Posted: Fri Apr 01, 2005 2:43 pm Post subject: DOING BUSINESS IN SINGAPORE (Company, Law. Taxes, etc...)
DOING BUSINESS IN SINGAPORE
Business Environment
1. Establishing a Business Presence
Government approval
Government approval is not generally required for non-residents to do business in Singapore. However, banks and other financial institutions wishing to do business do require approval from the Monetary Authority of Singapore (MAS). Certain activities, such as the production of cigarettes, beer, refrigerators and air-conditioners, operation of restaurants, bars, etc. require a license from the relevant government bodies.
Structure
Foreign companies may set up representative offices in Singapore. A representative office (other than that of a financial institution) should register with the Trade Development Board and is not allowed to carry on a business in Singapore. Financial institutions who wish to set up representative offices in Singapore should obtain approval from the Monetary Authority of Singapore MAS). The purpose of the representative office is to perform liaison services and establish business contacts, often as a precursor to the commencement of full-scale business activities in Singapore. Such offices do not have to maintain accounts, register as branches or file tax returns.
Foreign investors may carry on business in Singapore as branches, by incorporating local subsidiaries, setting up a partnership, or operating as a sole proprietorship. Generally, the Singapore government permits 100% foreign ownership of Singapore companies, with limited exceptions.
There are no exchange controls and funds may be freely remitted into and out of Singapore.
Labour Law
The most prominent feature of Singapore's industrial relations environment is the absence of labour unrest. Employee groups may be represented by trade unions but membership is not compulsory.
The Industrial Relations Act regulates the procedure for collective bargaining and negotiation. The National Wages Council, which comprises representatives from employer groups, employee unions and the government, sets guidelines for wage increases each year.
The Employment Act sets minimum working conditions for employees earning up to S$1,600 per month. Under the Act, the maximum ordinary working hours are 44 hours per week, the minimum annual vacation for the first year of service is seven days and this increases by one day for each subsequent year of service up to a maximum of 14 days a year.
CPF contributions are required to be made by employers and employees at specified rates on the remuneration of employees who are Singaporeans or Singapore permanent residents. The current CPF contribution rates for such employees under the age of 55 years is 10% from the employer and 20% from the employee. These rates took effect on 1 January 1999.
The Employment Act also specifies that employees who are covered by the Act but who have served less than three years with the employer are not entitled to receive retrenchment benefits in the event of retrenchment. Employment and retrenchment terms for executives are not regulated by the Act. Other significant features of the labour laws are noted below
Workmen's Compensation Act
Employers are required to insure against liabilities for certain employees who may be injured in the course of work. These employees are: all manual workers, regardless of their salary level; and all non-manual workers whose average monthly earnings do not exceed S$1,600 per month
Skills Development Fund
A 1% levy of the remuneration of employees earning up to $1,000 per month is imposed on employers. The Fund is used to assist in employee training.
Foreign Worker Levy
A monthly fee ranging from $30 to $470 is required to be paid by employers of foreign workers issued with work permits.
Payroll tax
Suspended since 1985. Employers are required to deduct contributions to certain self-help non-profit organisations (e.g., Chinese Development Assistance Council Fund, Singapore Indian Development Association Fund, Mosque Building and Mendaki Fund, Eurasian Community Fund) directly from each employee's (Singapore citizens and permanent residents) salary, unless the employee specifically elects not to contribute.
Immigration
There are two categories of work passes available:
P passes - available to applicants who hold administrative, professional or managerial jobs
Q passes - available to skilled workers or technicians
It is relatively easy for foreigners to obtain an employment pass to work in Singapore for up to two years provided they are earning more than S$3,500 per month and have university/professional qualifications and/or appropriate working experience. Foreigners who are skilled workers or technicians earning not more than S$2,000 per month are required to apply for Q passes instead.
