charge a late fee for employment taxes that are not paid on time. This is called a “Failure to Deposit Penalty”.

Payroll tax penalties are:

• 1-5 days late: 2% of the overdue payment
• 6-15 days late: 5% of the overdue payment
• Over 15 days late: 10% of the overdue payment
• More than 10 days from first notice: 15% of overdue payment

Other Employee Benefits

Other Employee Benefits you may be required, or choose, to pay, can include:

Retirement Plans

One of the tax advantageous retirement savings plans is known as a 401(k). Under this plan you would pay a percentage of each paycheck into your employee’s retirement savings account instead of directly to them.

Health Insurance

Employers must offer affordable health insurance that provides minimum value of 95% to full time employees (working 30hrs or more a week) and their children (until they turn 26).

Stock and Stock Options

Stock and stock options can be offered as a form of equity compensation.

The US has a complex tax system, with multiple taxes, including income taxes, often being imposed on a State level as well as a Federal level. Some types of taxes also apply locally, meaning that even within the same State you can pay very different taxes to other parts of the State.

• The US Corporate tax system operates on a Federal, State and Local system. This means taxes and other compliance costs may be charged from all three levels.
• Filing requirements, lodgement deadlines, and available deductions or credits often differ between locations.
• Due to the complexity of Local variances, compliance with the Local tax laws requires specialised Local knowledge for the area or areas in which your business operates.
• To optimise your corporate tax strategy, it is recommended that you consult with experienced tax professionals who have a Local understanding of US taxes, as well as international taxes.
• Tax returns are typically based on a calendar year.

Choosing Your State

Since every State has different laws, it can be important to select the right State for your business operations. You will be required to register in every State that you operate in, however if you have no particular business requirement for which State or States you operate in, then it can be advantageous to select a State that has more well known and simple tax laws.

For instance, Delaware has no state income tax, a fairly straight forward tax system, and well-known corporate laws across the US.

Types of Taxes

Income Taxes (Federal And State)

• The Federal tax rate for companies is 21% 
• 44 States levy corporate income taxes. These taxes vary from 0% to 11.5%, with some states assessing taxes on a flat rate and others using tax brackets in the same manner that individual income taxes are assessed.
• 43 States levy state income taxes, 41 tax wage and salary income, New Hampshire exclusively taxes dividend and interest income and Washington only taxes capital gains income. Seven states don’t impose any individual income taxes. Some states use a flat income tax rate, while others have a graduated tax rate depending on the individual’s income.

Sales Taxes (State And Local)

• Sales taxes are similar to GST or VAT in certain parts of the world. However, as sales taxes are only imposed on a State level, the rates vary between 0% and 7.25% depending on the State.
• There are also various Local governments within 35 States that impose an additional sales or use tax, which ranges from 1% to 5%.

Property Taxes (State And Local)

• Local authorities such as cities, counties, and school boards, typically impose property taxes on the value of the property, including the land and the structure on the land.
• Each State imposes different parameters on property taxes.
• Property taxes can also be payable on purchase and/or sale of property.
• Most States have a “homestead” exemption which reduces or eliminates the cost of property tax on your primary residence, subject to a variety of qualifications or limits, which vary State to State, or even within States.

Payroll Taxes (Federal, State And Local)

• Federal payroll tax is paid by both the employer and the employee.
• Some States and Local authorities also require some form of payroll tax to be paid. The most common type is State Unemployment Insurance (SUTA tax), which is payable by the employer.

Franchise Of Privilege Tax (For Doing Business In A State)

• Some States require certain business organisations to pay a franchise tax, otherwise known as a privilege tax, for doing business in the State.
• This tax is typically calculated on the net worth of capital held by the entity.
• Some States use an economic and physical presence test to determine whether a business is taxed, while others have no written interpretation of the basis of their test for determining who is required to pay the franchise tax.

