While Singapore is a very desirable location for the incorporation of multinational corporations, whether the business will be eligible for the most of the country’s specific tax benefits will largely depend on the business’s tax residence status.
Which tax regime is primarily applied to a specific corporation depends on its tax location. Naturally, Singapore’s tax-resident businesses gain more and qualify for more tax breaks than non-resident businesses.
HOW TO DETERMINE IF A SINGAPORE COMPANY IS A TAX RESIDENT
Any company with a Singapore registration has the option of being a tax resident or a non-resident of Singapore. As it is in some other nations, this classification is not always based on where a company was founded. Refer to Singapore company formation for more information.
The company must be directly controlled and managed from Singapore in accordance with local tax regulations in order to be treated as a Singapore tax resident. When control and management are exercised outside of Singapore, a firm is not considered as a tax resident.
This rule applies to international organizations as well as Singapore-registered businesses.
It simply means that all strategic decisions regarding the company’s policies and activities should be made in Singapore, including those regarding managing financial issues, controlling the company’s bank accounts, hiring managers, deciding on reorganization issues, and other crucial business operations. Basically, it should be considered where the board meetings for the company are held.
It should be noted that the company’s tax residence status is established for a certain year of assessment (YA) and is subject to modification.
A Singapore tax resident corporation might have such status one year, but they might not always keep it the following. A firm, for instance, can only be deemed a Singapore tax resident for the Year 2023 if its managerial decisions for the entirety of 2022 were made directly from Singapore.
Additionally, a company’s tax residency may not always be in the location where its activities or operations are conducted.
Foreign-Owned Investment Holding Companies
Due to the fact that they frequently follow the directives of their overseas owners and/or corporations, foreign-owned investment holding companies, with mainly passive sources of income or receiving only foreign-sourced income, are typically not regarded as tax residents of Singapore.
Nonetheless, if they can meet certain requirements, they can still be considered Singapore tax residents.
A company is considered to have 50% or more of its shares held by either foreign businesses that are incorporated outside of Singapore or non-Singaporean shareholders.
At the level of the ultimate holding company, ownership should be applied.
Non-Singapore Incorporated Companies and Singapore Branches of Foreign Companies
Companies that are not Singapore-incorporated and foreign firms’ Singapore branches are under the management and control of their overseas parent. They are not regarded as Singaporean tax residents.
Scenarios whereby the control and management of a business is considered to be not exercised in Singapore
- Singapore does not host any board of directors meetings. Rather, the resolutions of the directors are simply passed by circulation.
- The other directors are based outside of Singapore, with the local director serving as a nominee.
- The local director in Singapore did not make any strategic decisions.
- No significant personnel are based in Singapore.
Changes to the tax residency status following the COVID-19 travel bans and restrictions
The Inland Revenue Authority of Singapore ( IRAS ) will consider a firm as a Singapore tax resident for Year 2021 if all of the following requirements are satisfied in light of recent travel prohibitions and restrictions:
The business is a tax resident of Singapore for YA 2020;
The company’s financial situation has not changed in any other ways, including:
- The company’s core business operations and business strategy;
- the way business is conducted in Singapore and overseas; and
- the typical places where the company conducts business;
The company’s directors are required to attend Board of Directors meetings that are held outside of Singapore or by electronic means (such video/teleconferencing).
If a Director of the Company visits Singapore at least once per year during the Company’s fiscal year and charges the Company for the cost of the flight, the Company will also be considered a Singapore Tax Resident.
Due to the Covid-19 epidemic, the IRAS has created an exemption that enables businesses to continue to be treated as tax residents regardless of whether their director has entered Singapore legally in the most recent fiscal year. Please take note that this exemption may no longer be applicable once border controls are lifted, so in order to maintain its position as a tax resident, the Company should make plans for its Director to visit Singapore as soon as this is feasible.
HOW A COMPANY CAN BENEFIT FROM BEING A SINGAPORE TAX RESIDENT
Companies in Singapore that are tax residents and non-residents are typically taxed in the same way (i.e., at a flat rate with a limit of 17%). But, in most cases, tax residency might have a direct impact on the corporate income tax of the company. If the business, for tax purposes, has obtained the status of a Singapore resident company, it may profit from things like:
The ability to be eligible for tax breaks, grants, and loans provided by Singapore business support initiatives like the Tax Exemption Program for New Start-Up Businesses (where one of the main criteria is tax residency).
Taking advantage of tax exemptions on dividends, foreign branch profits, and certain foreign-sourced service income.
Protecting the business from excessive taxes in a foreign country. On eligible income that was already subject to Singaporean taxation in a foreign country that has signed a DTA with Singapore, the amount of tax due may be greatly reduced or even eliminated.
