Singapore forms an ideal base for expanding your business overseas. However, with the promise that a new market brings, comes additional compliance issues and taxation considerations.

On a worldwide stage Singapore has a relatively simple system for tax compliance, with low tax rates, concessions, and other benefits. This will mean that an expansion overseas may introduce your business to a wide range of new, and higher taxes than you are familiar with. It is therefore important to get advice from a tax expert in the country you are expanding into.

In addition, you will need to deal with international taxation considerations and navigate the impact of your overseas income in your Singapore based business. It is essential that you have the right global tax expert to ensure you understand and prepare for this impact.

Four key points you need to consider include:

1. The type of presence you establish overseas
2. The tax impact of earning income overseas
3. Employment considerations with your overseas expansion
4. Tax implications for you or other owners who relocate overseas to operate the overseas business

Your Overseas Presence

When you expand your business overseas you have various options for establishing your presence there.

This includes:

• Selling directly without a taxable presence overseas
• A branch office
• A subsidiary or associated company
• A distribution arrangement

The type of presence you set up overseas will have a significant impact on the tax and compliance implications with your Singaporean operations. Singapore foreign income concessions may apply in the case of a branch office – however this will mean that you are paying income tax in the jurisdiction of the branch.

If you have a taxable presence overseas it will be important to engage a local advisor to ensure local compliance is met. Regardless of the type of presence you establish you will need to engage an expert in foreign taxation to help you manage your compliance obligations in Singapore.

Selling Directly Without A Taxable Presence Overseas

If your local Singapore business sells overseas, without establishing an overseas presence, that income will be subject to Singapore taxes. This may be done through an online presence for overseas distribution.

There may be withholding taxes imposed by the foreign jurisdiction and a domestic and federal level. While generally claimable as a foreign tax credit, state taxes (e.g. sales tax in the state of California) are not.

Branch Office

Setting up a branch office entails establishing a legal presence in the foreign market without creating a separate legal entity. Foreign income earned through a branch office is typically subject to corporate income tax in your Singaporean company and the jurisdiction in which you have the branch.

You should discuss the following considerations with your tax planner when considering setting up a branch overseas:

• Corporate Income Tax – Profits generated by your branch may be subject to income tax in both the foreign jurisdiction and in Singapore. Some countries also tax branch profits at higher rates than subsidiaries.
• Withholding Taxes – Transactions between your company and its branch office may trigger withholding tax obligations in the foreign jurisdiction.

A Subsidiary Or Associated Company

This option involves setting up a separate legal entity to operate in the foreign market. This entity is owned by you or your company, depending on the structure you determine to be the most suitable. Foreign income earned by your foreign company is unlikely to be taxed in your Singapore company, unless it is remitted to your Singapore business.

Your foreign company may be a foreign company for tax purposes, however  you may still have reporting obligations or be subject to withholding taxes on transactions with the foreign entity.

Proper structuring and adequate understanding of local tax laws will help mitigate your risks and manage your compliance costs both overseas and in Singapore.

A key consideration when setting up a subsidiary is also the corporate residency laws of Singapore and how they apply.  For Singapore purposes, a foreign company is a tax resident of Singapore if the board of directors physically sits and meets in Singapore.  This opens up the potential for double taxation. 

In addition to the considerations listed for a branch operation, you should consider:

• Dividends – Repatriating profits from the subsidiary to Singapore may trigger withholding taxes in the foreign jurisdiction. Singaporean tax rules on foreign dividends received may also affect the taxation of dividends remitted to the parent company.
• Thin Capitalisation Rules – Some tax jurisdictions have thin capitalisation rules that limit the deductibility of interest expenses on intra-group loans. It is essential to comply with these rules to avoid adverse tax consequences.
• Transfer Pricing– Transfer pricing regulations govern the pricing of transactions between related entities, including between your Singaporean company and your related foreign company. It is important to ensure transactions are arms-length to avoid transfer pricing adjustments.

A Distributor

A third option is to outsource the foreign operations by engaging a foreign distributor. This means the foreign business will be engaged to distribute your products and services.

Although this may appear to be a more simple option, you should still consider:

• Permanent Establishment – Depending on the level of involvement and activities conducted by the distributor, your business may create a permanent establishment for the Singaporean company in the foreign jurisdiction.
• Withholding Taxes – Payments made to the distributor may be subject to withholding taxes in the foreign jurisdiction. Understanding these obligations is crucial to avoid penalties and disputes.

The Tax Impact On Your Overseas Income

Expanding overseas comes with a range of tax implications. It is important to assess these considerations thoroughly so you can make informed decisions and be prepared to manage the foreign and local tax implications.

