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Singapore Focus

Global Incorporation Guide [GIG] Editorial

February 5, 2018

Located in South East Asia, Singapore is a highly developed and successful free market economy which enjoys an open and corruption-free environment, stable prices, a low tax regime and the seventh-highest per capita GDP in the world.

Historical And Economic Overview

Although most probably think of Singapore the city, the Republic of Singapore is actually a 700 square kilometer island sandwiched between Indonesia and the tip of the Malay peninsula. The city was founded as a British trading colony in 1819 and formed an important strategic trading and naval post within the British Empire in the 19th and early 20th centuries.

After the Second World War, decolonization meant that Singapore gravitated towards the Malaysian Federation, which it joined in 1963. However, this was a short-lived phase of the country's history, and, two years later, Singapore became an independent republic. Subsequently, it has become one of the world's most prosperous countries with strong international trading links and one of the busiest international ports.

Since independence, Singapore has been a parliamentary republic with a directly elected unicameral parliament. As a legacy of its association with the former British Empire, Singapore's legal system is based on English common law. Also, English is one of the four official languages spoken on the island, alongside Chinese, Malay and Tamil.

Approximately three-quarters of Singapore's population of 5.7m are of Chinese origin but there are significant minorities of Malaysians and Indians, while the presence of the major global multinationals in the city also ensures a sizeable army of expats from Europe, North America and elsewhere around the globe. Singapore's currency is the Singapore dollar, which was worth USD0.75 at the time of writing.

Singapore's economy depends heavily on exports, particularly in consumer electronics, information technology products, pharmaceuticals, and on a growing financial services sector. A comprehensive suite of tax incentives is geared towards attracting export-orientated industries in addition to start-up businesses, particularly those with a technological focus. Indeed, Singapore has attracted major investments in pharmaceuticals and medical technology production and will continue efforts to establish Singapore as Southeast Asia's financial and high-tech hub.

In 2017, Singapore was ranked second in the World Bank’s ease of doing business rankings, and seventh in PwC’s ease of paying taxes index.

The Business and Financial Centre

In just over four decades, Singapore has established a thriving financial center of international repute, serving not only its domestic economy, but also the wider Asia Pacific region and in some instances, the world; Singapore's financial center offers a broad range of financial services including banking, insurance, investment banking and treasury services.

A key aspect of Singapore's financial center is its deep and liquid capital market. With one of the more well-established capital markets in Asia-Pacific, the Singapore Exchange is one of the main access points for managing Asian capital and investment exposure, and is Asia's most international exchange with more than 40 percent of companies listed on SGX originating outside of Singapore. Today, Singapore has grown to be the second-largest Real Estate Investment Trust market in Asia and also provides an extensive offering of investments in business trusts of shipping, aviation and infrastructure assets.

Singapore's bond market has also grown significantly. With an extensive range of both Singapore government securities and foreign corporate bonds available, Singapore offers fixed income investors a wide range of investment opportunities.

As one of the top four most active foreign exchange trading centers in the world and the largest in Asia, Singapore is also a major regional over-the-counter derivatives trading center, and a leading commodities derivatives trading hub.

With its key import and export links in Asia, and tax incentives for international and regional headquarters 9see below), Singapore has also become a good location for multinationals to locate their marketing, trading and distribution activities.

Furthermore, Singapore is an ideal place in which to locate an investment holding company with its extensive network of double tax avoidance treaties that reduce the rate of withholding tax on dividends remitted by foreign subsidiaries to Singaporean investment holding companies.

Company Formation

Also known as a Pte Ltd company, the Private Company Limited by Shares is the most common business structure used in Singapore. The company is a separate legal entity in its own right, and so shareholders are not liable for its debts. The maximum number of shareholders allowed is 50. Although 100 percent foreign ownership is permitted, at least one director must be a Singapore citizen, resident or employment pass holder.

A Pte Ltd company must register with the Accounting and Corporate Regulatory Authority (ACRA). The registration fee is SGD300, plus SGD15 for company name approval. Accounts must be audited annually and filed with ACRA. An annual tax return must be filed with both ACRA and IRAS within one month of the company's annual general meeting.

Other company formats available in Singapore include:

  • Public limited company;
  • Company limited by guarantee;
  • Partnerships, including general partnerships, limited partnerships and limited liability partnerships;
  • Business trust
  • Sole proprietorship

Foreign companies can set up a branch office, subsidiary, or a representative office in Singapore.

In recent years, the industry sectors with the largest number of business formations remain have tended to be wholesale trade, financial services, and head office and management consultancy.

Corporate Tax

A company is resident in Singapore if its central management and control of the business is exercised there. Singapore-resident companies are generally taxed on their worldwide income; non-resident companies are taxed on their Singapore-source income only, which can prove attractive to international holding and trading companies. However, non-resident companies do not benefit from double tax treaties signed by the Singapore government (see below).

The corporate income tax rate is 17 percent (decreased from 18 percent prior to 2010). There is a partial tax exemption on normal chargeable income of up to SGD300,000, as follows: 75 percent on the first SGD10,000 of income; then 50 percent on the next SGD290,000. This gives a total exemption of SGD152,500.However, start-up companies may qualify for a 100 percent exemption on SGD100,000 of chargeable income, and 50 percent on the next SGD200,000, for a total exemption of SGD200,000.

