Singapore River & Merlion

Singapore Tax Residency Status

Singapore has a relatively simple, predictable and low tax system as compared to the rest of the World. It has one of the most tax-friendly economies supplemented by numerous tax schemes and incentives by the government to help companies grow their business. In addition, numerous double taxation agreements (“DTA”) signed between Singapore and foreign tax jurisdictions further enhances its attractiveness for investment holding. When a Singapore company earns foreign income from a treaty partner, the company may wish to claim the benefits under the DTA that entitles the company not to pay tax or to pay tax at a reduced rate in the foreign jurisdiction.

How to determine Tax Residency Status?

According to Income Tax Act, the tax residency of a company is determined by where the business is controlled and managed.  The residency status of a company may change from year to year. A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. “Control and management” is the making of decisions on strategic matters, such as those on company policy and strategy. Where the control and management of a company is exercised is a question of fact. Typically, the location of the company’s Board of Directors meetings, during which strategic decisions are made, is a key factor in determining where the control and management is exercised.   To be regarded as tax resident in Singapore, it is therefore advisable to have as many of its Board meetings in Singapore, showing that key decisions by the controlling and managing authority of the company are made in Singapore.

Conversely, a company is a non-resident when the control and management of the company is not exercised in Singapore.

Some factors which were regarded by the courts as being attributes of that superior or directing authority include the following:

  • Ability to raise finance
  • Power to declare a dividend
  • Power to decide on the acquisition of a new business
  • Control of bank accounts
  • Discussion and approval of accounts and
  • Power to appoint those who manage the daily operations of the company

Other contributing factors in determining the residency of a company are the residency of the directors and the location of the books and records of the company.

Foreign-Owned Investment Holding Companies

Foreign-owned investment holding companies, with purely passive sources of income or receiving only foreign-sourced income are generally regarded as non-residents because these companies usually act on the instructions of its foreign companies/shareholders. A foreign-owned company is a company where 50% or more of its shares are held by foreign companies/shareholders.

However, they may still be treated as Singapore tax residents if they are able to satisfy IRAS that certain conditions have been met.

Non-Singapore Incorporated Companies and Singapore branches of foreign companies

Non-Singapore incorporated companies and Singapore branches of foreign companies are controlled and managed by their foreign parent and are, therefore, regarded as non-residents.

However, they may still be treated as Singapore tax residents if they are able to satisfy IRAS that certain conditions have been met.

Certificate of Residence (COR)

Singapore tax residents that derive income from other countries may apply to IRAS for a Certificate of Residence (COR). The COR is a letter certifying that the company is a tax resident in Singapore. Tax residents need this certificate to claim benefits under the DTAs Singapore has concluded with other jurisdictions.