Head of Corporate & Administration
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Sir Thomas Stamford Raffles clearly made the right decision when he established a British post on an island off the southern tip of the Malay Peninsula in 1819.
In 2014, US-based research institute BERI ranked Singapore first out of 50 major investment destinations in a ranking that assessed operational, political and currency risks.
With no restrictions on the repatriation of profits and the import of capital, along with the most favourable operating conditions, Singapore’s stable political and economic climate creates an ideal environment for investment.
Singapore is recognised for its high government efficiency, competitiveness, world-class infrastructure and leading financial market developments. Robust legal and regulatory regimes make it the most transparent country in Asia and the most stable business environment.
Strong trade and investment flows make Singapore the most competitive Asian country and the world’s easiest place to do business. Global businesses will find it advantageous to site their headquarters in Singapore.
Types of businesses setting up in Singapore
Singapore’s system of taxation is territorial and remittance-based. This means that business income is generally not subject to Singapore Income Tax (SIT) if it is not derived in Singapore or remitted to Singapore. Singapore therefore offers a very efficient platform for companies with global activities.
Our clients are increasingly moving away from traditional offshore jurisdictions in favour of Singapore for incorporations of new service companies. Care needs to be taken, however, when services are not provided in Singapore.
Clients often assume that any income resulting from services provided overseas can be considered as foreign-source income and therefore not taxable in Singapore. However, the position of the Inland Revenue Authority of Singapore (IRAS) is that income from the provision of services has its source in Singapore unless those services are provided through a fixed place of permanence outside Singapore.
Nevertheless, given the generous tax incentives available in Singapore, corporation tax for service companies is generally very low. Service companies have historically been based in offshore jurisdictions such as the British Virgin Islands but such companies are coming under increasing pressure from their clients to be based onshore with onshore banking.
Singapore has signed over 80 Double Taxation Agreements (DTA) worldwide. Under these treaties, Singapore residents can benefit from reduced rates of withholding tax on repatriation of profits from cross border investments. The absence of tax on capital gains and the lack of withholding tax on dividend payments to non-residents make Singapore an excellent location to register a holding company for cross border investments.
Government Funding and Assistance Schemes
The Singapore government has introduced several schemes to enable start-ups to gain access to funding – cash grants, government-backed equity financing schemes, business incubator schemes, debt financing schemes and tax incentives. Most grants for start-ups are designed to encourage investment in innovation, R&D and social causes. The Productivity and Innovation Credit (PIC) scheme also provides tax deductions or allowances and cash payouts for investment in qualifying innovation and productivity improvements.
Singapore’s tax system is based on the principles of source and remittance. Only profits that are derived from or arise in Singapore, or any foreign-sourced profits remitted back to Singapore are subject to tax in Singapore. The current rate of Singapore Income Tax (SIT) is 17% – one of the lowest rates in the region.
All companies in Singapore must be registered with the Accounting & Corporate Regulatory Authority (ACRA) and abide by the Companies Act, Chapter 50. While there are five different entities to choose from – sole proprietorship, partnership, company, limited liability partnership and limited partnership – the most common and flexible option is to set up a Singapore company.
If the number of shareholders exceeds 50, it is deemed to be a public company. If the
company has more than 20 but fewer than 50 shareholders, it is deemed to be a private company. Finally, if the number of shareholders is 20 or less – with no corporation holding any beneficial interest in the company’s shares – and the company has a turnover of less than S$5 million, it is deemed to be an Exempt Private Company (EPC).
An EPC is exempt from tax from the first three years after incorporation for the first $100,000 of chargeable profits. The next $200,000 profit is 50% exempt from SIT, while any profits exceeding $300,000 are taxed at 17%.
Dividend income from other Singapore companies is not subject to tax. Foreign-sourced dividends remitted back to Singapore are generally taxable but they can be completely exempted from tax if the following conditions are satisfied:
The country from which the dividend was paid has a headline tax rate of 15% or higher;
The dividend has suffered taxation, either because it is paid out of taxed profits or has suffered withholding tax.
Capital gains are not subject to tax.
Singapore has entered into over 80 comprehensive agreements for the avoidance of double taxation (DTAs). It has one of the most comprehensive networks in the world and the list is still growing.
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Diclaimer: The above is intented to provide a brief guide only. It is essential that appropriate professional advice is obtained. XpertAdvice will be glad to assist you in this respect. Please do not hesitate to contact us.