Tax Resident Vs Non-Resident of Singapore (Company)
Tax residency is a crucial determinant for companies operating in Singapore, impacting their tax obligations and benefits. In Singapore, tax residency hinges on where the control and management of a company’s business are exercised. This article aims to dissect the nuances of tax residency in Singapore, elucidating its implications and conditions.
Control and Management
Singapore tax law stipulates that a company’s tax residency is contingent upon where its business’s control and management are conducted. Simply put, if a company’s strategic decisions are made in Singapore, it is considered a tax resident. Conversely, if control and management occur outside Singapore, the company is deemed a non-resident.
The location of board meetings, where strategic decisions are crafted, primarily determines control and management. However, the landscape has evolved to accommodate virtual meetings. A recent amendment highlights that virtual meetings may be considered as having strategic decisions made in Singapore. This includes having at least 50% of decision-making directors physically present in Singapore or the chairman being physically present during the meeting.
Factors Determining Tax Residency
Several scenarios influence a company’s tax residency status. For instance, if board meetings are held outside Singapore, or if the local director merely acts as a nominee without making strategic decisions, the company may not be considered a tax resident. Similarly, the absence of key employees or the place of incorporation does not necessarily dictate tax residency.
Foreign-Owned Investment Holding Companies
Foreign-owned investment holding companies, with passive or foreign-sourced income, are generally not deemed tax residents, operating under instructions from foreign entities. However, certain conditions could warrant their classification as tax residents, despite their foreign ownership.
Non-Singapore Incorporated Companies and Singapore Branches
Non-Singapore incorporated companies and Singapore branches of foreign entities are controlled by their foreign parent and are typically not tax residents of Singapore. Nevertheless, meeting specific criteria may lead to their classification as tax residents.
Impact on Corporate Income Tax
Tax residency status significantly influences corporate income tax liabilities and benefits. Tax-resident companies enjoy exemptions on specified foreign income, especially from jurisdictions with Avoidance of Double Taxation Agreements (DTAs) with Singapore. Additionally, tax exemptions are granted for new start-up companies, fostering an environment conducive to entrepreneurship.
Nevertheless, a tax resident company can enjoy the tax exemption on specified foreign income such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income. Last but not least, a tax resident company can claim foreign tax credit for those taxes paid in foreign jurisdiction against the Singapore tax payable on the same income.
Conclusion
In conclusion, understanding tax residency in Singapore is pivotal for companies to navigate their fiscal obligations and leverage available benefits. By comprehending the implications of tax residency, businesses can optimize their tax strategies while ensuring compliance with Singaporean tax laws.
Disclaimer: This article is for informational purposes only and does not constitute any professional advice. Feel free to contact us to consult with our professional advisors team for personalized advice and guidance.
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