An analysis of several non-tax and tax considerations demonstrates Singapore to be a leading Holding Company location and an excellent choice from which to conduct international transactions.
Singapore is very stable both economically and politically and through its strong regulatory oversight, its reputational standing is high internationally. Major global banks have significant Singapore based operations there and investors are supported by a wide range of highly experienced professional advisors.
International investments may be made in any currency which may freely flow in and out of Singapore in the absence of foreign exchange controls. A Singapore Holding Company amongst other matters may be incorporated generally within 1 day with a share capital as low as S$1 and require only 1 shareholder who may be either an individual or non-individual whether a resident of Singapore or not. They will also be exempted from audit if it is a small company.
In addition to which beneficial ownership need not be disclosed and with a view to protecting investors, foreign tax authorities access to tax information is pursuant to obtaining a Singapore High Court order.
The Singapore tax system is highly competitive. A low rate of corporate tax is imposed on all income derived from Singapore and potentially on foreign income received in Singapore. A wide range of tax incentives, exemptions, and reductions are available for substantive activities performed in Singapore.
Capital gains are not taxed although transactions involving real estate, stocks, and shares which amount to the carrying on of a business may be taxed as income. There is no withholding tax on dividends regardless of whether paid out of income or capital gains. Singapore does not impose an estate or gift tax.
Within this framework, Singapore Holding Companies with international transactions can operate confidentially with a high degree of regulatory ease and tax efficiency.
The standard corporate tax rate is 17% on incomes of more than S$300,000 with a recently introduced 40% tax rebate capped at S$ 15,000. Newly incorporated and tax resident Singapore Holding Companies may also qualify for a full tax exemption on the first S$100,000 and 50% relief on the next S$200,000.
Singapore Holding Companies residents outside of Singapore are generally not taxed on foreign source income. Whereas a Singapore Holding Company resident in Singapore is potentially taxable on foreign source income but only if such income is remitted to Singapore. If unremitted it is not taxable.
But having said this, foreign source income remitted to Singapore in the form of dividends, branch profits and specified foreign services income are exempt from Singapore tax if prescribed conditions are met. Other types of foreign source income are taxed a 17% but even then an exemption may be granted on a case by case basis or may enjoy a preferential tax rate under a Singapore tax incentive.
For instance, the Singapore Holding Company can also carry on business with substantive activities in Singapore and be lowly taxed with the benefit of tax incentives, exemptions, and reductions. To encourage foreign investors to operate from within Singapore, attractive tax savings may be obtained for conducting typical Holding Company activities such as International Headquarter Operations, Venture Capital Funds, Finance and Treasury Management Services, Global Trading in prescribed commodities and products and Intellectual Property activities including the acquisition and licensing of property rights.
Foreign investments will be taxed according to the domestic tax rules in the country where located. Singapore allows a choice between Holding Company that is tax resident in Singapore and one that is not. A tax resident can access the Singapore Tax Treaty network whilst a non-resident cannot. Singapore has more than 80 tax treaties many of which are ‘best of class’ within the Asian region. So, in addition to preferential tax rates on start-up, Singapore tax residency has substantial merit if International transactions are contemplated.
The treaties are all different and a careful reading may reveal favourable outcomes. An example relates dividends received from overseas investments may be exempt from tax in Singapore if paid from countries with a headline tax rate of 15% or more. And yet, if certain conditions are met, still enjoy reduced withholding taxes under a tax treaty.
Many of the Singapore tax treaties include Limitation of Benefits rules which generally grant benefits such as reduced withholding tax rates only if the foreign source income is remitted to Singapore. As mentioned the remittance will create the potential for Singapore tax but in the context of a Singapore Holding Company receiving dividend income from foreign subsidiaries such income may be tax exempt in appropriate circumstances.
Further, depending on the wording of the treaty, the divestment of foreign investments may become capital gains tax free in the investments location. If the acquisition is structured correctly certain treaties grant the taxing right of the gain to Singapore and in the absence of a Capital Gains Tax in Singapore the divestment may be made tax free.
To remove any uncertainty as to whether the divestment of shares might be taxable in Singapore as income, all gains derived from substantial shareholdings held for a continuous period of at least 2 years until 31 May 2022 are not taxed if certain conditions are satisfied.
There is no compulsion in Singapore to distribute accumulated profits at the Singapore Holding Company level. Singapore also lacks anti-tax deferral legislation which might otherwise attribute any unremitted profits of the foreign subsidiaries to the Singapore Holding Company.
The Singapore Holding Company may pay a dividend from income or capital to its shareholders without incurring a withholding tax deduction.
The sale of the Singapore Holding Company shares, and any liquidation distribution may be repatriated to investors without generally incurring a Singapore tax liability and without withholding tax being deducted.
The freedom to make foreign investments freely without foreign exchange barriers is certainly attractive.
Further, the ability to manage a foreign currency exposure in tandem with the Singapore banking system which is globally orientated is another valuable consideration.
And to do so from a location with a high international reputation cannot be understated.
The Singapore tax system is extremely helpful too. With careful planning, the Singapore Holding Company can be effectively tax neutral which allows Indonesian investors to focus on managing their Indonesian tax affairs without any additional taxation levied in Singapore.
And importantly the ability to have non-resident shareholders who may be either individual or non-individual makes it possible for the Singapore Holding Company to be owned by an Offshore Foundation or a Trust as part of dynastic succession and asset protection plan for wealthy Indonesian families.
The Trust or Foundation role would be to preserve and grow the family wealth for the benefit of its beneficiaries over generations with the Singapore Holding Company owning and managing the family businesses and other investments on a day to day basis.
To protect the interests of Indonesian investors Singapore based Private Business lawyers and specialist Trust Companies are well versed in wealth planning, succession, and asset protection matters and supported by a robust Court system.
Furthermore, all Singapore activities can be conducted with a high level of confidentiality under Singapore’s strong exchange of information laws which make it clear that ‘fishing expeditions’ by foreign authorities will not be entertained.
For more information or to discuss your specific interests please contact us at www.rockwills.com.sg/contact.aspx