It should be noted that Singapore taxes are based on the source of income rather than the presence of a Permanent Establishment Singapore (‘PE’). Hence it is pretty much irrelevant, except for treaty purposes. Yet, a PE is a source indicator.
The definition of a PE in Singapore’s double taxation agreements (DTAs) is primarily based on the OECD Model Tax Convention definition, which states that a PE is generally taken to be a fixed place through which an enterprise’s business is carried out entirely or in part. As a result, it typically includes a place of management, a branch, an office, a factory, a workshop, etc.
Additionally, subject to the terms of the applicable agreements, a non-resident may have a PE in Singapore if they meet one of the following criteria:
- They have a building site, a construction, assembly, or installation project that lasts longer than a specified period, or supervisory activities related to the project;
- They provide services (including consultancy services) through staff or other personnel in Singapore for more than a specified period;
III. The company has a representative in Singapore who regularly uses the general authority to negotiate and sign contracts on the company’s behalf.
Although most DTAs define a PE more narrowly than Singapore’s tax laws do, this difference may not matter much in cases where a treaty will take precedence.
If workers of a foreign firm are required to remain in Singapore due to travel limitations associated with Covid-19, their presence in Singapore does not result in the establishment of a Permanent Establishment in Singapore for the foreign company for YA 2021 and/or YA 2022, provided that all of the following requirements are met:
- For the most recent YA, the foreign firm lacked a PE in Singapore.
- The company’s financial situation hasn’t changed in any other ways.
iii. The employees’ actual presence in Singapore is temporary and unplanned; it is caused by travel limitations associated with Covid-19
- The activities performed by these employees during their presence in Singapore would
not have been performed in Singapore if not for the said travel restrictions.
- As soon as they are able to, these employees will depart Singapore.
BENEFITS OF PERMANENT ESTABLISHMENT SINGAPORE
In Singapore, having a PE can provide several benefits, including:
Reduced Tax Liability
A foreign company with a PE in Singapore is taxed only on income derived from that PE, rather than on its global income. This can result in lower tax liability as Singapore has a relatively low corporate tax rate. Refer to Singapore corporate tax for more information.
Access to Singapore’s Tax Treaty Network
Singapore has an extensive network of tax treaties with many countries. Having a PE in Singapore can enable a foreign company to benefit from these tax treaties and reduce its tax burden further.
Improved Business Presence
Establishing a PE in Singapore can help foreign companies to establish a physical presence in the country, which can enhance their reputation and credibility with customers, suppliers, and investors.
Access to Singapore’s Business-friendly Environment
Singapore is known for its business-friendly environment and pro-enterprise policies. Foreign companies need to register with the Accounting and Corporate Regulatory Authority (ACRA). Having a PE in Singapore can provide foreign companies with access to Singapore’s well-developed infrastructure, highly skilled workforce, and efficient regulatory framework.
Ability to Expand into Asia
Singapore is a gateway to the Asia-Pacific region, and having a PE in Singapore can provide foreign companies with a foothold in the region, enabling them to expand their operations and reach new markets.
DRAWBACKS OF PERMANENT ESTABLISHMENT SINGAPORE
While there are several benefits to having a Permanent Establishment (PE) in Singapore, there are also some potential disadvantages to consider:
Establishing a PE in Singapore means that the foreign company will need to comply with local laws and regulations, including tax and accounting rules. This can be time-consuming and may require additional resources to manage.
Cost of Establishing a PE
Setting up a PE in Singapore can be expensive, especially if the foreign company needs to rent office space, hire local staff, and cover other related expenses.
Risk of Double Taxation
While having a PE in Singapore can result in a lower tax liability, there is also a risk of double taxation if the foreign company is taxed on the same income by both Singapore and its home country. This can be mitigated by accessing Singapore’s tax treaty network, but it is important to carefully consider the implications of establishing a PE.
Limited Scope of Activities
A foreign company with a PE in Singapore may be limited in the types of activities it can undertake. For example, a PE may not be allowed to engage in certain types of trading or investment activities.
Vulnerability to Changes in Local Regulations
The regulatory environment in Singapore can change over time, and foreign companies with a PE may be vulnerable to these changes. For example, changes in tax laws or employment regulations could have a significant impact on the operations of a foreign company’s PE in Singapore.
Reach out to us at Relin Consultants for more information.
What is a Permanent Establishment (PE) in Singapore?
A PE is a fixed place of business through which a foreign company carries on its business activities in Singapore. It can be a branch office, a subsidiary, a representative office, or any other business entity.
What are the requirements for establishing a PE in Singapore?
What are the tax implications of having a PE in Singapore?
Foreign companies with a PE in Singapore are taxed only on the income derived from that PE rather than on their global income. Singapore has a relatively low corporate tax rate of 17% and offers various tax incentives and exemptions to businesses.
Can a foreign company operate in Singapore without a PE?
Yes, foreign companies can also operate in Singapore without a PE by engaging in activities such as consultancy, management, and technical services. However, the tax implications may differ.
Can a foreign company convert its representative office to a PE?
Yes, a foreign company can convert its representative office to a PE by registering with ACRA and IRAS and fulfilling the relevant requirements.
What are the compliance requirements for a foreign company with a PE in Singapore?
Foreign companies with a PE in Singapore must comply with local laws and regulations, including tax and accounting rules. They must also file annual tax returns and financial statements with IRAS and ACRA.
Can a foreign company terminate its PE in Singapore?
Yes, a foreign company can terminate its PE in Singapore by deregistering with ACRA and IRAS and fulfilling the relevant requirements.