Singapore, The Gateway To Asia – A Brief Guide For Doing Business In Singapore

With a land area of 721 kmq, Singapore is one of the smallest nations of the world yet consistently ranked among one of the easiest places for doing business[1].

Strategically located at the very heart of Asia, the City-State has established itself as global gateway into other emerging markets in the Region and many global international enterprises and private investors have chosen to set up their bases here. Whether you are a foreign individual, a small and medium company or a multinational corporate, Singapore may benefit your business with its attractive tax system and respect for intellectual property rights. Moreover, developed infrastructures, skilled workforce and political stability further reassure any foreign investors willing to expand in the Region on a long-term basis.

[1] The World Bank Group, Doing Business Report 2019

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This guide aims to provide a general overview for doing business in Singapore. The information provided is general in nature and should not be relied upon as tax, corporate or professional advice.

  1. GENERAL

The most common structures for doing business in Singapore are the following:

a) Representative office (‘RO’): RO is a preferred short-term arrangement for a foreign corporation willing to assess the Singapore business environment. A RO is not allowed to generate profits, and it may operate for a maximum of three years, thereafter the foreign corporation must either set-up a permanent business structure or terminate its presence in Singapore.

b) Branch Office: Branch Office is an extension (and not a subsidiary) of a foreign corporation: as such it is not a separate legal entity and its debts and liabilities are part of the debts and liabilities of the foreign corporation. It is taxed as non-resident entity without inheriting any tax benefit in Singapore.

c) Private company limited by shares: this entity has separate legal personality in Singapore. It can benefit from any tax incentives and scheme granted by the Singapore Government.

In comparison all the mentioned business models, private company limited by shares is preferred for foreign investors since it is (i) a separate legal entity, (ii) suitable with the scale of most business activities; and (iii) limited liability for shareholder. Below is the detail information of private company limited by shares.

  1. THE PRIVATE LIMITED COMPANY

A private limited company is a business entity registered under the Companies Act (Cap 50) (the ‘Act’), where the number of shareholders is limited to 50 or less and where the right to transfer shares is restricted. An exempt private company has no more than 20 individual shareholders and none of its shareholders is corporations.

2.1 Incorporation requirements

  • Shareholder: Have at least one shareholder, who can be a natural person or a corporate entity. No more than 50 shareholders, otherwise it will be a public company.
  • Capital: Minimum paid up capital is SGD 1.00. It can be increased at any time.
  • Director: At least one director that must be ‘ordinarily resident’ in Singapore, e being a Singaporean resident (Citizen of Singapore or Permanent resident). Employment Pass (EP) holder may be accepted as director if employed by the company concerned. EP holder willing to undertake directorship position in another company will have to apply for a “Letter of Consent” (LOC) from Ministry of Manpower (MOM), before their registration with Accounting and Corporate Regulatory Authority (ACRA)
  • Address: A physical (residential or commercial) local address must be provided as the registered address of the company. Mailbox are not accepted.
  • Secretary: Within six months of incorporation, a Singapore based company secretary must be appointed; the secretary cannot be also a director of the company;
  • Auditor: Within 3 months from the incorporation day, the company must appoint an auditor, except for small companies which are exempt from auditing obligation.

Further to the usual corporate books, private companies are required to maintain Beneficial Ownership (BO) information in the form of a Register of Registrable Controllers, and to make this information available to government agencies upon request. A Controller is defined as an individual or a legal entity that has a “significant interest” in or “significant control” over the company.

2.2. Annual Compliance:

(a) The Annual General Meeting: A company must hold an annual general meeting (AGM) within 6 months from the end of the financial year. At the AGM, the company must lay its financial statements before the shareholder(s) for approval. Under certain circumstances, private companies do not need to hold AGMs if all members have approved a resolution to dispense with the holding of AGMs.

(b) Filing annual return and tax: Company director or company secretary must file the annual return with the ACRA within 30 days after the AGM.

Enterprises in Singapore must conduct the following tax filing with the Inland Revenues Authority in Singapore (IRAS):

  • Estimated Chargeable Income (ECI): Within 3 months after the end of the financial year, unless the company does not need to submit ECI (i.e., because it has no revenues).
  • Tax Return: within 30 November of the following year, or 15 December for e-file.
  1. TAXATION: CORPORATE TAX

Singapore Companies and branches are subject to Singapore corporate income tax on all income derived from sources in Singapore, and on income from sources outside Singapore if received in Singapore. Capital gains are not taxable in Singapore.

3.1 General corporate tax

  • Corporate Income Tax:

A company is taxed at a flat rate of 17% on its chargeable income. Income tax must be paid upon the income accruing in or derived from Singapore or received in Singapore from an overseas country in respect of :

  • Gains or profits from any trade or business;
  • Income from investment such as dividends and interest;
  • Royalties, premiums, rents and any other profits from property;
  • Other gains of an income nature.

Foreign-source income is subject to tax in Singapore only if that income is received in Singapore and not falling under the provision of the tax exemption for Foreign-Sourced Income.