Foreign Taxes

This includes:

• Foreign Sales Taxes – Overseas sales may include sales taxes, value-added tax (VAT) or goods and services tax (GST) in the foreign market. Proper pricing and structuring of transactions should consider the impact of their taxes on overall profitability of the business.
• Capital Gains Taxes – Overseas assets may attract capital gains taxes in the foreign tax jurisdiction.
• Withholding Taxes – Depending on the type of transactions being paid there may be withholding taxes applicable on the transactions between your company and your foreign business.

Consider any Double Tax Agreements (DTA) that apply between Singapore and the foreign country that you are expanding into. The DTA typically helps mitigate the risk of double taxation by limiting taxes, prioritising which jurisdiction has taxing rights, and covering concessions and tax credits.

Local Taxes

Depending on the way your foreign business is setup, you may be subject to Singaporean corporate income tax on the profits derived from your foreign sales unless specific exemptions or incentives apply.

Under Singapore’s territorial tax system, foreign-sourced income is generally not taxable, except for certain types of income such as income generated through a Singapore branch.

If you setup your foreign business as a separate legal entity you will not typically need to consider any Singaporean taxes on this income, within the foreign entity assuming you have managed the corporate tax residency laws noted above. However, when the profits are distributed to your Singaporean business or directly to you, there may be taxation implications in Singapore and/or withholding tax obligations depending on the nature of the distribution.

If your foreign entity pays dividends, royalties, or interest to your Singaporean company, it typically only needs to pay taxes on that foreign-sourced income when that income is received in Singapore. If the income distribution is taxable in Singapore your company may be able to claim tax credits for any foreign taxes that have been paid or withheld.

Employment Considerations

When hiring or relocating employees to work in your overseas entity you must assess their tax obligations both in Singapore and the host country.

Singapore tax residents may be required to pay tax on overseas income under certain circumstances including:

• Payment for work in Singapore for a foreign employer
• Overseas employment that is related to employment in Singapore
• Working in Singapore as a foreign employer

This means that any employees working overseas may continue to have tax obligations back home in Singapore depending on both their employment situation with your business and how the foreign business is set up overseas.

Singapore does offer tax reliefs and exemptions for income earned abroad, which can help to mitigate double taxation.

For employees residing in Singapore who frequently travel overseas for work, the nature and duration of their overseas trips may trigger tax implications.

Understanding these complexities helps ensure compliance and avoids unexpected tax liabilities.

Moving Overseas

If you are planning to move overseas to manage the new market you will need to consider:

• Whether you retain your residency status in Singapore or become a tax resident of the foreign jurisdiction
• Withholding taxes from income earned overseas
• Foreign tax obligations
• Singapore tax obligations where the income is taxed in Singapore
• Double taxation provisions between Singapore and the country your move to

Singapore taxes residents on a territorial basis. This means that overseas income is not typically taxed unless it’s derived from a Singaporean trade, business or profession. However, maintaining tax residency in Singapore while living abroad may still entail tax obligations.

It is important to be aware of the tax consequences of your movements so you can make appropriate plans and optimise your tax obligations.

Summary

Navigating the compliance requirements and tax obligations of your overseas expansion can be complicated. Not only do you have to consider the compliance requirements and tax obligations in the foreign jurisdiction, but you may also have to consider compliance and taxation in Singapore.

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.

Our Managing Director, Boon Tan recently joined a panel to discuss the compliance and regulation for crypto and finance at the Mandala Club in Singapore.

The panel titled: “Money Talk: Corporate Finance and Regulations” hosted by Headquarters, was focused mainly on the crypto guidelines and finance operations. In addition to Boon, the other three panelists were Wassielawyer, Chris Ngoi a consultant from KPMG and Galen Law-Kun from Double Peak Group.

The panelists discussed issues including the US stance on treating cryptocurrencies and the lawsuits against Binance and Coinbase.

As an expert in international taxation and blockchain himself, Boon shared his thoughts on the topic discussed, and the panel agreed that it would be unwise for a crypto company to set up in the USA.

Panelists shared their insights on the current state of the crypto business, merits of jurisdiction with regards to banking, political stability, and the opportunities for growth in the future. Singapore, Hong Kong and Dubai were identified as the most suitable jurisdictions for the establishment of a crypto business.

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 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.

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. 

A  Singapore Company is governed by the Singapore Companies Act. which is administered by the Accounting & Corporate Regulatory Authority (ACRA). There are 5 essentials that need to be covered when starting a company in Singapore. These five essentials include having a resident Director, a shareholder, a Secretary, a Singapore business address and at least $1 in capital.

To be a tax resident Singapore Company your company must be managed and controlled in Singapore. This generally means that meetings of the Board of Directors of the company must be undertaken in Singapore. 

Getting these company registration requirements right will assist in ensuring that your company is appropriately set up in Singapore.

