Prevention of Double Taxation
The Singaporean government does all it can ensure that the companies based in Singapore do not have to pay corporate taxes to tax authorities of more than one country. It does so through
either of two methods: the use of foreign tax credit (FTC) and the use of double taxation agreements (DTAs).
Foreign Tax Credit (FTC)
FTC was introduced to Singapore in 2003. It was intended to help the country’s businesses simplify their tax matters, particularly when dealing with foreign tax issues. Certain criteria must be fulfilled by a company that intends to claim FTC:
- The company must be a tax resident of Singapore.
- The tax must have been paid or be payable on the same income in a tax jurisdiction other than Singapore.
- The income must be subject to taxation in Singapore.
Companies that have been making a loss are not allowed to claim FTC. FTC is also only granted to companies that have income taxed in Singapore; companies with a permanent establishment which is based abroad which is the source of the income of the companies in question are not allowed to claim FTC either. Companies that have received passive income, which includes dividends and interest, from outside Singapore will normally be taxed abroad. This income will also be taxed in Singapore during the year of remittance. These companies may receive FTC once this income has been taxed in Singapore.
Double Taxation Agreements (DTAs)
Singapore is also part of many DTAs. A DTA specifies all taxing rights between the two countries involved in it. The two countries which are part of a DTA are referred to as treaty partners. The Singaporean government chose to sign DTAs with the governments of many other countries to ease the tax burden of its residents. If a company is either a tax resident of Singapore or the country with which Singapore is a treaty partner, the company may accept the tax benefits offered by the DTA. Some of the tax benefits which DTAs confer upon their beneficiaries include tax reductions and exemptions related to certain types of income earned by the taxpayer in question.
Companies that are tax residents of Singapore are to submit a Certificate of Residence to the tax authorities of the other country in question. Doing so provides ample evidence that the company in question is indeed a tax resident of Singapore. DTAs also protect Singapore companies from suffering double taxation by allowing them to claim a tax credit if they have had the same income taxed twice, once by Singapore and once by the other country. Such tax credits are referred to as double tax relief.
Should you require clarification on any matters related to international taxation, we at Paul Hype Page & Co are willing to assist you. We will help you navigate matters such as DTAs, how to claim double tax relief, how to claim FTC and many other similar issues.
Mergers and Acquisition Allowance Scheme
This scheme was introduced by the Singaporean government in 2010 and received further reinforcements in 2015 and 2016. M&A scheme is extended to 31 Dec 2025 in Budget 2020. The purpose behind this scheme’s introduction was to encourage companies based in Singapore to grow and expand by way of acquisitions and mergers.
The scheme grants an allowance to all companies which acquire the ordinary shares of another company at any point between April 1, 2010, and December 31, 2025. This allowance will be given out on a straight-line basis over a period spanning five years. Companies that are in line to receive this allowance may not defer their doing so. Certain criteriamust be fulfilled before a company may become eligible for this scheme.
For all qualifying share acquisitions which are made on April 1, 2016, or later, there will be an upper-value limit of S$40 million. Since the maximum allowance value is limited to 25% of the value of the acquisition, this means that all share acquisitions to which this scheme applies have a maximum allowance of S$10 million.
Any eligible share acquisition, which may take place either through an acquiring subsidiary or directly, must also result in the acquiring company ending up with a minimum of 20% of the target company’s ordinary shares if it owned less than this amount prior to the acquisition of shares. This is known as the 20% shareholding threshold. There is also a 50% shareholding threshold which works in much the same way.
Acquiring companies that can receive the allowance are those which have been incorporated in and are tax residents of Singapore, be separate from the target company for a minimum duration of two years prior to the acquisition of shares, conducted business activities in Singapore on the date that shares were acquired, and employed at least three locals, not including the directors of the company throughout the one-year period directly preceding the date on which the shares were acquired. The latter two criteria also apply to target companies. Should the acquisition have been made through an acquiring subsidiary, the acquiring subsidiary must not already have claimed any tax benefits under this scheme, not have been carrying out any business activities anywhere in the world on the date of acquisition of shares and have been fully and directly owned by the acquiring company on the date of share acquisition.