All companies can enjoy a partial tax exemption on the chargeable income, as below indicated:

 

From Year of Assessment 2020 onwards

Chargeable Income Exempted PercentageExempted Income
First S$10,000@75%=S$7,500
Next S$190,000@50%=S$95,000
Total S$200,000=S$102,500

 

From Year of Assessment 2019 and before

Chargeable Income Exempted PercentageExempted Income
First S$10,000@75%=S$7,500
Next S$290,000@50%=S$145,000
Total S$300,000=S$152,500

If a company incurs a loss carrying on trade and business, that loss can be deducted against the next year statutory income (if any). Under certain condition, loss can be brought forward and deducted without limitation in time. However, it must be deducted in the first available year where there is a statutory income.

  • Capital gain

Singapore imposes tax on trading income. Gain derived from investment, such as the sale of property, shares and financial instruments are not taxable in Singapore. Alienation of property from “trading in properties” might be taxed under certain circumstances.

  • Dividend

All dividends paid by resident companies are exempt in the hands of shareholders, either if paid out in Singapore or overseas.

Foreign dividends are offshore sources of income and therefore not subject to tax until they are remitted to Singapore. Once remitted to Singapore, the foreign dividends are in principle taxed at a rate of 17% unless the foreign dividend is tax exempt under the foreign exempt dividend provisions of the income tax law.

  • Withholding tax

Singapore has a withholding tax regime to ensure the collection of income tax from non-resident on income which are sourced or deemed sourced in Singapore. The Withholding tax rate depends on the type of income, the status of the recipient and the Double Taxation Agreement signed with the country of residence of the recipient of the income. The most common income subject to withholding tax are the following:

a) Interest paid by Singapore company: interest, commissions, fees or other payments in connection with any loan or indebtedness are subject to a final withholding tax of 15% on the gross amount, unless reduced under a more favorable tax treaty.

b) Royalties paid by Singapore company: Royalties paid to non-resident are generally subject to a final withholding tax of 10% on thee gross amount of the royalty, unless reduced under a more favorable tax treaty.

c) Fees for technical assistance and management assistance paid by Singapore company: fees paid in connection with the application of technical information or with the assistance in the management of any trade are subject to a non-final withholding tax of 17%, unless reduced under a more favorable tax treaty.

d) Dividends paid by Singapore company: Singapore does not levy any withholding tax on dividends.

3.2 Startup Tax Exemption Scheme

Tax exemptions applies to certain newly incorporated companies for the first three consecutive Years of Assessment following the incorporation if all the following conditions are met:

  1. the company must be incorporated in Singapore;
  2. the company must be tax resident in Singapore for such Year of Assessment (YA); and
  • the company must have less than 20 shareholders (with at least one individual shareholder holding at least 10% of the issued ordinary shares).

The tax exemption scheme is as follow:

 

From YA 2020

Chargeable Income Exempted PercentageExempted Income
First S$100,000@75%=S$75,000
Next S$100,000@50%=S$50,000
Total S$200,000=S$125,000

 

From YA 2019 and before 

Chargeable Income Exempted PercentageExempted Income
First S$100,000@100%=S$100,000
Next S$200,000@50%=S$100,000
Total S$300,000=S$200,000


3.3 Goods and Service Tax

Goods and Service Tax or GST is a broad-based consumption tax levied on nearly all supplies of goods and services in Singapore, as well as on the import of goods (collected by Singapore Customs). In other countries, GST is known as Value-Added Tax.

The standard GST rate is 7%; however, goods that are exported and international services are zero-rated, while provision of financial services and lease of residential properties are exempt.

Every company is liable to register for compulsory GST if the annual value of the taxable turnover is more than 1 million SGD or it is expected to be more than this threshold.

You may also choose to voluntary register for GST by submitting the request to IRAS, that can approve or not an its own discretion.

  1. IMMIGRATION

Singapore encourages foreigners to stay and to work in Singapore with different types of visa. For foreign professionals, there are Employment Pass, Personalized Employment Pass or foreign investor can apply for Entrepass to initiate their investment in Singapore.

Beside Entrepass, Singapore also grants to foreign investor the Singapore Permanent Residence Status (PR) through the Global Investment Programme (GIP).

There are two available investment options for foreign investors: (i) Invest at least S$2.5 million in a new business entity or in the expansion of an existing business operation; (ii) Invest at least S$2.5 million in a GIP fund that invests in Singapore based companies.

There are, however, only 22 industries (i.e. media & Entertainment, medical technology, professional services, family office and financial services, etc.) where foreign investors must invest to apply for PR. To qualify for these two investment options, the investor must have a sustainable business track record (i.e. proved by financial statements of the last 3 years of the investor’s company) and a successful entrepreneurial background.

The GIP can help investor family, including spouse and unmarried children under 21, to also become PR. For unmarried children above 21, they can apply for the long-term visit pass scheme.

Fidinam Singapore Team

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