1: The Requirement to have a Resident Director

Under the Singapore Company Act all Singapore companies are required to have at least one resident director. Without a resident director, a company will be contravening the Companies Act and risks being deregistered.

An individual is an ordinary resident of Singapore if they are a Singapore Citizen, a Singapore Permanent Resident, or an Employment Pass or EntrePass holder. This means that the individual is legally able to live and work in Singapore and have a residence in Singapore. 

It is important to note that individuals on working visas can only be appointed to the company which is sponsoring their permit.  

If you are planning to incorporate a company in Singapore but you do not have any resident individuals to be a director then you do have the option of nominating a resident director (usually a professional who is paid to fulfil the requirement).

2: The Requirement to have a Shareholder

All Singapore companies are required to have at least one shareholder. Shareholdings designate who owns the company, as well as who has the various rights, privileges, and responsibilities within the company.

Shareholders are required to participate in the Annual General Meeting and any Extraordinary General Meetings of the company, where the management decisions for the company are made.

There is no specific requirement that shareholders be Singapore residents. However, where a shareholder is not a Singapore resident, such shareholders will be subject to their local taxation laws on the receipt of income distributed to them from the Singapore company.

3: The Requirement for a Secretary

The Singapore Companies Act requires every company to appoint a Company Secretary. This Secretary is the individual who is responsible for ensuring that the company complies with the relevant legislations and regulations, as well as keeping Board Members informed of their legal responsibilities.

Your Secretary must be an individual who is a resident living in Singapore. As a position regulated by ACRA, they must also have the experience, academic, and professional qualifications necessary to fulfill their role. These individuals are usually lawyers, accountants or chartered secretaries.  

If you are a sole director of a company, you are not able to act as company secretary – you will need to appoint another person to act as Company Secretary. 

While not a legal requirement, it is recommended that you engage a corporate service provider to act as your Company Secretary.  Such professionals are known as Registered Filing Agents and are regulated and approved by ACRA to act in such a position. 

4: The Requirement for a Singapore Address

It is mandatory for all Singapore companies to have a local registered office in Singapore. This address is required from the point of incorporation.

The address must be a physical address (not a PO Box) and must be the address where all communications and notifications are sent. The address must also follow certain requirements regarding being an address that is open and accessible to the public for a least 3 hours during each business day.

If your business is run from a home base or you have yet to set up a public office, then you have the option of using a corporate service provider as your company’s registered address.

5: The Requirement for at Least $1 SGD in Shareholder Capital

Share capital is the money that the shareholders have invested into the company. This share capital must be maintained for the life of the company. At the time of incorporation, a minimum of $1 in capital must be paid.

While shares can technically be issued in any currency, for convenience Singapore dollars are preferred.

A key consideration in determining the level of share capital for a company is understanding that it is customary in commercial practice to expect a company to have a high level of share capital.  For example, when applying for a commercial lease, the prospective landlord is likely to request that the capital in the company be sufficient to cover the annual rental commitment.  

Similarly, if your company is sponsoring an individual for a working visa, the Ministry of Manpower is likely to request that the share capital of the company is equal to the annual salary of the employee applying for a working visa. 

Corporate Tax Residency for Singapore Companies

It is important to note that the mere fact that a company is incorporated in Singapore does not mean that the company is automatically a tax resident. In Singapore the tax residency of a company is determined by where the business of the company is controlled and managed.

The concept of control and management for a company does not mean where the day-to-day operations of the company are carried on – thus the location of the trading activities and physical operations are not considered. Rather, the concept of control and management is considered from a corporate governance perspective.

In Singapore, it is generally accepted that if a company holds its board of directors meetings in Singapore, it will be considered that control and management is being undertaken in Singapore – making the company a tax resident for the Year of Assessment.

It is important to note that Singapore corporate residence for tax purposes is determined by examining the facts as they stand in the Year of Assessment. Corporate residency in Singapore can change each year.

Notwithstanding the definition in the Act, the Inland Revenue Authority of Singapore (“IRAS”) in practice shall examine the preceding Year of Assessment to determine corporate residency.

Corporate residency is important as only Singapore resident companies will be able to obtain a Certificate of Residency from IRAS and therefore, apply any provisions of double tax agreements between Singapore and another jurisdiction. 

Starting a Company In Singapore

While there are a number of requirements involved in the establishment and running of a company in Singapore, the above five requirements cover the basic essentials needed to incorporate the company.

A trusted advisor like CST, will ensure that you have all your bases covered when you set up your Singapore company. We can act as your registered company address, provide Corporate Secretarial services, provide a nominee Director, and even assist with setting up a Singapore bank account. 

With our company incorporation services provided free when you sign up to one of our tax and accounting service packages, now is the time to contact us to discuss your company needs.