Singapore is often lauded for having low corporate tax rates and a transparent tax filing system. The country also offers several tax incentives that draw global investments, making it one of the world’s most ‘‘business-friendly’’ countries. Thus, if you are planning to register a company here or opening a branch of an existing business, knowing about the corporate taxation is important.
Corporate Taxes in Singapore – Who Is Legally Required to Pay?
Any company that is supervised and managed from Singapore is an official tax resident in the country. However, not all branches of multinational companies qualify as tax residents. If the company is not managed in Singapore, it doesn’t qualify, even if the company holds its day-to-day operations in Singapore. Being “managed in Singapore” means that the company’s strategic decisions (e.g., company policies) are discussed in Singapore.
However, even companies that don’t get the coveted tax-residency status have to pay corporate tax on any taxable income consequent of their activities in Singapore. But, these companies will not enjoy the several benefits that tax resident companies enjoy.
Singapore levies taxes on profits and not on revenue. Profits of your Singapore company will be taxed at 17% (with an effective tax rate often lower due to various tax incentives and tax exemptions available to Singapore-resident companies).
How to Become a Singaporean tax-resident?
Every year, companies get 12 months to shift their management department to Singapore. They have to have one year of management, board meetings, strategic decisions, etc. conducted in Singapore in their Year of Assessment (YA). For instance, for the Year of Assessment 2020, the 12-month period will be 1st April 2019 to 31st March 2020.
A company incorporated in Singapore is not automatically considered a tax resident of Singapore.
To be considered a tax resident of Singapore, a company must be controlled and managed from Singapore. According to IRAS, controlled and managed refers to, “making decisions on strategic matters, such as those on company policy and strategy.”
In general, the location of board meetings is a key factor in determining where a company is controlled and managed.
Furthermore, the location of company personnel who have a key role in the company’s decision making can also determine tax residency.
Typically, a company is deemed to be a non-resident if board meetings and key management personnel are located outside of Singapore–even if the day-to-day operations of the company are in Singapore.
For example, foreign-based holding companies that only earn passive income are normally considered non-residents since these companies are run with instructions from owners and shareholders who are based outside Singapore.
Note that the tax residency of a company can change from year to year.
Following are the benefits of being a Singapore tax resident companies with Singapore tax residency enjoy the following benefits:
- Tax benefits provided under Avoidance of Double Taxation Agreements (DTAs)
- Tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income
- Tax exemption for new startups
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