If you run a business in Singapore that deals with related companies overseas—like a parent company, subsidiary, or sister company—there’s one tax rule you really need to be aware of: transfer pricing.

It might sound like something only big multinational corporations worry about, but transfer pricing rules apply to any Singapore-based company that transacts with related parties across borders. And getting it wrong can lead to unexpected tax bills and even penalties.

Transfer pricing isn’t just a technical tax concept—it’s something every company with cross-border operations should understand. These rules are there to ensure fairness in how profits are reported and taxed across countries, and the Inland Revenue Authority of Singapore (IRAS) expects businesses of all sizes to follow them.

This article breaks it down simply, so you know what matters, what to look out for, and how to stay compliant without getting buried in legislation.

What Is Transfer Pricing?

Transfer pricing is all about how much your Singapore company charges—or is charged—when it buys or sells something to a related company overseas.

For Example: If your Singapore company pays your parent company $200,000 a year for “management services,” how do you know that’s a fair price? 

That’s where transfer pricing rules step in. The IRAS wants to ensure you’re charging or paying what’s called an “arm’s length” price — basically, the price you’d agree on if both parties were unrelated and negotiating normally.

If IRAS thinks you’re undercharging or overpaying (which could reduce your taxable profits in Singapore), they can make adjustments — and add a penalty on top.

Whilst traditionally associated with large multi-national companies, the principles of transfer pricing applies whenever a company deals with a related party.  “Related” means there’s some form of control or influence—same shareholders, same directors, same group of companies. 

Transfer Pricing Compliance

Here is what you need to focus on to ensure that you are compliant with your transfer pricing obligations.

1. Price Things Like You’re Independent

You should price intercompany transactions the same way you’d price them with an unrelated third party. That means you need to be able to explain why the pricing is fair and commercially reasonable.

2. Keep Proper Documentation

If your total revenue is over S$10 million, and your related party transactions cross certain thresholds (e.g. S$15 million in goods, or S$1 million in services), you’ll need to prepare what’s called transfer pricing documentation which you must keep for at least 5 years.

The documentation must include:

1. Group and entity-level business descriptions
2. Functional analysis of entities involved (functions, assets, risks)
3. Details of related party transactions
4. Transfer pricing method(s) used and rationale
5. Benchmarking analysis with comparables
6. Assumptions and economic conditions

Remember, even if you’re under these thresholds, IRAS still expects you to apply the arm’s length principle—and having basic documentation helps protect you.

3. Be Consistent And Defensible

IRAS may review your transactions during a tax audit, especially if your Singapore company shows low profits or losses. You’ll want to be ready to explain how you arrived at the prices you charged or paid.

If your pricing isn’t defendable, IRAS may adjust your taxable income and impose a 5% surcharge on the adjustment.

Common Examples Founders Should Watch For

Here are some real-life examples where transfer pricing rules come into play:

• Payments to HQ for branding, legal, or strategy services. Can you show the value of those services and that the fee is reasonable?
• Import of products from your overseas factory. Are you charging yourself a fair wholesale price, or are you inflating/deflating margins?
• Use of intellectual property (like software or a brand name) from a related company. Is the royalty rate reasonable based on similar deals in the market?
• Loans made to your overseas subsidiary. Are you charging interest? Is the rate similar to what a bank would charge?

How To Stay Compliant (Without Stressing Out)

Here’s a practical checklist:

1. Identify your related party transactions – Make a list of any dealings with overseas related companies.
2. Review your pricing – Ask: Would I agree to this price if I were dealing with a third party?
3. Prepare documentation early – Don’t wait until IRAS asks. A simple summary that explains the “who, what, and why” goes a long way.
4. Update it annually – Your business evolves, and your documentation should too.
5. Get expert help if needed – For complex transactions (like IP, licensing, or large service fees), a tax advisor or transfer pricing specialist can help you benchmark prices and draft supporting documents.

Advance Pricing Arrangements 

If your company does a lot of high-value intercompany transactions, Singapore offers something called an Advance Pricing Arrangement (APA). This is an agreement between you and IRAS that locks in your transfer pricing method for several years. It gives you certainty and reduces audit risk—but it takes time and preparation to set up, so it’s better for larger businesses or high-stakes deals.

In Summary

If you are a Singapore based company dealing with overseas-based related parties, then the issue of transfer pricing is one you will need to manage as soon as possible. Here are the 5 key principles to remember: 

1. Transfer pricing rules apply to any Singapore company transacting with related overseas entities.

2. All intercompany prices must reflect “arm’s length” terms.

3. Documentation is required—especially if your revenue exceeds S$10 million.

4. Non-compliance can lead to tax adjustments and a 5% surcharge.

5. Regularly review intercompany dealings and prepare justifications.

Introduction

On 24 April 2025, the High Court of Singapore issued a significant ruling that will reshape how foreign companies appoint local directors when setting up operations in Singapore.

The case involved Mr. Zheng Jia, a Chartered Accountant who offered incorporation and corporate secretarial services to foreign clients. As part of his service, Mr. Zheng acted as a nominee director for hundreds of companies, offering foreign business owners a quick route to satisfy Singapore’s legal requirement for a locally resident director. Over time, he expanded his model by recruiting another individual, Mr. Er, to perform the same role for additional clients.

Case Background

During the trial, the prosecution demonstrated that Mr Zheng and Mr Er failed to discharge their duties as directors appointed to a company. In two specific cases, this failure to exercise diligence and due care had serious consequences. 

In one instance, Ocean Wave Shela Pte Ltd—where Mr Zheng was a director—received USD 64,630 in stolen funds. In another, Rui Qi Trading Pte Ltd—where Mr Er was the nominee—was used to launder over USD 2.18 million and SGD 237,000, all proceeds from overseas scams. 

Mr Zheng was found to have knowingly facilitated these arrangements and failed in his duty as a director.

The District Court initially imposed fines and disqualified Mr Zheng from acting as a director for five years. However, the prosecution appealed, arguing that a custodial sentence was necessary given the scale and seriousness of the misconduct. 

The High Court agreed, overturning the fines and sentencing Mr Zheng to 10 months’ imprisonment.

The ruling introduced a new sentencing framework that distinguishes between casual lapses in diligence and systematic, profit-driven dereliction of duty. 

Under this revised approach, directors who intentionally abdicate their responsibilities—especially as part of a commercial model—can expect jail time. Passive involvement is no longer an excuse.

Implications For Foreign Businesses

This decision sends a strong message that re-enforces the obligations of an individual in a fiduciary position: being a director in name only is not, and has never been, acceptable under Singapore law. Directors must take active steps to understand and monitor the companies they are appointed to, regardless of whether they are commercially engaged to do so.

For foreign companies looking to establish a corporate presence in Singapore, it is prudent to expect that:

• Local directors will require access to management accounts and bank statements;
• Board meetings will need to be conducted with the local director present and informed;
• The cost of local director services may increase, including the potential requirement for directors and officers insurance coverage.

In many cases, foreign companies may prefer to appoint someone from within their own organisation to act as the local director. While this may involve relocating a trusted employee to Singapore and obtaining an Employment Pass, it may offer greater transparency and control. 

Employment Pass holders can be appointed as directors of their sponsoring company, making this a viable alternative to the traditional nominee arrangement.

Key Takeaways

• Local directors cannot be passive. Legal duties must be actively fulfilled, regardless of commercial agreement.
• Systematic neglect of directorship duties may now lead to jail, not just fines or disqualification.
• Local directorship fees are likely to rise, along with expectations for board involvement and access to company records.
• Foreign businesses should plan ahead—either by identifying trusted Singapore-based personnel or budgeting for relocation and compliance costs.