Once an expatriate who has been issued with a work pass earns more than S$2,000 per month, the spouse and children under 21 years of age may be issued with a dependant's pass for the duration of the expatriate's employment. Spouses may also apply for permission to work in Singapore provided they satisfy the requirements noted above. Singapore has a number of quality international schools available to the children of expatriates.
Foreigners may also apply to become permanent residents of Singapore in which case no work passes are required.
2. Business Registration & Corporate Accounting Matters
Corporate registration
At least two shareholders are required to incorporate a company in Singapore.
After incorporation, the company must have at least one corporate shareholder or two individual shareholders. A company must also appoint at least two directors, one of whom must be resident in Singapore.
Availability of the proposed company name must be checked with the Registrar of Companies and Businesses (RCB) and reserved for two months. The Memorandum and Articles of Association of the company must be registered with the Registrar, after which a certificate of incorporation will be issued. This usually takes about a week.
To register a branch of a foreign company in Singapore, various documents concerning the foreign company itself will have to be submitted to the RCB. In addition, at least two natural persons resident in Singapore must be appointed as agents and formal notices of appointment must be lodged with the Registrar.
The registration fee payable to incorporate a company depends upon the amount of the company's authorised share capital:
Authorised capital (S$)Fee (S$)
$2-100,000 $1,200
100,001-1,000,000 $1,200+$400 for every further
$100,000 or part thereof
over $1,000,000 $4,800 plus $300 for every further
$1,000,000 or part thereof
The maximum registration fee payable is S$35,000.
The registration fees payable in respect of a branch registration are based on the foreign company's authorised share capital. If the fee structure is inapplicable, the fee payable is S$1,200.
Accounting standards and audit requirements
Singapore generally adopts the accounting standards issued by the International Accounting Standards Committee. Accounts are usually drawn up in accordance with Generally Accepted Accounting Principles.
All Singapore companies and branches of foreign companies are required to be audited by approved auditors. Auditors have to be appointed within three months of incorporation.
3. Banking & Financial Services
Singapore has a relatively open and well-developed banking and financial services sector. In addition to the local banks, there are foreign banks with full licences, restricted licences and offshore banking licences, as well as a number of foreign merchant banks, securities firms, investment banks, fund managers, futures brokers,% leasing companies, etc.
Singapore has developed an active Asian Dollar market, dealing in a variety of non-Singapore dollar currencies. Banks and merchant banks with an approved Asian Currency Unit can deal in this market. In addition, there is an active stock market as well as a financial futures exchange.
4. Government Assistance
Financial and tax incentives are granted upon application to target sectors and to significant foreign investors through the various government agencies, in particular the Economic Development Board, Trade Development Board, Monetary Authority of Singapore, and National Science and Technology Board.
Taxation
1. Tax Year
The tax year is the calendar year ending 31 December, and each tax year is referred as the "Year of Assessment". Income is subject to tax on a preceding year basis (e.g. income earned in the financial year ended in 1998 will be taxed in the Year of Assessment 1999).
2. Companies
General
Both resident and non-resident companies are subject to tax on income derived in Singapore and on foreign income received in Singapore. A company is resident in Singapore if the control and management of the company is exercised in Singapore. In general, the control and management of the company is taken to be the place where the Board of Directors' meetings are held.
The taxable income earned in 1998 by both resident and non-resident companies is subject to tax at the rate of 26%. For the Year of Assessment 1999, a 10% rebate has been announced. Reduced rates or total exemption may be available by way of tax incentives.
Some notable elements of Singapore's corporate taxation are:
a. Capital gains are not taxable.
b. There is no withholding tax on dividends in Singapore. Singapore adopts an imputation system for tax purposes. That is, to the extent a dividend is paid from profits previously taxed at the corporate level, no further tax liability will arise. In this regard, every Singapore resident company is required to maintain a "Section 44 account" which is credited with the taxes paid by the company at the prevailing corporate tax rate. This Section 44 account balance is reduced whenever non-tax exempt dividends are paid. However, if a dividend in excess of the amount "supported" by the balance on this Section 44 account is paid, then a tax charge at the prevailing corporate tax rate will become payable on the re-grossed amount of the dividend. This charge will be treated as a prepayment of corporate income tax and can be used to offset any future income tax liability. Non-resident companies are not required to maintain any Section 44 account.
