Institute of Chartered Accountants

1
Institute of Chartered Accountants Global
Economic Cooperation
International Tax Planning via Singapore And An
Overview of CECA Shanker Iyer, FCA Shanker Iyer
Co., Singapore
18 November 2006
2
agenda

• Business environment
• Key corporate and taxation benefits
• Tax treatment of foreign-sourced income
• Exemption of certain foreign-sourced income
• Issues for a Singapore holding company
• Advantages and disadvantages of Direct Ownership
• Other Singapore business vehicles
• Singapore trusts
• Fund management in Singapore
• Singapore India CECA

3
Business Environment
4
business environment

• Stable, responsive and pro-business government
• Sound economic fundamentals
• Rule of law and independent judiciary
• High standards of regulations
• Financial services
• Legal, accounting and other support services
• Purpose designed industry parks
• Strong Intellectual Property Protection

5
Key Corporate and
Taxation Benefits
6
key corporate and taxation benefits

• Corporate
• 1 day incorporation
• 1 resident director / 1 shareholder (can be the
  same individual)
• Individual or corporate shareholder
• No disclosure of beneficial ownership
• Audit exemption for small exempt private company
• Minimum S1 share capital, no upper limit
• Flat capital duty of S300
• Relatively easy to establish bank account

7
key corporate and taxation benefits

• Taxation
• Flat corporate income tax rate 20
• Singapore-sourced income
• Remitted foreign-sourced income
• Exemptions on first S100,000
• 100 for exempt private companies for the first 3
  years
• Up to S52,500 for all other companies
• Exemption of certain foreign-sourced income
• Double deductions for prescribed expenditure
• Tax incentives

8
key corporate and taxation benefits

• Taxation (contd)
• Tax losses / unutilised capital allowances
• Carry forward indefinitely (change in ownership
  test)
• Same business test for capital allowances
• Group relief
• Carry back (up to S100,000)
• No capital gains tax
• No withholding tax on dividend payments
• No thin capitalisation or earnings stripping
  rules
• No controlled foreign company rules
• Extensive treaty network

9
Tax Treatment of Foreign-Sourced Income
10
tax treatment of foreign-sourced income

• Taxable only if remitted
• Exemption of certain remitted foreign-sourced
  income
• dividends
• service income
• branch profits provided certain conditions are
  met.
• Conditions
• Received by Singapore resident companies
• Subject to tax in the territory from which it is
  received
• Headline tax of that territory is at least 15
• If conditions not met but income remitted under
  specific scenarios or circumstances may still
  qualify for tax exemption

11
Exemption of Certain Foreign-Sourced Income
12
exemption of certain foreign-sourced income

• Specific scenarios or circumstances
• Not subject to tax due to
• Profits were set-off against unutilised losses or
  capital allowances
• Capital gains not subject to tax
• Tax incentive for carrying out substantive
  activities
• Rules of a consolidation regime
• Headline tax rate lower than 15
• Specified income originated from carrying out
  substantive activities

13
exemption of certain foreign-sourced income

• Specific scenarios or circumstances
• Flow through of foreign dividend from income
  originated in another jurisdiction with headline
  tax rate of 15 and tax paid in originating
  jurisdiction

14
exemption of certain foreign-sourced income

• Specific scenarios or circumstances
• Flow through of foreign dividend from income that
  originated in another jurisdiction with headline
  tax rate of 15 and no tax paid in any foreign
  jurisdiction

15
exemption of certain foreign-sourced income

• Specific scenarios or circumstances
• No tax paid due to
• Profits were set-off against unutilised losses or
  capital allowances
• Capital gains not subject to tax
• Tax incentive for carrying out substantive
  activities
• Rules of a consolidation regime
• Income has moved to / invested in another
  jurisdiction that did not levy any tax
• Other scenarios not covered
• Generate economic benefits for Singapore
• Apply to IRAS for consideration

16
Issues for a Singapore Holding Company
17
issues for a Singapore Holding Company

• Tax residence status
• Must be a resident to take advantage of foreign
  income exemption and tax treaties network
• Declaration in tax return
• Implication in foreign jurisdiction if declared
  as non-Singapore resident
• Withholding tax
• Interest, royalties, technical and management
  fees, directors fees/remuneration, rent for the
  use of movable property

