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Do Offshore Companies Pay Tax in Singapore?

Among the world’s top financial and economic hubs, Singapore has all the conditions for business success and efficient company incorporation. Low taxes in Singapore are another advantage of the city-state. With the current tax rates in Singapore, doing business in the jurisdiction is as easy as ABC. The same applies to local laws, potential sources of additional funding, and easy access to global markets.

Taxes for offshore companies in Singapore

Low taxes for Singapore residents is the greatest advantage the jurisdiction boasts. However, what about offshore companies? This issue is even simpler. Given the territorial taxation principle in Singapore, the answer to the question posed in the article title is clear. Companies incorporated in Singapore do not generally pay taxes.

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NB: does your company pay taxes that are way too high yet you are free to relocate the business? If so, the International Wealth experts can pick the best jurisdiction for you to incorporate an offshore company therein, with the primary goal to legally reduce taxes. If interested in the above offer, don’t hesitate to book a free initial consultation with the International Wealth seasoned consultants.

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Please mind that tax residency is not so easy to determine, and many offshore companies in Singapore end up being liable to pay taxes. An opposite situation when a business is a Singapore resident yet wishes to become a non-resident offshore company and improve its business efficiency is also possible.

Below, you will find the minimum requirements Singapore companies have to meet to maintain their offshore company status allowing them to avoid taxes:

  • no business transactions in Singapore in the last financial year
  • persons in charge of company management and control are based outside of Singapore
  • company or business profits haven’t been transferred to Singapore or originate outside Singapore.

Any Singapore-incorporated company that meets the above requirements is regarded as an offshore company and is not liable to pay taxes as such.

How to Determine Singapore Tax Residency

The matter is trickier than it may seem at first blush. Although a Singapore-incorporated company may have a certain tax status at incorporation, the latter may change alongside changes in the local business environment. Your need to keep it in mind to avoid business bottlenecks and major issues with company operations.

Here’s what you should know about the tax status of Singapore businesses: things to keep in mind

  • Main factor behind the tax residency is the company’s place of management. Typically, the BOD jurisdiction is used to determine it.
  • Holding companies are deemed non-resident if over 50% of shares therein are held by foreigners (with passive income in the case of individuals or with foreign-sourced income only).
  • In certain cases, such individuals may be considered tax residents of Singapore. The proof of the above is the Certificate of Residence, a.k.a. COR. Yet, again, it takes great pains to convince IRAS (that is, the Inland Revenue Authority of Singapore) of the following:
    • company is managed and controlled from Singapore
    • company has legitimate reasons to set up a Singapore office.
  • A business that is incorporated outside Singapore as well as local branch offices of foreign companies (if controlled by a parent company) are deemed offshore and do not pay taxes as such. It is on extraordinary occasions that they may get COR:
    • if the company has sufficient reasons to turn down Singapore as its incorporation jurisdiction
    • if a local branch office controls 100% of the company.

Below, you will find some additional terms and requirements you will have to meet to become a Singapore tax resident:

  • partnerships with Singapore companies that pay taxes or operate in Singapore
  • administrative services or support from an affiliated company in Singapore
  • company employs at least one executive director from Singapore (provided you do not use nominee services)
  • at least one key company employee (CEO, CFO, or COO) is a Singapore resident.

Tax residency advantages

There is a significant difference between offshore companies and non-resident ones. If you need to determine whether an offshore company needs to pay taxes in Singapore, these two may be treated as synonymous. NB: all companies and legal persons doing business in Singapore shall pay taxes. Therefore, Singapore tax residency is better in this case.

Below, benefits for Singapore tax residents are listed:

  • taxes are paid subject to double tax agreements (DTA)
  • taxes on foreign source dividends, profits from foreign branch offices, and income from foreign services are not paid
  • startups do not pay taxes.

Can you do business in Singapore without paying taxes? It all depends on the tax residency of a particular company and the jurisdiction such a company operates from. The obvious answer is however not always the right one. An offshore status is not always an indisputable advantage for a business. In many cases, it is better to pay small taxes and lawfully enjoy multiple benefits.

Below, the most important corporate taxes and the rates thereof are listed that Singapore residents and offshore businesses receiving profits in or transferring them to Singapore pay:

  • profit tax (without regard to benefits and privileges for residents) – 17%;
  • capital gains tax – N/A
  • VAT – 7%
  • withholding tax – 0% / 10% / 15%
  • foreign exchange control – N/A.

Take a look at the services popular with International Wealth customers about to set up companies and businesses in Singapore:

For any questions or comments you may have on the subject, you are encouraged to message the International Wealth industry professionals at [email protected].

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