Tax Residency of a Company
In Singapore, the tax residency of a company is determined by the place where the central management and control of its business is exercised. This is taken generally to mean the place where the directors meet to exercise de facto control. The IRAS has also set out further guidance, which includes the following factors:
The location of the company's board meetings
The location of the company's key decision-makers
The location of the company's head office
The location of the company's accounting and other records
If a company is considered to be a Singapore tax resident, it will be liable to pay Singapore corporate income tax on its worldwide income. However, Singapore has a comprehensive network of double tax agreements (DTAs) with other countries, which can help to reduce or eliminate double taxation.
Here are some of the benefits of being a Singapore tax resident company:
Low corporate tax rate: Singapore has one of the lowest corporate tax rates in the world, at 17%.
No capital gains tax: There is no capital gains tax in Singapore.
Double tax agreements: Singapore has a comprehensive network of DTAs with other countries, which can help to reduce or eliminate double taxation.
Stable tax regime: Singapore has a stable tax regime, with no major changes to the corporate income tax rate or structure in recent years.
If you are considering incorporating a company in Singapore, you should carefully consider the tax residency implications. You may wish to consult with a tax advisor to ensure that you are compliant with Singapore tax law.
Here are some additional things to keep in mind about corporate tax residency in Singapore:
A company can be a tax resident of more than one jurisdiction.
If a company is a tax resident of more than one jurisdiction, it may be liable to pay taxes in both jurisdictions.
There are a number of factors that can affect a company's tax residency, such as the location of its board meetings, the location of its key decision-makers, and the location of its head office.
Companies should carefully consider the tax residency implications of their business activities before making any decisions.
How Tax Residency Affects Corporate Income Tax
A company's tax residency in Singapore significantly impacts its corporate income tax (CIT) obligations. Tax resident companies are subject to CIT on their worldwide income, while non-resident companies are only taxed on income sourced in Singapore. Here's a detailed explanation of how tax residency affects CIT in Singapore:
Resident Companies Tax
Companies considered tax residents in Singapore are liable to pay CIT on their worldwide income, regardless of where it is earned. This means that even if a company generates income from foreign operations, it is still subject to Singapore CIT. The current CIT rate in Singapore is 17%, which is one of the lowest corporate tax rates in the world.
Resident Tax Benefits
Tax resident companies in Singapore enjoy several benefits, including:
Tax Exemption on Foreign-Sourced Income: Foreign-sourced income received through partnerships in Singapore is exempt from CIT.
Tax Deductions and Reliefs: Tax resident companies can claim various deductions and reliefs on expenses, donations, and personal reliefs.
Access to Double Tax Agreements (DTAs): Singapore has a comprehensive network of DTAs with over 70 countries, which can help reduce or eliminate double taxation on foreign income.
Tax Residency Certificates: Tax resident companies can obtain Tax Residency Certificates (TRC) from the Inland Revenue Authority of Singapore (IRAS), which can be used to claim tax benefits under DTAs and in other jurisdictions.
Non-resident companies in Singapore are only taxed on income sourced in Singapore. This means that if a non-resident company generates income from foreign operations, it is not subject to Singapore CIT. However, if a non-resident company has a permanent establishment (PE) in Singapore, it is also taxed on income from foreign operations that are attributable to that PE.
Non-Resident Tax Benefits
Non-resident companies may benefit from:
Limited Tax Liability: They are only taxed on income sourced in Singapore, reducing their overall tax burden.
No Tax on Foreign-Sourced Income: Foreign-sourced income is generally not subject to Singapore CIT, unless attributable to a PE.
Non-Resident Tax Challenges
Non-resident companies may face challenges such as:
PE Determination: Determining whether a company has a PE in Singapore can be complex and may require professional guidance.
Withholding Taxes: They may be subject to withholding taxes on dividends, interest, and royalties paid to non-resident shareholders or investors.
Residency Tax Determination
The tax residency of a company in Singapore is determined based on the "control and management" principle. This means that a company is considered a tax resident if its central management and control are exercised in Singapore. The IRAS considers various factors to determine a company's tax residency, including:
Location of Board Meetings: Where the company's board of directors typically meets.
Location of Key Decision-Makers: Where the company's key decision-makers, such as the CEO or CFO, are located.
Location of Head Office: Where the company's head office is located.
Location of Accounting and Records: Where the company's accounting records and other key documents are kept.
A company's tax residency status significantly impacts its CIT obligations in Singapore. Tax resident companies are taxed on their worldwide income, while non-resident companies are only taxed on income sourced in Singapore. Each tax residency status has its benefits and challenges, and companies should carefully consider their tax residency and engage with tax professionals to ensure compliance with Singapore tax laws.
Consult with Bestar Tax Advisor to Ensure that You Are Compliant with Singapore Tax Law
It is crucial to consider the tax residency implications when incorporating a company in Singapore. Bestar, a reputable tax advisor in Singapore, can provide valuable guidance and expertise in navigating the intricacies of Singapore tax laws and ensuring compliance.
Here are some key reasons to consult with Bestar tax advisors when incorporating a company in Singapore:
Tax Residency Determination: Bestar can help accurately determine your company's tax residency status based on the "control and management" principle and various factors such as board meeting locations, key decision-maker locations, head office location, and accounting records location.
Tax Compliance and Planning: Bestar can assist in developing a comprehensive tax compliance strategy tailored to your company's specific circumstances, ensuring you meet all tax obligations and maximize tax benefits.
Double Tax Agreement (DTA) Navigation: Bestar's expertise in DTAs can help you navigate the complex network of DTAs that Singapore has with over 70 countries, minimizing double taxation and optimizing tax efficiency.
Tax Advisory and Representation: Bestar can provide ongoing tax advisory services, keeping you abreast of tax law changes and representing you before the Inland Revenue Authority of Singapore (IRAS) if necessary.
Tax Residency Certificate (TRC) Application: Bestar can assist in obtaining TRCs, which are essential for claiming tax benefits under DTAs and in other jurisdictions.
Corporate Tax Planning and Structuring: Bestar can help you structure your company's operations and investments in a tax-efficient manner, minimizing your overall tax burden.
Foreign Income and Permanent Establishment (PE) Issues: Bestar can guide you through complex issues related to foreign income taxation and PE determination, ensuring compliance and optimizing tax outcomes.
Withholding Tax Considerations: Bestar can advise you on withholding taxes applicable to dividends, interest, and royalties paid to non-resident shareholders or investors, ensuring compliance and minimizing withholding tax burdens.
Tax Audits and Disputes Resolution: Bestar can represent you in case of tax audits or disputes with the IRAS, protecting your company's interests and ensuring fair treatment.
Taxation of Specific Industries: Bestar has expertise in specific industries, such as real estate, finance, and technology, providing tailored tax advice and solutions aligned with the unique challenges and opportunities of your industry.
By consulting with Bestar tax advisors, you can gain valuable insights into Singapore's tax landscape, ensure compliance, optimize tax efficiency, and navigate complex tax issues with confidence, ultimately contributing to the success of your company in Singapore. Contact Bestar today!