18
Approved Holding Company
19
approved holding company

• New tax incentive (administered by Economic
  Development Board)
• Tax exemption of gains on disposal of shares in
  subsidiaries
• Greater certainty for holding companys tax
  position
• Qualifying conditions
• Company should be awarded the International
  Headquarters incentive
• Company must be engaged in operating trade such
  as manufacturing and headquarters
• Company is not in the business of share trading
• At least 50 shareholding
• Minimum 18 months holding period

20
Advantages and Disadvantages
of Direct Ownership
21
advantages of direct ownership

• Foreign income exemption
• Extensive tax treaty network
• No withholding tax on dividends

The Iyer Practice Accountants Business
Consultants
iyerpractice.com
22
disadvantages of direct ownership

• Capital gains - may be taxed if not an Approved
  Holding Company
• Interest and royalties taxed on remittance
• Limitation of relief article in tax treaty

The Iyer Practice Accountants Business
Consultants
iyerpractice.com
23
Other Singapore Business Vehicles
24
other Singapore business vehicles

• Branches
• Representative offices
• Partnerships
• Limited liability partnerships
• Business trusts

25
branches

• Registration required
• 2 local residents to be agents
• Taxed the same way as Singapore companies
• Main differences
• Normally treated as non-Singapore residents
• Unable to rely tax treaties
• Unable to claim foreign income exemption
• Suffer Singapore withholding tax on certain
  payments
• Not part of a qualifying company for group relief
  purposes
• 100 tax exemption for exempt private companies
  not available

26
representative offices

• Approval required
• Promotional and liaison activities
• Cost centre - costs covered by head office
• Generally not subject to income tax
• Exposure to tax if services extend to
  consultancy/technical services, undertake
  transshipment of goods, or open/negotiate any
  letters of credit.

27
partnerships

• May be registered
• Maximum 20 partners
• Precedent partner
• Foreign company must register a branch in
  Singapore to participate as a partner
• Not a separate legal entity
• Each partner is taxed based on its share of
  partnerships tax adjusted income

28
limited liability partnerships (LLPs)

• Legal issues
• New vehicle
• Registration required
• Conversion from existing businesses and private
  limited companies permitted
• One local resident manager
• Operate as a partnership
• Benefits of limited liability
• Partners are liable for their own negligence

29
limited liability partnerships (LLPs)

• Tax issues
• Tax transparent at LLP level
• Taxed in the hands of the partners
• Trade losses, capital allowances, industrial
  building allowances and donations
• Can set off against non-LLP income (restricted to
  contributed capital)
• Can carry forward/back (subject to certain
  requirements)
• Can claim as part of group relief
• May not rely on Singapores tax treaties

30
limited partnerships (LPs)

• Proposed new vehicle
• Attractive structure for persons who wish to
  conduct business as investors but do not wish to
  take an active role in managing the business
• One general partner with unlimited liability
• Limited liabilities for limited partners
• Registration required
• Resembles a general partnership
• Tax transparent at LP level

31
business trusts

• Alternative business structure
• Hybrid structure
• Distributions are not subject to accounting
  profits restriction
• Taxed as a company
• Taxed on trustee
• No tax for unit-holders
• No tax credit allowed to unit-holders for tax
  paid by trustee

32
Singapore Trusts
33
Singapore trusts

• Tax incentives available for trusts in Singapore
• Singapore Foreign Trusts
• Settler and beneficiaries
• Individuals who are neither citizens of nor
  resident in Singapore
• Foreign companies not resident in Singapore
• Trustees of other foreign trusts (within meaning
  of Section 13G of the Income Tax Act
• Foreign accounts of philanthropic purpose trusts
  
• Persons neither resident in Singapore nor
  constituted or registered under any written laws
  in Singapore Income Tax (Amendment) Bill 2006
• Tax exemption on specified trust income

34
Singapore trusts

• Tax incentives available for trusts in Singapore
  (contd)
• Locally Administered Trusts (New)
• Income Tax (Amendment) Bill 2006
• Trustee is a Singapore company
• Settlors must all be individuals
• Beneficiaries must be either individuals or
  charities
• Beneficiaries are not all settlors of the trust
• Tax exemption for Singapore-sourced investment
  income and foreign-sourced income as enjoyed by
  Singapore resident individuals

