Offshore company in Singapore

General information

Singapore is a key destination because of its position at the air gates of the Asiatic flow.  Benefiting from a reputation thanks to its economic success, Singapore is often cited as a model for its urbanization which is intertwined beautifully with magnificent vegetation.

Singapore is the fourth financial center of the world, as a leader in modern infrastructure and a technological tycoon will be a prestigious showcase for your business. With a favourable taxation, Singapore offers a tax system based on the territorial principle – what does this mean? You pay income tax if you have income from Singapore’s territory. By comparison, in the case of a Polish company, all income is taxed, regardless of whether it comes from the territory of the Republic of Poland or not. Singapore is especially recommended for holding and commercial companies.

Singapore is suitable for all business activities. It is a location offering attractive tax terms and a unique reputation. Singapore uses various incentives for foreign investors such as:

• International Headquarters Award (IHQ) – allowing foreign companies that decide to manage their business from Singapore to reduce the tax to 15% (from 17%).
• Global Trader Programme – allows companies registered in Singapore and involved in international and regional trade (turnover over USD 100 million) to reduce their income tax;
• Economic Development Board of Singapore – may consider certain activities that are not present in Singapore to a sufficient size as a priority. Companies conducting such activities can count on tax reliefs for up to 15 years;
• Affluent individuals with personal assets of a net worth of at least $20 million Singaporean dollars can, under certain conditions, obtain permanent tax residence status and benefit from attractive taxation.

Company registration procedure

Registration of the company:

• Reservation and approval of the company name in the commercial register.
• Submission of the required documents together with the registration application to ACRA.

Required documents:

• Passport of the beneficial owner of the company;
• Utility bill (electricity, gas, water) of the beneficial owner;
• Bank opinion on the beneficiary.

Shareholders:

A minimum of one shareholder is required to set up a company, with a maximum of 50 shareholders. Foreign shareholders are allowed, at least 51% of shares in the company are required to be owned by a Singaporean resident.

Management Board:

At least one director is required to run the company, which may be a shareholder. At least one director must be a Singaporean resident. It is also necessary to appoint a secretary (who must also be resident) if the company has only one director, he cannot be a secretary at the same time.

Registered office:

The company must have a registered address in Singapore, which will appear on the company documents and postal details of the company. It is possible to use the services of a virtual office with a dedicated telephone number.

Time to set up a company:

The time to establish a company is about 2 weeks.

Minimum capital:

No minimum capital requirements.

Taxes and finances

Singapore’s corporate tax rate is one of the lowest in the Asia Pacific region. Currently the corporate tax rate in Singapore is 17%. Singapore’s tax system is territorial in nature. This means that income tax is levied on the net income of companies from sources located in Singapore and on income from foreign sources if transferred to Singapore. Non-resident Singaporean companies as well as other business activities are taxed in the same way.

When generating taxable income, costs incurred wholly and exclusively for the purpose of generating income may be deducted from income. In general, costs will not be deductible if:

• it is prohibited under the Income Tax Act;
• it is in kind; or
• it is a contingent liability.

There is no capital profits tax in Singapore. Singapore has a one-tier corporate tax system. Under this system, income tax paid on a company’s normal taxable income is a definitive tax and shareholders are not required to pay tax on dividend income. Singapore does not impose withholding tax on dividends. Interest, royalties or rental payments to non-residents are subject to 15% withholding tax.

Full tax exemption

Full corporate income tax exemption will be granted for normal taxable income of a qualifying company up to $100,000 for the first three consecutive years in which the company is required to account for tax. In addition, an additional 50% tax exemption will be granted for further taxable income up to $200,000. To qualify for a full corporate income tax exemption for a given year under this program, the company must:

• be a company incorporated in Singapore
• have tax resident status in Singapore !!!
• have no more than 20 shareholders in the base period for which the tax is to be paid in a given year;
• its shareholders must be individual entities in the base period for which the tax is to be paid in a given year.

