A company’s Singapore tax residency decides whether it can claim three things: benefits under Singapore’s double taxation agreements (“DTA”), exemption on specified foreign income, and the tax exemption scheme for new start-up companies. None of them turn on where the company was incorporated.
Residency is assessed year by year, so a company can be resident in one Year of Assessment and not in the next without any change to its incorporation or shareholding.
How Is Tax Residency Status Determined?
Under the Income Tax Act, the tax residency of a company is determined by where the business is controlled and managed. A company’s residency status may change from year to year. A company is a Singapore tax resident when the control and management of the company is exercised in Singapore.
“Control and management” means the making of decisions on strategic matters, such as company policy and strategy. It is not day-to-day operational management, and it is a question of fact rather than of documentation.
In practice the location of the board meetings at which strategic decisions are actually taken is the key factor. What matters is that the decisions are genuinely made there, not the number of meetings minuted as held there.
Conversely, a company is a non-resident when its control and management is not exercised in Singapore.
Factors that courts have regarded as attributes of that superior or directing authority include:
- 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
- Power to appoint those who manage the daily operations of the company
Other contributing factors in determining a company’s residency are the residency of its directors and the location of its books and records.
Foreign-Owned Investment Holding Companies
Foreign-owned investment holding companies with purely passive sources of income, or which receive only foreign-sourced income, are generally regarded as non-residents, because these companies usually act on the instructions of their foreign parent companies or shareholders.
However, they may still be treated as Singapore tax residents if they can 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 generally regarded as non-resident, on the basis that control and management sits with the foreign parent. This is a general position rather than an automatic rule.
However, they may still be treated as Singapore tax residents if they can satisfy IRAS that certain conditions have been met.
Certificate of Residence
Singapore tax residents that derive income from other countries may apply to IRAS for a Certificate of Residence (“COR”). A COR is a letter certifying that the company is a tax resident of Singapore. Tax residents need this certificate to claim benefits under the DTAs Singapore has concluded with other jurisdictions.
Tax residency determinations depend heavily on the specific facts of each company — including where board meetings are actually held and where strategic decisions are genuinely made. IRAS has, at various times, allowed administrative concessions on how board meeting location is assessed (for example, during periods where travel was restricted). This guide is a general introduction to the underlying test, not a substitute for checking IRAS’s current guidance or seeking professional advice for your company’s specific situation.