Strategically located in Asia, Singapore is well known as a location which promotes ease in the establishment of new business.
In principle, taxation should not be the only factor to locate a holding company in a specific jurisdiction.
However, Singapore’s business-friendly and pragmatic tax system play an important role when it comes to attracting foreign investors.
In particular, Singapore is particularly well positioned for outbound investments, notably for entering the Asian emerging markets, but not only.
Some tax benefits can be summarized as follows:
– Singapore has adopted the territorial concept of taxation: Income tax is imposed on Singapore-source income at 17% and with certain exception, on foreign-sourced income received in Singapore.
In particular, start-up companies benefit from an interesting tax exemption scheme: if a newly incorporated Singapore company has no more than 20 shareholders and at least one shareholder is an individual beneficially holding at least 10% of the issued ordinary shares of the company, the company can claim for full tax exemption on the first SGD 100’000 of normal chargeable income of each of its first 3 consecutive financial years, and a further 50% exemption is given to the next SGD 200’000 of the normal chargeable income for each the first 3 consecutive financial years of the company.
As a consequence, the tax rate for a chargeable income of SGD 300,000 for a startup company is 5.67% for the first 3 years.
Thereafter, a partial tax exemption is given for normal chargeable income for the first SGD 300,000 of up to SGD 152,500 (75% exemption for the first SGD 10,000 and 50% exemption for the next SGD 290,000 = 147,500), resulting in an effective tax rate of 8.36%, which is still one of the lowest and most competitive rate in the world.
– There is no tax on capital gains. In effect, gains arising from the disposal of investments or asset of the Singapore company are not subject to any tax.
– Foreign-sourced dividends received in Singapore are exempt from tax under the following conditions:
a) The foreign income concerned must be received from a jurisdiction with headline tax rate of at least 15%; and
b) The income must have been subject to tax in the jurisdiction from which it is received
If any of these conditions are not fulfilled, it may be possible for the Singapore company to obtain a foreign tax credit.
– Under the one-tier corporate tax system, corporate tax paid is a final tax. Thus, dividends paid by the Singapore company are not subject to any withholding tax nor to any tax in the hands of the shareholders.
– There is no CFC rules or thin-capitalization rules in Singapore
– Singapore is well known for having an extensive network of more than 65 double taxation agreements, such as with China, India, Japan, Taiwan and also with Ukraine, Switzerland, France, Israel and Italy. The treaty benefits include the availability of reduced withholding tax rate or exemption from withholding tax on certain classes of income, such as dividends, interest, royalties.
In addition, a Singapore company can reduce or eliminate withholding tax on the repatriation of profits.
– Singapore has adopted the Mutual Agreement Procedure (MAP) in its tax -treaties, which offers a dispute resolution channel in the event of transfer pricing adjustments. Thus, it allows both the Inland Revenue Authority of Singapore (IRAS) and the respective foreign tax authorities to consult with each other with a view to resolving a conflicting situation of taxpayers.
– Singapore holding companies can apply for Headquarter incentives. The purpose of those incentives is to encourage multinationals companies to locate either their Regional Headquarters (RHQ) or International Headquarters (IHQ) in Singapore.
– Other incentives, such the Pioneer Status or Development and Expansion Incentives are also available.
Finally, on top of local advantages such as the political stability and the low statutory compliance costs, some additional important none-tax related considerations at the international level should be kept in mind when setting-up a holding company in Singapore:
– Singapore has signed 35 investment guarantee agreements: an investment guarantee agreement is designed to promote greater investment flows between the two countries by providing a legal framework that clearly sets out investment norms and protection when investing in the other country.
The usual provisions of an IGA include a principle of fair and equitable treatment, a principle of non-discrimination (National Treatment and/or Most Favored Treatment), compensation in the event of expropriation; free transfer of funds, and investor-state dispute settlement mechanism.
– Singapore has concluded Free Trade Agreements (FTA) with ASEAN jurisdictions amongst others. An FTA is a legally binding agreement between two or more countries to reduce or eliminate barriers to trade in or facilitate the cross border movement of goods and services between the territories of the parties.
With FTAs, Singapore-based exporters and investors stand to enjoy a myriad of benefits like tariff concessions, preferential access to certain sectors, faster entry into markets and Intellectual Property (IP) protection.
Singapore has ideally positioned itself as a major hub for international companies in Asia.
In effect, many tax and non-tax related incentives are offered in order to attract international companies and also talented professionals.
JadeStonePartners Group Pte Ltd (Member firm ADAM GLOBAL)
Tel: +65 8292 4700 Mobile: +65 9387 3573