Gross Receipts Tax (State)

• Some States apply a gross receipts tax on a company’s gross sales, without consideration of deductions for expenses.
• Gross receipts tax applies to businesses, regardless of whether sales relate to business-to-business transactions or business-to-consumer transactions.

Business Licenses (State, Local, With Some Federal Regulations)

• Business licences or permits may be required on a Federal, State, or Local level.
• Business licenses can take some time to be processed, and they should be completed prior to commencing operations. The complexity of the application depends on your industry, as well as the locality managing the license.
• Licences and permits typically need to be renewed on a regular basis.

Due to the complexity of the wide variety of Local, State, and Federal taxes, it is important that you obtain qualified advice regarding your business. If your business expands into additional locations you will need to get updated advice regarding the new location in which you are operating.

Expanding to the US means you are entering a complex tax system. From international tax concerns, to different Local, State, and Federal requirements, there are many factors to consider. The type of legal structure you choose will impact your compliance and tax considerations obligations.

Type Of Entities

C Corporation (C Corp)

• Separate Legal Entity that works like an Australian private company does.
• Offers some asset protection due to legal structure.
• Taxed at the corporate level and when profits are distributed as dividends, these are taxed in the hands of shareholders.
• Has Directors, shareholders (stockholders) and a separate tax identity to the shareholders.
• Federal income tax rate is currently 21%. State income taxes may also apply.
• In some instances dividends may have a reduced withholding rate of 5% when paid to foreign shareholders.
• Allows for capital raising, new shareholders or selling the business completely by selling shareholdings to new investors.
• High compliance requirements including meetings, quorums, minutes, and other management formalities.

Limited Liability Company (LLC)

• This is a simplified form of a company. In operation it is similar to an Australian partnership where control is in the hands of the members and profits flow through to the owners rather than being taxed at the entity level.
• Provides similar protection, and more flexibility than a C Corp.
• LLCs are not managed by Directors. They are managed by the members or an appointed Manager.
• It is possible for an LLC to have a sole member.
• Members do not need to be US residents.
• Tax returns need to be filed if there are two or more members, however the profits are distributed to the members who pay tax on their share of the profits.
• Can elect to be taxed as a C Corporation instead of being taxed in the hands of the members.
• Can elect how profits are distributed to members. For instance, profits may be split equally between members, based on capital contributions, or in other agreed ways.
• If foreign tax is paid on the profits to an Australian member, they can claim the foreign tax paid as a tax credit on their own assessment of profit distribution received.

Branch (No New Entity)

• No separate legal entity, meaning Australian entity is directly responsible for tax and compliance requirements.
• Branch profits may be subject to US tax as well as Australian tax, depending how the branch is established in the US. In this instance the Australian company can typically claim the foreign tax paid as credits to reduce the impact of double taxation.
• As there is no additional entity there may be less compliance issues to consider with transferring profits from the US to Australia. 
• Whether you need to establish a US entity or not, will depend on the nature of the business you are operating.

Taxation Issues To Consider With Your Chosen Legal Structure

Both Australian and US tax laws need to be considered regardless of the legal structure used to establish the US business operations. International tax issues will also need to be considered where members, Directors or owners remain residents of Australia.

Australian Taxation

• If the US entity is controlled in Australia it may be treated as an Australian tax resident.
• The Australian parent company will need to consider how the fees paid between the US and the Australian entities are taxed in Australia.
• US generally imposes a 30% withholding tax on payments to foreign entities.

US Taxation

• The US may tax income earned from any business established in the US, regardless of whether the operating company is a US or Australian resident.
• Australian resident members or Directors may be subject to US taxes before considering Australian taxes on income generated from the US branch or entity.

Fees Between Entities

• US transfer pricing rules require transactions between related parties to be at arm’s length. This means that the value of fees may be adjusted where it is not arm’s length.
• Proper documentation is essential for consulting or management services between entities, including basis for fees charged. This can assist in ensuring that fees paid between the US and Australian entities are treated as required for tax purposes.
• Fees must be ordinary and necessary business expenses in order to be tax deductible to the paying entity.

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.