The effective tax rate can therefore be summarised as follows:

• First $100,000 in income – none
• Next $200,000 in income – 8.5%
• Tax rate on income in the range exceeding $300,000 – 17%.

Companies that do not qualify for full tax exemption will be taxed on the basis of the partial exemption from corporate tax.

Partial tax exemption

The partial exemption of a company’s taxable income of up to $300,000 (other than Singaporean dividends) subject to corporation tax at the normal rate is as follows:

• up to the first $10,000, 75% of the income is tax exempt;
• up to a further $290,000, 50% of income is tax exempt.

Thus, the effective tax rate after the first three years (in the case of a company that does not qualify for full tax exemption) can be summarized as follows:

Taxable income / effective tax rate:

• First $10,000 – 4.5% rate
• Next $290,000 – 8.5% rate
• Amount above $300,000 – 17% rate

A company resident in Singapore may benefit from tax exemption on foreign dividends, foreign branch profits and foreign service income that are transferred to Singapore. Prior to the change, any income earned or received by a company resident in Singapore was subject to income tax in Singapore. To qualify for foreign source income tax exemption:

• the highest corporate tax rate in the foreign country (base rate) from which the income is derived is at least 15% in the year in which the income is derived, and
• income from foreign sources has been taxed in the country from which it was obtained

Definition of foreign income:

Dividends are considered to be of foreign origin if they are paid by a company that is not a tax resident in Singapore. This rule applies even if the dividend received may be income from a commercial or business activity conducted in Singapore by a person resident in Singapore. In addition, there is no requirement to hold the shares to be exempt from foreign dividend tax.

A foreign branch refers to the business activities of a company registered as a branch (i.e. it does not apply to a company established abroad) in a foreign jurisdiction. Foreign branch profit refers to the profit from the commercial or business activities of a foreign branch. It does not include the non-commercial income (such as interest income or copyright income) of the foreign branch.

Service income (as distinct from labour income) refers to professional, technical, advisory or other services provided by a person in the course of his/her commercial, professional or business activity. Profit from services is considered to come from abroad if the service is provided through a permanent place of work (of running a business) in a foreign country.

As mentioned above, the tax system in Singapore is a territorial system and foreign income is taxed in Singapore if transferred to Singapore. Foreign income that remains outside Singapore is not taxable in Singapore. In addition to the tax exemption of income from foreign sources mentioned above, Singapore is also attractive as a location for holding company because it grants a tax credit for the tax paid abroad. This means that although dividends received in Singapore by Singaporean resident companies are taxable in Singapore, a tax credit may be granted for the foreign tax paid. Tax reliefs may include foreign tax paid on the corporate profits from which the foreign dividend has been distributed. Therefore, when foreign tax credits exceed 20% in total, Singapore is not required to pay dividend tax.

These reliefs make Singapore an attractive place for foreign investment. If income from foreign sources has already been taxed 18% or more in another country, the company does not pay any tax on that income in Singapore and may pay dividends from that income to its shareholders on a tax-exempt basis.

Since Singapore does not tax capital profit, additional benefits may arise from the sale of an investment in a foreign company.

A company is resident in Singapore if central management and control of the company’s business is exercised in Singapore. Given that such management and control is usually entrusted to the board of directors, the company is generally considered to be resident in the country where its board of directors meets. Arranging board meetings in Singapore is most often advantageous as resident tax rates are usually lower than for non-residents. In addition, non-resident companies do not have the right to benefit from double taxation treaties.

Double taxation convention

Singapore has signed a double taxation treaty with many countries, including Poland.

Other information

Anonymity and Confidentiality

The company’s board of directors may be of any origin, and the services of the so-called nominated directors responsible for managing the company will provide you with additional confidentiality. Nominee shareholder services are another way to guarantee confidentiality and anonymity.

