Singapore Holding Company
An Ideal Intermediate Holding Company for
Strategically located in Asia, Singapore is well known as a location which promotes ease in the establishment of new business. In principle, taxation should not be the only factor in deciding to locate a holding company in a specific jurisdiction.
However, Singapore’s business-friendly and pragmatic tax system plays an important role when it comes to attracting foreign investors. In particular, Singapore is well positioned for outbound investments, notably for entering the Asian emerging markets.
Not only is Singapore’s geographical location of benefit to businesses seeking to enter Asian markets but there are a variety of tax benefits that businesses can also avail.
Newly Incorporated Companies
As Singapore has adopted the territorial concept of taxation, income tax is imposed on Singapore-source income at 17% and with certain exceptions, on foreign-sourced income received in Singapore.
In particular, start-up companies benefit from an interesting tax exemption scheme.
If a newly incorporated Singapore company has no more than 20 shareholders and at least one shareholder is an individual beneficially holding at least 10% of the issued ordinary shares of the company, the company can claim for full tax exemption on the first SGD 100,000 of normal chargeable income in each of its first 3 consecutive financial years. A further 50% exemption is given to the next SGD 200,000 of the normal chargeable income for each the first 3 consecutive financial years of the company.
As a consequence, the tax rate for a chargeable income of SGD 300,000 for a start-up company is 5.67% for the first 3 years.
Thereafter, a partial tax exemption is given for normal chargeable income for the first SGD 300,000 of up to SGD 152,500 (75% exemption for the first SGD 10,000 and 50% exemption for the next SGD 290,000 = 147,500), resulting in an effective tax rate of 8.36%, which is still one of the lowest and most competitive rates in the world.
There is no tax on capital gains in Singapore. In effect, gains arising from the disposal of investments or asset of the Singapore Company are not subject to any tax.
Foreign Source Income
Foreign-sourced dividends received in Singapore are exempt from tax subject to the following conditions:
- a) The foreign income concerned must be received from a jurisdiction with headline tax rate of at least 15%; and
- b) The income must have been subject to tax in the jurisdiction from which it is received
If any of these conditions are not fulfilled, it may be possible for the Singapore Company to obtain a foreign tax credit.
Under the one-tier corporate tax system, corporate tax paid is a final tax. Thus, dividends paid by the Singapore company are not subject to any withholding tax, nor to any tax in the hands of the shareholders.
CFC & Thin-Capitalization
There are no CFC or thin-capitalization rules in Singapore.
Singapore is well known for having an extensive network of more than 65 double taxation agreements, such as with China, India, Japan, Taiwan and also with Switzerland, France, Israel and Italy.
Treaty benefits include the availability of reduced withholding tax rate or exemption from withholding tax on certain classes of income, such as dividends, interest, royalties.
In addition, a Singapore company can reduce or eliminate withholding tax on the repatriation of profits.
Mutual Agreement Procedure
Singapore has adopted the Mutual Agreement Procedure (MAP) in its tax-treaties, which offers a dispute resolution channel in the event of transfer pricing adjustments. Thus, it allows both the Inland Revenue Authority in Singapore (IRAS) and the respective foreign tax authorities to consult with a view to resolving conflicting situation of taxpayers.
Singapore holding companies can apply for Headquarter incentives. The purpose of those incentives is to encourage multi-national companies to locate either their regional Headquarter (RHQ) or International Headquarter (IHQ) in Singapore.
Other incentives, such the Pioneer Status or Development and Expansion Incentives are also available.
On top of local advantages such as political stability and low statutory compliance costs, some additional important non- tax related considerations at the international level should be kept in mind when setting-up a holding company in Singapore.
Singapore has signed over 30 investment guarantee agreements: an Investment Guarantee Agreement (IGA) is designed to promote greater investment flows between the two countries by providing a legal framework that clearly sets out investment norms and protection when investing in the other country.
The usual provisions of an IGA include the principle of fair and equitable treatment, the principle of non-discrimination (National Treatment and/or Most Favored Treatment), compensation in the event of expropriation, free transfer of funds, and investor-state dispute settlement mechanism.
Singapore has also concluded Free Trade Agreements (FTA) with ASEAN jurisdictions amongst others. An FTA is a legally binding agreement between two or more countries to reduce or eliminate barriers to trade in, or facilitate the cross border movement of goods and services between the territories of the parties.
With FTAs, Singapore-based exporters and investors stand to enjoy a myriad of benefits such as tariff concessions, preferential access to certain sectors, faster entry into markets and Intellectual Property (IP) protection.
Singapore has ideally positioned itself as a major hub for international companies in Asia. In effect, many tax and non-tax related incentives are offered in order to attract international companies and also talented professionals.
5 Reasons to Set Up a
Holding Company in Singapore
A holding company owns stock in other companies. It doesn’t provide goods and services of any kind. This makes it easy to set up a holding company virtually anywhere. However, there are still some considerations to be made before choosing a location for your holding company. The right location can offer many benefits to your company and allow it to grow exponentially. Singapore is one such location. Here are 5 reasons to set up a holding company in Singapore.
A Growing Economy
Singapore is a growing economy with a lot of foreign investment coming in. This is mainly due to the benefits provided here. Companies in Singapore can avoid double taxation and enjoy lower tax rates.
These benefits have made Singapore a viable option for a lot of foreign investors, thus driving up the economy. If your holding company resides in Singapore, then it can benefit by being a part of an economy that is slowly on the rise. This can offer economic stability that a lot of other nations may not be able to provide and safeguard your company against economic crisis.
Singapore Trade Treaties DTA FTA
Avoidance of Double Taxation
This is perhaps the biggest benefit of setting up a company in Singapore. Double taxation is a problem in countries like the United States, where they implement a worldwide taxation system. However, in Singapore you can avoid that. This is because Singapore has signed Avoidance of Double Tax Agreements with over 70 countries. The details of this agreement vary from country to country. In any case, your company won’t be burdened by double taxation. This can give you the edge that you need to compete on a global scale.
Attractive Tax Rates
Avoidance of double taxation isn’t the only benefit you get from Singapore. You also get one of the most attractive corporate tax rates in the world. Marginal corporate tax rates in Singapore can be as low as 17%, and with various schemes, the effective tax rate can be lowered further. All this makes Singapore one of the best places to establish your holding company. The amount of money you save by avoiding double taxation and paying less tax can be reinvested in your company. There are very few places around the world where you can get both these benefits.
We’ve already established the many benefits of setting up a holding company in Singapore. Not only is it easier to set up a company here, but it’s also more profitable. These are two things that any entrepreneur wishes for while starting a business. We reckon there aren’t many places around the world where you can receive such benefits.