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Why Is Singapore a Tax Haven?

12 min read|Last Updated: November 18, 2022|
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Tax havens are a controversial topic in the world today. Many people have been accused of using countries which are tax havens for their own financial gain. One of the countries which some people occasionally believe to be a tax haven is Singapore.

Before looking into whether Singapore is even a tax haven in the first place, the definition of what a tax haven is must be discussed.

Definition of Tax Haven

A tax haven is a location in which the companies that incorporated by foreigner and below are the main traits that would characterise a tax haven.

  • The company would most likely face minimal or no liability on tax due to the country’s foreign investment policies.
  • A tax haven may either be an independent country, or a territory owned by one. E.g. Labuan is a territory of Malaysia.
  • Population of Tax haven location is normally lowly populated and land size is relatively small.
  • There is a high level of secrecy which means that no information on the finances is given to the authorities such as Bank secrecy, lack of transparency when it comes to the tax system, ineffective exchange of information with other countries, bypassing financial regulations, laundering money, and even hiding from the criminal law

Is There More Than One Type of Tax Havens?

From a tax planning specialist, there are different categories of tax havens are as below:

  • No-tax havens
    Certain countries does not require companies to pay taxes at all. These are commonly known as no-tax havens.
  • Only income that derived locally is being taxed
    On the other hand, there are countries that only tax income that derived locally i.e., any income from local operations.
  • Tax treaties
    Another category of tax haven is countries that have signed tax treaties with other countries. In this way, investors do not get taxed twice for the same income.
  • Special privileges to foreign companies that incorporated in the nation
    There are also tax havens that offer special privileges to companies incorporated in their country.
  • Offer better benefits to international business
    You would also be able to find tax havens that offer better benefits to international businesses while others pose advantages to individuals.

Why Is Singapore Being Perceived as a Tax Haven?

The reasons which might give many people the impression is as followings:

  • Singapore is known for its low company tax rates of 17% and

  • The highest income tax rates on personal income is 22% (upped to 24% from 1 Jan 2023) where it is imposed on all taxpayers who earn at least S$320,000 every year. This is considered is one of the lowest personal income tax rates in the world for the maximum income bracket.

  • There is also no taxation imposed on capital gains.

  • There are tax incentives which have been introduced by the Inland Revenue Authority of Singapore (IRAS). Where all eligible companies in Singapore are permitted to reduce their tax burden by significant amounts.
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Singapore Tax Haven: Myths and Realities

Singapore Income Tax

Income tax in Singapore is divided into the corporate and personal.  Every Individual and company in Singapore are required to pay income tax.

Singapore practices a one-tier tax system which means that company charged 17% as part of corporate tax rate. For individual, the personal tax rate range from 0% to 24%.

Unlike tax haven company where ZERO tax rate and no tax being paid. In Singapore every Individual and company is required to pay income tax.

Singapore Company Tax Incentives

Singapore’s government has for many years worked on its intricate tax policy to bring to the point at which it is today. The tax rate imposed on wealthy foreign investors is relatively low, at just 24% for those in the highest tax bracket. The corporate tax rate in the country is 17% of all chargeable income earned by a company, this rate could be further reduced through certain incentives which IRAS has put in place include the partial tax and full tax exemption for start-up.

There are also tax exemptions offered to certain foreign banks, global trading companies, and offshore funds. These tax incentives have done so in order to stimulate the level of business activity conducted in the country. The lower cost of conducting business activities in Singapore would thus draw the interest of many a business owner.

Today, many business owners from all over the world have come to Singapore in order to establish and operate a business here These incentives have always been known to be one which is pro-business not for tax evasion or tax avoidance purposes.

Tightening Financial Regulations

In terms of safety and security, Singapore is deemed as the financial capital of Southeast Asia. This is one of the reasons why companies tend to utilise Singapore’s existing regulations in order to legally circumvent the system. After all, banking laws have always been private and thus, no information can be leaked out in any instance.

However, most individuals are not aware that there are circumstances and situations where such things do occur i.e. banks have the responsibility to provide confidential information. The Singapore government has also passed new regulations that allow the country to give information in matters arising from criminal affairs even if such information is confidential and private in nature i.e. banking information. Thus, the birth of The Common Reporting Standard (CRS).

The CRS calls on tax authorities across the world to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Since 1 January 2017, Singapore based Financial Institutions such as banks are required to:

  • Establish the tax residences of all their account holders.
  • Report to the Inland Revenue Authority of Singapore (IRAS) the financial account information of relevant account holders.

If the company is NOT a tax resident in Singapore or a tax resident elsewhere, the information will be exchanged with other jurisdictions under the CRS. The information consists of the details of financial assets they hold on to behalf of non-resident taxpayers and the income derived therefrom.

Similarly, overseas Financial Institutes must identify account holders who are Singapore tax residents and report their financial accounts to IRAS through their respective local tax authorities.

Tax Havens & Singapore

The overwhelming consensus regarding Singapore is that the country is not only a tax haven, but also one of the world’s most prominent. Studies and lists from all over the world and verified by some of the world’s leading financial and tax experts are virtually unanimous in declaring Singapore as a tax haven.

