For many entrepreneurs, investors and founders, it was assumed that their Singapore Company is a Singapore Tax Resident by virtue of its incorporation. however, there are various factors to consider and to fulfil for the Singapore Company to be considered a Singapore Tax Resident especially Businesses and Startups with overseas subsidiaries and Founders based outside of Singapore.

In our series of articles, we will look closely at the necessary requirements for a Company to be a Singapore Tax Resident.

In our series of articles, we will look closely at the necessary requirements for a Company to be a Singapore Tax Resident.

Control and Management

Under Singapore tax law, the tax residency of a company is determined by where the business is controlled and managed. The tax residency status of a company may change from year to year.

Generally, a company is considered a Singapore tax resident for a particular Year of Assessment (YA) if the control and management of its business was exercised in Singapore in the preceding calendar year. For example, a company is a Singapore tax resident for YA 2023 if the control and management of its business was exercised in Singapore for the whole of 2022.

A company is a non-resident when the control and management of its business is not exercised in Singapore.

‘Control and management’ is defined as the making of decisions on strategic matters, such as those concerning the company’s policy and strategy. Where the control and management of a company is exercised is a question of fact.

Usually, the location of the company’s Board of Directors meetings where strategic decisions are made determines where the control and management is exercised. Under certain scenarios, holding Board of Directors meetings in Singapore may not be sufficient and IRAS will consider all facts provided by the company to determine if the control and management of the business is indeed exercised in Singapore.

Examples of scenarios where the control and management of a company may be considered not exercised in Singapore include:

  • There is no board of directors meeting held in Singapore. Instead, the directors’ resolutions are merely passed by circulation
  • The local director is a nominee director while the rest of the directors are based outside Singapore
  • No strategic decisions are made by the local director in Singapore
  • No key employees are based in Singapore

A Board of Directors meeting which involves the use of virtual meeting technology will generally be regarded as having strategic decisions made in Singapore if either of the following conditions is met: 

  • At least 50% of the directors (with the authority to make strategic decisions) are physically in Singapore during the meetings; or
  • Chairman of the Board of Directors (if the company has such an appointment) is physically in Singapore during the meeting. 

Virtual meeting technology means any technology that allows a person to participate in a meeting without being physically present at the place of meeting.

The place of incorporation of a company is not necessarily indicative of the tax residency of a company.

Foreign-Owned Investment Holding Companies

Foreign-owned investment holding companies1, with purely passive sources of income or receiving only foreign-sourced income, are generally not considered tax residents of Singapore because these companies usually act on the instructions of its foreign companies/ shareholders.

However, they may still be treated as Singapore tax residents if they can satisfy certain conditions.

1A foreign-owned company is a company with 50% or more of its shares held by:

  • Foreign companies which are incorporated outside Singapore; or
  • Individual shareholders who are not citizens of Singapore.

The ownership is to be applied at the ultimate holding company level. 

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. They are not considered tax residents of Singapore.

However, they may still be treated as Singapore tax residents if they can satisfy certain conditions.

S10L of the Income Tax Act and Economic Substance Requirement

The foreign-sourced disposal gains tax regime provided in section 10L of the Income Tax Act 1947 takes effect from 1 January 2024. Under the tax regime, certain gains from the sale or disposal of foreign assets are treated as income chargeable to tax when received in Singapore. Foreign-sourced disposal gains from the sale or disposal of a foreign asset (not being an intellectual property rights) will not be treated as income chargeable to tax in Singapore if the entity has adequate economic substance in Singapore.

Further, you may consider to apply for an advance ruling to seek certainty on the adequacy of economic substance if the proposed sale or disposal of foreign asset is expected to occur within one (1) year from the date of the application. 

We have been working with our clients to conduct a comprehensive assessment of their operations against the new rules for impact analysis and advise how to structure their operations to ensure that their Company comply with the necessary requirements.

Ensuring Tax Residency and Economic Substance in Singapore

In ensuring the “Management and Control” is being met in Singapore, Companies need to ensure that Board Meetings are properly held in Singapore and meets the criteria as set out earlier in our article on the Board Meeting requirements.

Further, Companies should ensure that they fulfil the necessary economic substance requirements such as having an executive Director in Singapore and have at least 1 key employee (e.g. CEO, CFO, COO) based in Singapore or is managed by a related company based in Singapore.

We will also elaborate further on Tax Residency of a Singapore Company (Including obtaining a Certificate of Residence) and Section 10L in our next Article. With the economic substance requirements in mind, Prestige is able to support you in ensuring your tax residency and economic substance with our suite of services:

  • Provision of Professional Singapore Resident Director
  • Preparation of Board Meeting Packs
  • Attendance and minuting of Board Meetings
  • Tax Advisory on Economic substance and compliance
  • Reviewing the performance of the investments of the company
  • Accounting and Corporate Secretarial Services

Prestige is a Venture Capital and Technology Company Focused Practice. We support Venture Capital Funds and Technology Companies on various areas including:

  • Accounting and FRS Advisory
  • Tax Compliance and Advisory for Companies
  • Tax incentives application and advisory for Funds domiciled in Singapore
  • Fund Administration
  • General Partner Operations Support
  • Venture Capital Funds Portfolio Companies Support
  • Singapore and Malaysia Company Incorporation
  • Singapore VCC Incorporation
  • Corporate Advisory Services
    • Board Pack Preparation
    • Outsourced
    • Mergers and Acquisition
    • Pre-IPO Advisory
    • Revenue Management Analysis
    • Financial and Tax Due Diligence

Please contact us at dongneng@prestigefiduciary.com for further information on our services.

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