Singapore offers a wide array of tax incentive schemes, including (but not limited to) the following:

  • The Productivity and Innovation Credit, which provides significant tax deductions for investments in a broad range of innovative activities;
  • The Pioneer Incentive, which provides a five to 15-year corporate tax exemption on income for qualifying companies committing to make a "substantive economic contribution" to Singapore;
  • The International Headquarters Award, which provides a reduced corporate tax rate of 5 percent or 10 percent on incremental income from qualifying activities;
  • The Mergers and Acquisitions Scheme, which provides an allowance of 25 percent of the value of an acquisition, subject to a maximum of SGD5m (USD3.5m) for each year of assessment(SGD10m for deals executed from April 1, 2016 to March 31, 2020);
  • The Finance and Treasury Incentive, which provides a reduced corporate tax rate of 8 percent on fees, interest, dividends, and gains from qualifying services and activities;
  • The Global Trader Program, which provides a reduced corporate tax rate of 5 percent or 10 percent on qualifying trading income, including physical trading, brokering of physical trades and derivative trading income, for three or five years;
  • The Land Intensification Allowance, which provides an initial tax allowance of 25 percent and an annual tax allowance of 5 percent on qualifying capital expenditure incurred for the construction or renovation/extension of a qualifying building or structure;
  • The Integrated Investment Allowance, which provides an allowance based on a percentage of approved fixed capital expenditure to be incurred on productive equipment that is placed outside Singapore;
  • The Development and Expansion Incentive, which provides a reduced corporate tax rate of 5 percent or 10 percent on incremental income from qualifying activities, including investment in manufacturing operations, or high-tech business ventures;
  • The Aircraft Leasing Scheme, which provides a reduced corporate tax rate on income accruing in or derived from Singapore from leasing of aircraft or aircraft engine and prescribed activities; and
  • Numerous tax incentives for the key maritime industry, including the Approved International Shipping Enterprise scheme, the Approved Shipping Logistics scheme, the Maritime Sector Incentive scheme, and the Maritime Cluster Fund.

Under the Productivity and Innovation Credit (PIC) scheme, from years of assessment 2013 to 2018, businesses can take advantage of tax deductions of up to 400 percent on up to SGD400,000 of qualifying expenditure, or a 60 percent cash payout on up to SGD100,000 of qualifying expenditure each year. A similar PIC scheme is available for small businesses with a higher cap of SGD600,000 for assessment years 2015-2018.

Individual And Other Taxes

For resident individuals, Singapore's tax regime is fairly benign. Capital gains taxes are only levied in very limited circumstances, there are no gift taxes and estate duty was abolished in 2008. Personal income tax rates in Singapore are also relatively light: resident individuals are taxed at progressive rates up to 22 percent (increased from 20 percent in the 2015 Budget) on income accruing in or derived from Singapore.

From January 1, 2004, foreign income received or deemed received by a resident individual in Singapore is no longer subject to Singapore income tax, except if received through a partnership in Singapore.

A non-resident employee present in Singapore for more than 60 days but less than 183 days in a calendar year faces a 15 percent tax on gross employment income, or is taxed as a resident on that employment income, whichever is higher. For non-resident individuals withholding taxes are levied on Singapore-source income at varying rates; foreign-source income is untaxed whether remitted or not.

Non-resident individuals employed in Singapore for 60 days or less are exempt from tax on employment income. Other income derived in Singapore by non-residents is taxed at the corporate tax rate, with the exception of interest income derived from approved financial institutions in Singapore, which is tax-exempt.

GST was introduced in 1994 to allow Singapore to shift its reliance from direct taxes to indirect taxes. Since July 1, 2007, the rate of GST has been seven percent, which is one of the lowest rates of consumption tax in the world. Singapore's GST is broad-based consumption tax levied on nearly all and services as well as imports.

International Tax Agreements

Singapore currently has comprehensive tax treaties with more than 80 countries. Notable among these are treaties with Australia, Belgium, Canada, China, France, Germany, India, Italy, Japan, the Russian Federation, South Africa and the United Kingdom.

Final regulations and an e-Tax Guide regarding the US Foreign Account Tax Compliance Act (FATCA) requirements for financial institutions (FIs) in Singapore were issued in March 2015.

FATCA requires all FIs outside of the United States to submit regular information on financial accounts held by US persons to the US Internal Revenue Service, or otherwise face a 30 percent withholding tax on certain payments of US-sourced income.

To ease FATCA compliance for its FIs, Singapore concluded a Model 1 Intergovernmental Agreement (IGA) with the United States, which was signed on December 9, 2014, and entered into force on March 18, 2015. Model 1 IGAs provide for FIs outside the United States to report account information relating to US persons to their relevant domestic tax authority – in Singapore's case, IRAS – which, in turn, shares this information with the IRS.

In May 2014, Singapore was one of a number of countries which endorsed the Declaration on Automatic Exchange of Information in Tax Matters. The Declaration is a commitment to implement a new single global standard on automatic exchange of information. The standard obliges countries and jurisdictions to obtain financial information from their financial institutions and to exchange that information automatically with other jurisdictions on an annual basis.

In January 2018, the Government announced the activation automatic exchange of information relationships with a total of 61 territories under the internationally-agreed Common Reporting Standard.

Singapore's CRS Regulations, which came into force at the beginning of the year, require and empower all financial institutions to put in place necessary processes and systems to collect financial account information, generally from January 1, 2017.

Singapore has adopted the "wider approach" under the CRS, which means that financial institutions will need to collect and retain the CRS information for all account holders, instead of only for account holders and controlling persons who are tax residents of the territories with which Singapore has currently committed to exchange such information.

 

Tags: Singapore | tax | business | investment | Tax | services | FATCA | individuals | tax incentives | withholding tax | financial services | Other | United States | banking | dividends | interest | India | Malaysia | Investment | Invest | trade

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