International Tax Planning in Singapore

7 min read|Last Updated: May 21, 2024|

International tax planning is a complex field where a deep understanding of the international tax knowledge (tax laws) and multiple tax jurisdiction and there are many fundamental issues to consider before establishing the optimum tax corporate structure.

Why Incorporate a Singapore company for your Tax planning?

Singapore continues to be an attractive location for foreign investors to set up a business in. Besides the low corporate tax rate of 17%, there are many pertinent tax features that make Singapore attractive, such as:

  • There is no tax on capital gains in Singapore.
  • There is no withholding tax on dividends paid by a Singapore resident company.
  • A company resident in Singapore will be able to avail itself of the various tax benefits afforded under the wide network of Singapore Double Tax Agreements.
  • Certain types of foreign-sourced income are fully tax exempt for Singapore companies, including dividends, branch profits, and service fee income.
  • There are no thin capitalisation rules in Singapore and therefore, this allows the flexibility in using debt to fund the acquisition of subsidiaries of a holding company in Singapore.
  • Singapore has further strengthened its position as a viable tax residency country for tax treaty or planning purposes.

Who and what needs tax planning?

Many corporation operations that could have an offshore Singapore company for international tax planning include:

  • Intellectual property reassignment
  • Financing and banking matters
  • Investment Holding
  • Administration and Treasury Management
  • Insurance and Re-insurance
  • International Trade and Provision of Services
  • Property ownership
  • Leasing
  • Executive recruitment and Employment
  • Ship registration and management
  • Below are some examples and is not exhaustive.

1. Intellectual Property

Intellectual properties including computer software, technical knowledge, patents, trademarks, trade secrets, and copyrights. To minimize tax, another offshore Singapore company is assigned the rights to these intellectual properties, generating royalties and licensing fees, via license or franchise agreements.

2. Financing

International tax planning is very useful for groups of companies that have lot of intra-company and inter-company financial management functions, such as granting of loans for project finance or working capital requirements. Singapore has many double tax agreements with more than 80 countries that allow interest payments to be tax deductible in the country of the borrower reducing the overall corporation tax liability.

3. Investment Holding

Using a Singapore company as an international investment holding company allows for the confidentiality of ownership and significant tax advantages. By parking investment assets such as stocks, shares, securities, bonds, and mutual funds in a Singapore company, one can reduce or eliminate withholding taxes on investment income.

4. Property Ownership

An effective international tax planning with the right structure of ownership allows shareholders of the offshore Singapore company that own real estate property both in the international jurisdiction of incorporation and other countries including the country of residence reduce capital gains and inheritance taxes.

5. International Trade and Provision of Services

International tax planning is very useful for companies’ international trade such as re-exporting and transhipment trade or consulting Services in the form of international marketing and promotion in international markets. With an effective tax planning the resulting profit can be parked in a tax beneficial regime offshore that attract lower tax liabilities.

6. Tax Incentives

To encourage foreign capital inflows, Singapore provides a comprehensive program of incentives based primarily on consideration such as total investment involved, technical input, export potential, employment opportunities and general cohesiveness to the development of industrial and financial activity.

International Tax Planning Advisory for Private Individuals

1. Individuals with inherited wealth

Individuals who inherit wealth can use offshore structures such as Singapore where there is no inheritance tax. To achieve a successful process, it is advisable to set up before inheritance of wealth.

2. Entrepreneurs

Entrepreneurs who start off with an offshore Singapore Company and their own residence’s company/offices can helps to protect their assets and minimise tax from local authority.

3. Owners of Intellectual Property

Inventors, engineers, and designers can ensure they receive revenue and royalties through an offshore corporation by assigning intellectual property and innovation rights to an offshore Singapore corporation. This way, the offshore corporation, as the owner of such rights, receives the revenues instead of them personally. Singapore Tax residence receiving foreign sourced income from offshore corporation does not attract any tax.

4. International Investors

For having an offshore Singapore company where it can act as holding areas for investments made in a number of different markets and countries. Singapore company receiving dividend, services income and other are deemed as foreign source income does not attract any tax.

Risks & Factors of International Tax Planning

1. Legitimate Way

International tax planning must be conducted legitimately to avoid being deemed as tax evasion while still achieving business objectives.

2. Tax Efficient Corporate Structure

Applying a well-researched international network of tax jurisdiction and legislation knowledge to construct the most tax efficient corporate structure is crucial to minimise international tax liabilities.

3. Match requirements with Latest Tax Legislation

Understand the company’s income source and business objective matching its requirements with latest tax legislation. With a good tax structure, there is no need to pay tax on revenues sourced outside the country.

4. Confidentiality

Confidentiality is crucial to an effective international tax planning strategy where some offshore jurisdictions there is no public register i.e. shareholders’ and directors’ details are not available for public viewing.

5. Double Taxation Treaties of Countries

International Tax Planning certainly involved understanding of Double Taxation Treaties of countries involved. This ensures company get benefits of the availability of tax reliefs exists in the double tax agreement. With the right tax structure corporate, it prevents the clients from paying taxes in two jurisdictions and reduce withholding taxes with the group of companies.

6. Business Image

An effective international tax planning strategy must also consider business image hence the choice of jurisdiction is very also an important factor to consider. Using Singapore as the choice of jurisdiction is good as it is not considered as tax haven in OCED list and yet has a good reputation for business’s image.

7. Reputable International Bank

An effective international tax planning strategy should comprise a corporate bank account with a reputable international bank registering in a secure location / state like Singapore.

