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:
- Tax residency in Singapore
- Tax provisions
- Foreign income (from Singapore’s perspective)
- Withholding taxes
- 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:
- The foreign income must have been subject to tax in the foreign jurisdiction.
- The foreign tax in the country of origin must be at least 15% at the time the foreign income is received in Singapore.
- 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.