35
Fund Management in Singapore
36
fund management in Singapore

• Tax Incentive
• Income from Funds Managed for Foreign Investors
• Less than 20 owned by Singaporean / Singapore
  resident companies (8020 rule)
• Tax exemption on specified income arising from
  designated investments

37
fund management in Singapore

• Tax Incentive (contd)
• Income of Approved Company arising from Funds
  Managed by Fund Manager in Singapore (New)
• Income Tax (Amendment) Bill 2006
• Company must be incorporated and resident in
  Singapore
• Tax exemption on prescribed income
• Approval required

38
Singapore India CECA
39
Singapore India CECA

• Singapore India Comprehensive Economic
  Cooperation Agreement (CECA)
• Key elements of CECA
• Investments
• Trade in Services
• Trade in Goods
• Movement of Natural Persons
• Cooperation
• Protocol to the Singapore India tax treaty
• Took effect on 1 August 2005

40
Singapore India CECA

• Key elements of CECA
• Investments
• Promote and protect investments
• Broad range of investment instruments and assets
  equity and debt instruments, intellectual
  property rights and business licenses and permits
  
• Transfer funds freely
• National treatment
• A more favourable and certain business
  environment
• Enhanced protection for investors

41
Singapore India CECA

• Key elements of CECA (contd)
• Trade in Services
• Market access
• National treatment
• Domestic regulation
• Recognition of professional bodies
• Liberalisation of services sectors beyond WTO
  commitments

42
Singapore India CECA

• Key elements of CECA (contd)
• Trade in Goods
• Remove/reduce tariffs and non-tariffs barriers
• Lower costs of merchandise trade
• Enhances exports competitiveness
• Domestic exports substantially covered
• Mutual Recognition Agreements (MRAs)
• Reduce duplicate testing and certification
• Reduce costs and shorten time to market

43
Singapore India CECA

• Key elements of CECA (contd)
• Movement of Natural Persons
• Ease visa restrictions on cross-border movement
  of professionals
• Liberalises rules for short-term/temporary visits
  for four categories of business persons
• Business visitors
• Short-term service suppliers
• Certain professionals employed
• Intra-corporate transferees

44
Singapore India CECA

• Key elements of CECA (contd)
• Cooperation
• Intellectual Property Rights
• Science and Technology
• Education
• Media

45
Singapore India CECA

• Protocol to Singapore India tax treaty
• Withholding tax rate for royalties and technical
  service fee reduced to 10
• Capital gains tax exemption

46
Singapore India CECA

• Protocol to Singapore India tax treaty
• Capital gains tax exemption
• First condition
• Singapore company is not used for the primary
  purpose of taking advantage of the capital gains
  tax exemption
• Protocol clarifies that any legal entity without
  any bona fide business activity would be
  considered as having a primary purpose of taking
  advantage of the benefit

47
Singapore India CECA

• Protocol to Singapore India tax treaty
• Capital gains exemption (contd)
• Second condition
• Singapore company is not a shell and conduit
  company with negligible or nil business
  operations, or with no real and continuous
  business activities in Singapore
• Not a shell and conduit company if
• it is listed on the Singapore stock exchange or
• its total annual expenditure is equal to or more
  than Indian Rs 50,00,000 or S200,000 over 24
  months

48
Singapore India CECA

• Protocol to Singapore India tax treaty
• Capital gains exemption (contd)
• Only applicable while Mauritius enjoys taxing
  rights over capital gains in its tax treaty with
  India
• Not the same level of exemption as the
  India/Mauritius tax treaty
• No limitations on capital gains exemption
• Investment made through trust may benefit under
  the India/Mauritius tax treaty but not the
  Singapore/India tax treaty

49
Thank you
50
contact us

• For a further discussion on any of the topics
  covered in
• todays topic, please contact Shanker Iyer at
• e shanker_at_iyerpractice.com
• t 65 6532 5746
• f 65 6532 7680
• To keep yourself updated on new developments in
• Singapore, please subscribe online to our free
  quarterly
• newsletter via our website
• www.iyerpractice.com/News.htm

The Iyer Practice Accountants Business
Consultants
iyerpractice.com