Why & How IT Entrepreneurs use Singapore company for Tax planning

Supply Chain Structure by Paul Hype Page

Taxation and IT Entrepreneur

Singapore has a notably affordable tax system which imposes corporate taxation at a flat rate of 17% with some advantages such as tax incentives and tax exemptions which are granted to start-ups. Singapore also only taxes on profit and not interest and dividends. This concept is known as the single-tier tax system, and this is highly useful for tax planning.

Assuming that an Investor / Entrepreneur in country A where it has high tax rates, start a Singapore company in country B and company received all IT patent or know how, fixed assets for a one-time payment. The company performs most of its business functions, and bears most of its risks. The company’s primary Investor / Entrepreneur will retain their status as shareholders where they earn revenue through the dividends which remain untaxed as long as it is not remitted back to their country A.

This tax-effective supply chain structure is used by many IT Investor / Entrepreneur. It relies on the internationally accepted standards which causes profits to be attributed to group entities based on assets used, functions performed, and risks assumed. As such, if key assets, functions, and risks are centralised in a low–tax environment, then profits related to the value chain would also follow, thereby reducing the overall effective tax rate of the business.

Conclusion

Corporate tax planning is useful for minimizing expenses related to taxation. However, it needs to be carefully calibrated hence not fall into the are the areas of tax evasion or avoidance.

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FAQs

Claiming Double Tax Relief – What is double tax relief (DTR)?2020-06-23T15:30:03+08:00

Foreign income earned by a Singapore company may be subjected to taxation twice. Once in the foreign country, and a second time when the foreign income is remitted into Singapore.

A double tax relief (DTR) is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax resident company to claim a credit for the amount of tax paid in the foreign country against the Singapore tax that is payable on the same income.

A company is a tax resident of Singapore if the control and management of its business is exercised in Singapore.

What is an Avoidance of Double Tax Agreement?2020-06-23T15:29:36+08:00

An Avoidance of Double Taxation Agreement (DTA) is an agreement signed between Singapore and another country (a treaty country) which serves to relieve double taxation of income that is earned in one country by a resident of the other country.

It makes clear the taxing rights between Singapore and her treaty partner on the different types of income arising from cross-border economic activities between the two countries.

The DTA also provides for reduction or exemption of tax on certain types of income.

Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a DTA. To find out who are our treaty partners, please refer to the List of Avoidance of Double Tax Agreements.

What is the procedure of taxing a company(both foreign and local) in Singapore?2020-06-23T15:29:13+08:00

A company, regardless of whether it is a local or a foreign company, will be taxed on its:

  • income accruing in or derived from Singapore; or
  • income received in Singapore from outside Singapore
Why must Singapore have Tax exemptions on International air travel and shipping Income?2020-06-23T14:59:22+08:00

The countries to which these tax exemptions apply are heavily involved in shipping and air routes to and from Singapore. Therefore, these exemptions encourage the people of these countries to continue to engage with and conduct business activities in Singapore.

How to calculate DTR?2020-06-23T14:59:03+08:00

The amount of DTR is dependent on the nature of income and subject to the specific terms and conditions as specified in the DTA with the relevant treaty country.

DTR

= Lower of:

  • the actual amount of foreign tax paid; or
  • the amount of Singapore tax attributable to the foreign income (net of expenses)

For trade income

If the company has a permanent establishment (PE) overseas and the income is derived through that PE, the income would generally be taxed overseas. A DTR would be granted only if the income is also taxed in Singapore.

For passive income (e.g. interest, dividend etc)

Passive income derived from outside Singapore will be taxed in Singapore in the year of remittance.

Claiming Double Tax Relief – What is double tax relief (DTR)?2020-06-23T14:57:19+08:00

Foreign income earned by a Singapore company may be subjected to taxation twice. Once in the foreign country, and a second time when the foreign income is remitted into Singapore.

A double tax relief (DTR) is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax resident company to claim a credit for the amount of tax paid in the foreign country against the Singapore tax that is payable on the same income.

A company is a tax resident of Singapore if the control and management of its business is exercised in Singapore.

Why must Singapore have Tax exemptions on International air travel and shipping Income?2020-06-22T12:01:24+08:00

The countries to which these tax exemptions apply are heavily involved in shipping and air routes to and from Singapore. Therefore, these exemptions encourage the people of these countries to continue to engage with and conduct business activities in Singapore.

How to calculate DTR?2020-06-22T12:00:03+08:00

The amount of DTR is dependent on the nature of income and subject to the specific terms and conditions as specified in the DTA with the relevant treaty country.

DTR

= Lower of:

  • the actual amount of foreign tax paid; or
  • the amount of Singapore tax attributable to the foreign income (net of expenses)

For trade income

If the company has a permanent establishment (PE) overseas and the income is derived through that PE, the income would generally be taxed overseas. A DTR would be granted only if the income is also taxed in Singapore.

For passive income (e.g. interest, dividend etc)

Passive income derived from outside Singapore will be taxed in Singapore in the year of remittance.

Claiming Double Tax Relief – What is double tax relief (DTR)?2020-06-22T11:59:36+08:00

Foreign income earned by a Singapore company may be subjected to taxation twice. Once in the foreign country, and a second time when the foreign income is remitted into Singapore.

A double tax relief (DTR) is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax resident company to claim a credit for the amount of tax paid in the foreign country against the Singapore tax that is payable on the same income.

A company is a tax resident of Singapore if the control and management of its business is exercised in Singapore.

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