A study by Zucman in 2018 ranked Singapore as the world’s third-most dominant tax haven. The Financial Secrecy Index released its own set of rankings in 2018 as well. These rankings put Singapore in fifth place, while ITEP’s 2017 study ranked it seventh. Singapore also serves as the Asia-Pacific headquarters for many major technology firms from abroad. This is due to its favourable tax policies and relatively low corporate tax rates, as well as the fact that Singapore can also serve as a pathway to other financially viable locations in the region such as Taiwan and Hong Kong.

However, despite the international stigma that comes with being a tax haven, having tax haven status is not necessarily bad for a country. Many of the countries and locations which are classified as tax havens enjoy excellent standards of living, high levels of citizen welfare, high development and per capita income levels, and much connectivity and accessibility with the rest of the world. Countries such as the Netherlands, Switzerland, Ireland, the United Kingdom, and Luxembourg are some of the world’s most developed and prosperous. Such is also true of Singapore.

Nevertheless, regardless of Singapore’s status as a tax haven, the fact that Singapore’s government has gone to such lengths to enhance its status as an international business centre and a hub for global commerce. This will only encourage business owners and investors from all over the world to continue to conduct business activities there.

Tax Haven Company Formation

An offshore company is one that is registered in a particular jurisdiction, but one does not even have to travel to the specific country of incorporation to register the company. This is because, in such jurisdictions, there are many agents whose sole purpose is to ensure that businesses are registered as offshore companies without presenting undue obstacles to the subscribers. This makes the process of forming companies extremely easy.

Tax Haven Companies – Tax-free

The other major feature of the offshore company is the fact that it is not normally required to pay taxes. However, if a company can do business within the jurisdiction then that company must pay taxes on the amount of money that they receive from within the jurisdiction. This is the case in Panama or BVI

Tax Haven Companies – Low-tax

Apart from jurisdictions that guarantee zero tax for offshore companies, there is another category of tax haven that are known as low tax havens. These include countries such as Barbados, Gibraltar, and Singapore. In a country like Barbados, an offshore company is charged on the total annual profits. The tax rates range between 1% and 2.5%. This corporate tax is charged regardless of where the income was gotten from.

In cases where an offshore company has been incorporated in is a pure tax haven, the company will be exempt from taxes such as

  • Withholding tax,
  • Inheritance tax,
  • Capital gains tax,
  • Gift Tax, and
  • Estate tax.

The governments of tax haven jurisdictions usually receive help from tax haven companies by charging the companies an annual fee. This fee may be dependent on the level of share capital, or it may be fixed depending on the jurisdiction in which the offshore company is operating.

 Incorporating a Tax Haven Company

The key is to find a tax haven that is most suitable for

  • Your business operations in term level of bureaucracy and legal obligations
  • Is it an economically stable country which is neutral politically, adopt a free trade policy, ability to offer privacy to corporations based there,
  • Ease of which each business can conduct their operational activities.
  • Ability to open a bank account

The days are gone where incorporate a Zero Tax rate company as the landscape of international planning has changed where all tax administrations are working together to ensure that taxpayers pay the right amount of tax to the right jurisdiction.”. 

As a result, bank account opening for TAX HAVEN COMPANY is very difficult or almost impossible as the banks do not want to undertake high cost of compliance and reputation risk. Therefore, it may be a better choice to incorporate an offshore Singapore company.

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What are tax havens?2021-02-19T17:53:44+08:00

A tax haven is a country, or a state, or a territory where taxes are charged at an exceptionally low rate, and sometimes not at all!

Offshore Banking, Sizable Business?2020-06-23T15:13:00+08:00

Although incomplete, statistics point out that offshore banking is a large business. In 2007, the OECD predicted that offshore capital amounts between $5 trillion to $7 trillion, and up to $21 trillion to $32 trillion sheltered in unreported tax haven around the world.

Now, this is where it gets interesting. If this assets earns 3% each year, and such capital were tax levied at 30%, it would still create a wealth between $190 billion to $280 billion in tax revenues, which is more than any other tax shelters.

How many Business Licenses are required by an Offshore Company?2020-06-23T15:12:46+08:00

The number of business licenses required by any company in Singapore is entirely dependent on the type of business activities to be conducted. This is true of offshore companies as well. Thus, there is no set number of business licenses required by an offshore company – it may be as few or as many as necessary.

Why must Singapore have Tax exemptions on International air travel and shipping Income?2020-06-23T15:12:16+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.

Which countries are popular for tax havens?2021-02-19T17:54:06+08:00

Popular tax havens countries for investors are the British Virgin Islands, Taiwan, and Bermuda.

What is the example of tax haven advantages?2021-02-19T17:54:19+08:00

Business benefits from tax reduction is an example of tax haven advantages. In tax haven countries, investors pay very little or even zero tax for taxable income.

What is the example of tax haven disadvantages?2021-02-19T17:54:36+08:00

Some disadvantages of tax haven are it’s difficult for a business to open a business bank account and it’s hard for the business to attract outside investors.

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