Lowering the tax obligation in Singapore by subtracting taxes already paid abroad.
Certificate of Residence
An official document known as a Certificate of Residence (COR) demonstrates that the business is a tax resident of Singapore. It is an effective piece of paper that enables business owners to benefit from Singapore’s DTAs by claiming tax deductions in other countries with which Singapore has signed an agreement.
Not all businesses can use a COR and should not apply for one. But over time, it may enable them to save money. A COR may enable the business owner to grow the company without having to worry too much about taxes.
This is particularly true if the business gets overseas money that might also be liable to tax under local regulations in a foreign country. The business owner may apply for specific tax reliefs listed in the DTA once it is in effect.
Foreign tax authorities may seek a Certificate of Residence, which attests that the company is a tax resident of Singapore, for these purposes.
Remember that tax residence is not a commitment, and the certificate may be given on an annual basis. As a result, the business owner could benefit from DTA tax exemptions one year as a tax resident and then change the status to a non-resident the next year.
WHO IS ELIGIBLE FOR A CERTIFICATE OF RESIDENCE?
Make sure the organisation is one of the qualified entities listed below before submitting an application because not all businesses are eligible to apply for a COR.
A Singapore-registered firm that can meet the below-mentioned criteria can be considered a Singapore tax resident and present the necessary supporting documentation.
A foreign-owned investment holding company that only receives revenue from abroad that comes from passive sources and whose shares are 50% or more owned by foreign entities incorporated outside of Singapore or by non-citizens of Singapore, if it can demonstrate that:
Singapore is where the company’s business is controlled and managed (the location of board meetings, for example). The owner can be asked by IRAS to provide evidence that strategic decisions are taken in Singapore.
It has good grounds for establishing a Singapore office.
The company receives assistance or administrative services from a connected company in Singapore. The related companies are either tax residents of Singapore or have business operations there.
It either has at least one executive director (not a nominated director) based in Singapore OR at least one important employee (not a director) stationed there.
A non-Singapore incorporated firm (including foreign company branches, given that they are run and managed by their foreign parent company), if it can demonstrate that:
Singapore is where the company’s business is controlled and managed (i.e. the Singapore branch is exercising the full control and management of the company).
The business has good grounds for choosing not to incorporate in Singapore.
HOW TO APPLY FOR A CERTIFICATE OF RESIDENCE IN SINGAPORE
One can apply to IRAS using the myTax Portal to get a COR. The current calendar year or even up to four prior calendar years may be covered by the document.
IRAS will ask for information about the company’s qualifications when the applicant applies for a COR, including the company’s full name, registration number, and YA for which the COR is necessary.
Seven working days or so are required for processing. The applicant will obtain a digital copy of the approved COR on the myTax Portal once the application has been processed.
If the business is not registered in Singapore, the application will be processed by IRAS in 14 working days.
In this case, you should apply for a COR via email, providing IRAS with the following information:
- Company name and Unique Entity Number;
- Reason for requesting a COR;
- The calendar year for which a COR is required;
- Name of DTA country where a COR will be presented;
- Nature and amount of income to be derived from the DTA country;
- Name of the foreign company or person paying the relevant income;
- Date of remittance of income;
- a statement stating that Singapore is the company’s primary place of control and management for the whole calendar year (e.g. board minutes).
Reach out to us at Relin Consultants for more information.
How will tax residency be determined if the companies board of directors meetings were not held in Singapore due to inability of management to travel to Singapore during covid travel bans?
IRAS will consider your company to be a tax resident if:
- The company was a tax resident for the previous year;
- There are no changes to the economic circumstances of the company; and
- The board of directors’ meeting was held outside Singapore or via electronic means due to the temporary restrictions placed by the government due to COVID-19.
What is tax residency for a company in Singapore?
Tax residency for a company in Singapore is determined by the location of the company’s control and management.
If the control and management of the company are located in Singapore, the company will be considered tax-resident in Singapore and subject to tax on its worldwide income.
If I have an investment holding company incorporated in Singapore with 60% for in ownership will it be considered a tax resident of Singapore?
Your business will be regarded as a tax non-resident of Singapore if it only obtains income from foreign sources or comes from purely passive sources. Nonetheless, if your business can meet the requirements listed below, it may still be considered a Singapore tax resident.
- Singapore is where the corporation is fully controlled and managed. You should give IRAS proof that Singapore is where board meetings are held.
- There are good arguments against forming in Singapore.
- Existence of other linked businesses in Singapore that provide support or administrative services to the corporation and are tax residents of Singapore or conduct business there.
- Have at least one executive-level director (not a nominated director) based in Singapore OR have at least one key employee stationed there.