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Singapore is well–known as a location that promotes ease in the establishment of new businesses. Singapore’s business-friendly and its pragmatic tax system plays an important role in attracting foreign investors, and there are a variety of tax benefits that businesses can also make use of. The country is well positioned geographically for outbound investments, notably for entering the Asian emerging markets.
Start-Ups
As Singapore has adopted the territorial concept of taxation, income tax is imposed on Singapore-source income at 17 per cent and, with certain exceptions, on foreign-source income received in Singapore. If a newly-incorporated Singapore company has fewer than 20 shareholders and at least one shareholder is an individual beneficially holding at least 10 per cent of the company’s issued ordinary shares, the company can claim for full tax exemption on the first SGD100,000 of normal chargeable income in each of its first three consecutive financial years. A further 50 per cent exemption is given to the next SGD200,000 of normal chargeable income for these three years, which may reduce the corporate income tax rate to 5.67 per cent for the first SGD300,000 of taxable income.
Foreign-Source Income
Foreign-source dividends received in Singapore are exempt from tax subject to the following conditions:
- The foreign income must be received from a jurisdiction with a headline
tax rate of at least 15 per cent. - The income must have been subject to tax in the jurisdiction from which it is received.
If either of these conditions is not fulfilled, it may be possible for the Singapore company to obtain a foreign tax credit.
Dividend Income
Under the one-tier corporate tax system, corporate tax paid is a final tax. Thus, dividends paid by a Singapore company are not subject to any withholding tax in the hands of its shareholders.
Other Taxes and Rules
There is no tax on capital gains in Singapore. In effect, gains arising from the disposal of investments or assets of a Singapore company are not subject to any tax. In addition, there are no controlled foreign company or thin capitalisation rules in Singapore (we cover details about USA tax Singapore). Singapore companies can apply for headquarters incentives. The purpose of these incentives is to encourage multinational companies to locate either their regional or international headquarters in Singapore.
Other incentives, such as Pioneer status and the Development and Expansion Incentive, are also available.
Double-Taxation Agreements
Singapore has more than 65 double- taxation agreements, whose benefits include the availability of a reduced withholding tax rate or exemption from withholding tax on certain classes of income, such as dividends, interest and royalties. In addition, a Singapore company can reduce or eliminate withholding tax on the repatriation of profits.
Mutual Agreement Procedures
Singapore has adopted the mutual agreement procedure in its tax treaties; this offers a dispute-resolution channel in the event of transfer pricing adjustments. Thus, it allows both the Inland Revenue Authority of Singapore and the respective foreign tax authorities to consult with a view to resolving a conflicting situation for taxpayers.
International Considerations
Singapore has concluded free-trade agreements (FTAs) with the Association of Southeast Asian Nations jurisdictions, among others. An FTA is a legally binding agreement between two or more countries to reduce or eliminate barriers to trade in, or facilitate the cross-border movement
of goods and services between, the territories of the parties. With FTAs, Singapore-based exporters and investors stand to enjoy myriad benefits, such as tari concessions, preferential access to certain sectors, faster entry into markets and intellectual property protection.
Estate Planning
Succession planning and asset protection are usually key objectives for business owners. The establishment of an onshore trust or foundation on top of a Singapore company should be considered with a view to facilitating the transfer of business participations to the next generation, or simply to organise the succession in favor of specific family members or partners. This may avoid the costly process of probate; provide protection from creditors, in-laws and divorces; and o er protection and tax savings for beneficiaries in the long term.
The advantages of a Singapore Holding Company at a Glance:
- Very low overall tax rates and interesting tax benefits including in relation to start-up companies
- Zero tax on capital gains
- Large network of double tax treaties
- Holding privilege, including pure holding regime
- Fast incorporation processes Electronic filing system
- 100% foreign shareholding allowed
- Minimum paid-up capital of SGD 1 only
- Singapore rated as one of the the most business-friendly environment in the world
- Singapore rated as the best place to work and live in Asia
- Very fast and efficient communication tools in Singapore
- Excellent location and hub within Asia
- Excellent travel facilities
- Experienced, skilled and heavy working workforce
- Excellent international reputation of Singapore as a financial center (not tax heaven)
- No exchange controls or restrictions on the introduction of capital or the repatriation of capital and profits and no currency regulations
- Minimum of business formalities for establishing a business in Singapore
- Known for its tough laws, strict enforcement and stiff penalties for offenders, and it exercises expedient and efficient procedures; very efficient and strong court system, protecting private property.
