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Singapore
Singapore was founded as a British trading colony in 1819. It joined the Malaysian Federation in 1963 but separated two years later and became independent. Singapore subsequently became one of the world's most prosperous countries with strong international trading links (its port is one of the world's busiest in terms of tonnage handled) and with its 4.5 million population enjoying a per capita GDP, $30,900 (2006 estimate) equal to that of the leading nations of Western Europe. Singapore, though small, is undoubtedly an advanced and bustling economy. It thrives on an excellent infrastructure, highly educated labour force, political stability and an efficient, and English speaking, business environment. Singapore is an ideal holding company and headquarters location and a gateway for foreign investments in to the emerging economies of Asia, such as China, India, Vietnam, Indonesia and Thailand The legal system is based on the English common law system and most of the company and tax law is anchored in the recent Companies Act and the Income Tax Act. The basics for of Singapore companies are:
Exempt Private Company If a company has less than 20 shareholders and none of whom are corporate, then Singapore allows its classification as an Exempt Private Company and does not have to file its annual financial statements with ACRA. However, it is important to note that this exemption does not cover the filing of financial statements with the Inland Revenue Authority of Singapore – IRAS, and as Singapore has double taxation treaties with: Belgium, UAE (Dubai), Israel and most Western European countries, the information would have to be handed over if requested. Singapore does not have full double taxation treaties with the US and Hong Kong. Money Laundering According to the International Monetary Fund and World Bank, Singapore is noted as having in place a sound and comprehensive legal, institutional, policy and supervisory framework for anti-money laundering (AML) and counter-terrorist financing (CTF). The banks are obligated to inspect transactions for AML and CFT as they are supervised by the Monetary Authority of Singapore and they have the main obligation in this area. To a large extent, the auditors usually rely on banks for AML and CFT compliance. Holding Companies All of these characteristics make Singapore a popular jurisdiction for regional offices and holding companies. In the next issue we will look at the taxation of offshore and onshore Singapore corporations. Diamond Trading For all diamond transactions that physically go through Singapore, even for trans-shipments, the company has to register for Singapore Sales Tax – GST. If rough is involved, then registration with the local Kimberley Process authority is required. Taxation Singapore has a corporate tax rate of 20%, although this will go down to 18% in 2008 with the first S$100,000 (about $65,000) is exempt from tax. This tax rate is well above the OECD’s definition of an abusive tax rate of 10%. Non-resident Singapore companies are exempt from corporation tax. Management Control In order for a Singapore corporation to enjoy a zero tax rate for its offshore profits, it should be non-resident and it must show that control is exercised outside of Singapore. This require preferably two non-resident directors, although one is often enough. As corporate directors are not allowed, care must be taken where the non-resident director, who has effective control, lives. If he lives in Israel, then control will be deemed to be in Israel and taxes payable in Israel. All contracts and commercial decisions have to be made outside of Singapore. Another criterion is where is the bank account in which the company’s transactions are administered. Transactions going through a Singapore bank account may be considered onshore by the Singapore tax authorities, unless you can prove with shipping documents etc. that the transactions were fully offshore. The holding of annual general meetings and directors’ meetings to approve the financial statements do not affect the onshore status of control. Approved Headquarter Company There is a halfway house. The income earned by an approved regional operational headquarters of a multi-national corporation in providing management, technical, financial and other supporting services to affiliates outside Singapore and its earnings from qualified investment and financial activities are taxed at a concessionary rate of 10%. Dividends Received. Through its extensive network of double taxation treaties, except with the US, most dividends received are either tax exempt or receive a tax credit on withholding tax paid in the subsidiary’s jurisdiction. This is known as the credit method.
Dividends Paid Here the construction of the company’s operations has to be carefully planned. Most of Singapore's tax treaties contain tax sparing provisions, meaning that the foreign parent corporation of the Singapore subsidiary treats income received from its Singapore subsidiary as if the full amount of corporate income tax had been paid in Singapore (i.e. 20%) even though the subsidiary was subject to a number of favourable fiscal concessions which meant it may have paid no corporate income tax. This is the main reason that the US will not sign a full tax treaty with Singapore. Management Fees & Royalties Professional fees to non-resident individuals are liable to a 15% withholding tax and if they are management fees or directors’ fees, then the rate is 20%. Royalties are taxed at 10% and interest at 15%. Some of these taxes may be avoided if they are paid to corporations and not to individuals. Capital Gains With the exception of short term gains in real estate, there are no taxes on capital gains.
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