Singapore –Economic Substance considerations

As a result of the OECD Base Erosion and Profit Shifting (“BEPS”) project, combined with pressure from the EU certain no-tax or low tax jurisdictions have started to adopt, in a very short timeframe, economic substance requirements for businesses based there. This requires taxpayers to have an adequate number of employees with necessary qualifications and to incur an adequate amount of operating expenditures to undertake the core income-generating activities associated with the income that may benefit from a regime.

In Singapore it is possible to consider both the re-domiciliation of foreign entities to Singapore as well as the change of tax residence of a foreign entity to Singapore.

Moving the tax residency from one jurisdiction to another is also an option, but needs to take into account the changes being implemented as a result of the OECD BEPs project. Consideration will need to be given to any relevant Double-Taxation Agreements.

As an example see below a table reviewing the options for a BVI company that may be considering operating economically from Singapore:

Options     Comments     Costs to consider
1- BVI company to become Singapore tax resident     Possible, BVI company can apply for a resident status in Singapore.

The company needs to be managed and controlled from Singapore, which supposes non-nominee resident directors and board meetings in Singapore + substance in Singapore (staff, office, fixed assets, etc.,).

The substance requirements for foreign-owned holding companies (receiving passing income) is more stringent.

    Cost of Director in Singapore plus accounting/tax filings cost
Cost of administration of the company in Singapore;

Cost of administration of the company in BVI;

Annual costs will include :
-      Resident director :
-      Board meetings :
-      Staff salary :
-      Social contribution :
-      Office :
-      Server
2- Re-domiciliation of BVI company to Singapore     Singapore allows inwards re-domiciliation but the criteria are high (more than 7.5mUSD revenue and at least 50 employees)     Case by case
3- Establishment of a new Singapore company and transfer of assets under new Singapore company     Under this option, new Singapore company can be established, and the assets that currently belong to BVI company can be transferred under the new company.      Relevant costs regarding incorporation and maintenance of a Singapore registered company.

For more background information on the global move towards requirements for businesses to have Economic Substance where they are based please read our new article here.