Singapore offers a favourable tax environment for businesses, with various incentives and benefits for tax-resident companies. But how do you qualify as a tax resident in Singapore? In this comprehensive guide, we will delve into the factors that determine tax residency. We will also highlight the benefits that come with it.
Understanding Singapore Tax Resident for a Company
In Singapore tax law, a company's tax residency depends on where it exercises control and management. This means making strategic decisions about the company's policy and strategy. The place where these decisions happen is key to establishing tax residency.
A company becomes a Singapore tax resident for a specific Year of Assessment (YA) under a general rule. This happens if the company's control and management took place in Singapore in the previous calendar year. For instance, if your company exercised control and management in Singapore during 2022, it will be a tax resident for YA 2023.
Factors Considered in Determining Control and Management in Singapore Tax Resident for a Company
The place where your company's Board of Directors meets to make strategic decisions is crucial in determining where control and management are exercised. In most cases, holding Board of Directors meetings in Singapore is sufficient to establish tax residency. However, there are scenarios where additional factors come into play. Also, the Inland Revenue Authority of Singapore (IRAS) considers all relevant facts provided by the company.
Recently, IRAS has recognised the increasing use of virtual meeting technology and its impact on determining control and management. The new guidelines state that if a Board of Directors meeting happens virtually, it can still count as making strategic decisions in Singapore. This applies one of the followings:
- At least 50% of the directors with the authority to make strategic decisions are physically present in Singapore during the virtual meeting.
- The Chairman of the Board of Directors (if your company has such an appointment) is physically present in Singapore during the virtual meeting.
💡 You might be reading this blog and questioning the importance of being a Singapore tax resident company. Let's simplify it for you. As an entrepreneur running your own business or trade, you must report your earnings as business income. This isn't the same as a salary. This income is part of what you earn in total, and it's taxed like any other personal income.
If you earn a living from a business, trade, or profession, you are self-employed. This status typically means you're either a sole proprietor or a partner in a business. You need to register your business with the Accounting and Corporate Regulatory Authority (ACRA) in Singapore.
To learn more about the Personal Income Tax Guide in Singapore, read our blog.
To check whether you are a self-employed person, please refer to Am I a self-employed person.
Scenarios that May Indicate Non-Residency
While holding Board of Directors meetings in Singapore is generally sufficient to establish tax residency, there are certain scenarios where the control and management of a company may be considered not exercised in Singapore. Some of these scenarios include:
- No board of directors meeting is held in Singapore, and decisions are made solely through resolutions passed by circulation.
- The local director is a nominee director, while the rest of the directors are based outside Singapore.
- No strategic decisions are made by the local director in Singapore.
- There are no key employees based in Singapore.
It's important to note that the place of incorporation of a company is not necessarily indicative of its tax residency. Moreover, control and management play a more significant role in determining tax residency status.
Singapore Tax Resident for Foreign-Owned Investment Holding Companies
Foreign-owned investment holding companies that earn only passive income or foreign-sourced income usually are not Singapore tax residents. These companies often follow directions from their foreign parent companies or shareholders. However, under specific conditions, they might still qualify as Singapore tax residents.
Singapore Tax Resident for Non-Singapore Incorporated Companies and Singapore Branches of Foreign Companies
Non-Singapore incorporated companies and Singapore branches of foreign companies fall under the control and management of their foreign parent companies. Therefore, they typically do not qualify as Singapore tax residents. However, like foreign-owned investment holding companies, they can still achieve Singapore tax residency status if they meet specific conditions.
The Benefits of Singapore Tax Resident Companies
Tax resident companies in Singapore enjoy several benefits compared to non-resident companies. Some of the key benefits include:
- Exemption or reduction in tax imposed on specified foreign income derived from jurisdictions that have an Avoidance of Double Taxation Agreement (DTA) with Singapore.
- Tax exemption on specified foreign income such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947.
- You can offset foreign tax credits for taxes paid in foreign jurisdictions against the Singapore tax due on the same income.
- Tax exemption for new start-up companies.
The Role of the Certificate of Residence
The Inland Revenue Authority of Singapore (IRAS) issues the Certificate of Residence (COR) to certify that a company is a tax resident in Singapore. Foreign tax authorities require this document to verify the company's tax residency status in Singapore.
The COR is particularly important when claiming tax benefits under the Double Taxation Agreements (DTAs) that Singapore has concluded with other jurisdictions.
Applying for a COR is a straightforward process, and businesses can easily obtain this certification from IRAS.
💡 If you're wondering what is a Certificate of Residence (COR) is and if your business needs it, Yes, your business needs it if you want it to qualify as a Singapore tax resident company! Dive into our blog to learn more: Certificate of Residence (COR)
Conclusion
Qualifying as a tax resident in Singapore can provide significant advantages for companies, including tax exemptions and reductions on specified foreign income. Understanding the factors that determine tax residency, such as control and management, is crucial in maximising these benefits. By complying with the guidelines set by the Inland Revenue Authority of Singapore (IRAS) and obtaining the necessary documents, businesses can optimise their tax position and enjoy the favourable tax environment that Singapore offers.
Ready to take the next step? Contact Grof for expert advice on Singapore tax matters. Your journey to tax residency in Singapore starts here!
Consult the Experts
Navigating tax matters is often complex, and although the insights provided here give a solid foundation, turning to professionals for deeper understanding and guidance is wise. This is where we, at Grof, come in. Our expertise in Singapore's tax laws and regulations can be invaluable for your business. We're here to guide you through the nuances of the latest tax rules and help you streamline your financial setup. By working with specialists like us at Grof, you can save valuable time, reduce risks, and ensure your business thrives in Singapore's competitive environment.
Tax laws are constantly changing, and it's crucial to stay updated. Our team can keep you informed about the latest changes and assist you in tweaking your tax strategies to suit these updates. With Grof's help, staying informed and proactive ensures your business not only meets the necessary tax residency requirements but also remains robust against changing tax regulations.