Audits

Recent changes in legislation concerning companies in Singapore have reduced the administrative burden on private companies, with the result that fewer companies will need to conduct audits. The amendment to the Companies Act was adopted by the Singaporean Parliament on 8 October 2014, introducing a wide range of amendments to the Singaporean Companies Act (CA). The changes will be implemented in two phases: the first package of amendments will enter into force on 1 July 2015; the second package entered into force in the first quarter of 2016. As part of the first phase of the amendments to the Singapore Companies Act, the amendment of 2014 (2015 notice of entry into force), a significant number of companies that had previously required an audit will no longer need one. The amendments are effective for financial periods beginning on or after 1 July 2015.

Previous audit requirement

Before the amendments to the Companies Act, the company had to carry out control if it:

• had at least one shareholder – a legal person;
• had more than 20 shareholders; or
• annual revenues exceeded SGD 5 million

Inactive businesses have been exempted from this requirement.

New regime

Small enterprises are exempted from the obligation to carry out audits. The amended Companies Act introduced a new concept of “small enterprise”, which is exempt from the audit obligation. Under the amended Act, a company may be exempted from the audit requirement if it qualifies as a “small enterprise”. A company qualifies as a “small enterprise” for a given financial year if it has met the required criteria within the last two financial periods. A company ceases to qualify as a “small enterprise” if it has not met the required criteria within the last two financial periods.

Definition of a small enterprise

Criteria to be met in order for a company to qualify as a ‘small enterprise’:

• It is a private company; and
• It has met at least 2 of the 3 criteria in the last 2 financial periods:
• total revenue for the financial period ≤ SGD 10 million
• total assets at the settlement date of the financial period ≤ SGD 10 million
• number of employees at the settlement date of the financial period ≤ 50;
• If the company belongs to a group of companies, the above test must also be met by the group (as a whole). In other words, the group must also qualify as ‘small’, fulfilling two of the three quantitative criteria on a consolidated basis in the previous two financial periods.

Previously, the audit requirement applied to any company with a shareholder. This rule no longer applies, so a small enterprise can benefit from the exemption, regardless of whether it has a shareholder or not. Exempted companies are still obliged to submit their financial reports to the Accounting and Corporate Regulation Authority (ACRA).

What it means in practice:

Many companies will benefit from the exemption from the audit obligation. This should significantly reduce law compliance costs, especially for companies in their first years of business. Auditors of private companies may resign by giving notice. Under previous legislation, auditors could not resign before the end of their term of office, unless the company has found a deputy auditor. Under the new rules, auditors may resign by giving notice to the company and the company has three months to replace them. This makes it much easier for private companies to change auditors. The change does not affect the auditors of listed companies or their subsidiaries, who need the approval of the Accounting and Corporate Regulatory Authority if they want to resign before time.

Changes in share issues

• Private companies can provide financial assistance. Prior to the amendment, the Companies Act prohibited companies from granting financial assistance for the purchase of shares in the company itself or in its holding company. The ban has been lifted and a private company can now provide financial assistance for this purpose. However, the prohibition on financial assistance shall continue to apply if the company or any of its holding companies is a public company.
• Companies may issue shares free of charge – the company may now issue shares without any consideration, provided that its memorandum and articles of association permit so. This amendment should reduce the administrative costs involved.

What this means in practice:

It is easier for private companies to issue shares to employees or third parties outside the employee share system. It will also be easier to carry out transactions in which equity – business swaps or equity-debt swaps (so-called swap transactions) are part of the remuneration, reducing transaction time and legal costs.

Change of company director and secretary duties

Lenient disclosure of information by nominee directors. Under the previous provisions, the nominee needed special management approval to disclose to the nominating shareholder the information he held as a director or employee of the company. Now, the nominee may disclose such information with the general approval of the board, provided that disclosure is not detrimental to the company. What does it mean in practice? This should facilitate the transfer of information within large groups of companies, improving management efficiency.

The company secretary does not have to reside at the company’s premises.

This change concerns private company secretaries. If it is easy to contact the secretary by phone or other fast communication method, he does not have to be physically present at the company’s premises. What does this mean in practice? This change should reduce the costs of companies that do not keep a register of members at the company’s headquarters.

CGO Legal cooperates with a reputable law firm based in Singapore specializing in serving Polish residents – our clients – we invite you to contact us.