What are the factors you should be aware of so that you do not have unnecessary guests like tax officers come knocking on your doors one day?
The effectiveness of a Singapore registered company’s tax structure depends to an extent on the taxation rules in the home country.
A properly Singapore structured company in Singapore should have its own management and control that would ensure that the company could not be treated as a resident of the home country.
This is an important consideration particularly for IT entrepreneurs based in Australia, where a company that is incorporated in Singapore can still be considered an Australian company if the management and control of that company remains with the IT entrepreneurs in Australia.
An anti-avoidance rule, known as the controlled foreign company (CFC) rules in the countries of the IT entrepreneurs may seek to tax the profits in the Singaporean holding company and principal company before these Singaporean companies distribute their dividends to the IT entrepreneurs. This aspect has to be managed by relying on the exceptions that are provided for in CFC rules in the IT entrepreneurs’ home countries.
For IT entrepreneurs in Australia, income of the principal company would qualify for an exemption under the CFC rules in those countries as it earns income from active business.
Singapore taxes the income earned from the contracts with customers when the income is repatriated to Singapore. A certain amount would have to be repatriated to meet the operational costs of the Singaporean company – this amount, less any tax deductible expenses, would be taxable in Singapore.