Tax is only payable after an assessment has been issued. Every company has to provide an estimate of its taxable income within three months of the end of its accounting period. An estimated assessment will then be raised and the tax assessed must be paid within one month, unless arrangement is made to pay the tax in installments. Tax returns are due by 31 July each year for income earned in the accounting period ended in the preceding year although further extensions of time may be granted on a case-by-case basis.
Tax losses and allowances
Unutilised tax losses and capital allowances may be carried forward indefinitely to offset future taxable income provided that the beneficial ownership of the company remains substantially (at least 50%) the same as at certain relevant dates. For capital allowances, there is an additional requirement that the same trade or business in respect of which these capital allowances were made continues to be carried on. Carrybacks or transfers to other companies are not permitted.
Capital allowances (depreciation)
Generally, plant and equipment (except motor vehicles) qualify for accelerated depreciation at 33 1/3% per year on a straight-line basis. Alternatively, a company may choose to claim an initial allowance of 20% and annual allowances ranging from 6 years to 16 years on a straight-line basis. Automated equipment and computers may be fully written off in the year of purchase. Initial allowances of 25% and annual allowances of 3% are available for industrial buildings.
Gains from short term real property and share transactions
Income tax
With effect from 15 May 1996, gains from the disposal (including a part disposal) of the following within three years of the acquisition date will be deemed to be income chargeable to tax:
a. any real property; and
b. shares in any private real property company.
In addition, gains from the disposal of shares in a private real property company which have been held for more than three years will also be deemed to be income chargeable to tax if that company holds real property acquired within the three years prior to the date of disposal of the shares.
The amount of gains subject to tax depends on the holding period of the real property or shares.
Certain withholding tax requirements will be applicable if the person disposing of the real property or shares is a non-resident.
Stamp duty
In respect of contracts or agreements made on or after 15 May 1996 for the sale, sub-sale or assignment of property, stamp duty is generally payable at the time the contract or agreement is made (instead of at the time the actual conveyance or transfer occurs). However, in respect of properties where 90% of the consideration is payable upon completion, stamp duty is deferred until the completion date, or the time of subsequent sale, whichever is earlier. This stamp duty is normally payable by the acquirer of the property, unless otherwise agreed between the parties.
For residential property disposed of on or after 15 May 1996, additional stamp duty is payable by the vendor if the residential property was disposed of before the expiration of three years from the date the vendor acquired the property. In certain circumstances, this is also applicable to the conveyance or transfer, on or after 15 May 1996, of shares in a private company that owns any residential property. The amount of additional stamp duty payable is based on the holding period of the residential property or shares. However, this additional stamp duty has been suspended since 19 November 1997.
Transfer pricing
Related parties should adopt consistent transfer pricing policies from year to year, which should also reflect arm's length prices.
Foreign income
Foreign income is taxable when received in Singapore. Where the income is derived from countries with which Singapore has a tax treaty (and certain other Commonwealth countries), the amount received in Singapore is "grossed up" to include any foreign taxes paid; credit may then be claimed for the foreign taxes to the extent that they do not exceed the Singapore tax on that income. In addition, unilateral tax credits are available under the domestic tax law in respect of overseas dividends and branch income.
3. Individuals
General
Individuals are either "resident" or "non-resident" in Singapore for tax purposes. Generally, an individual is resident if he or she is physically present or exercises employment in Singapore for 183 days or more in the calendar year.
Resident individuals are subject to tax both on income derived in Singapore and income received in Singapore from sources outside Singapore. They are taxable at progressive rates from 2% to 28% (refer to Appendix 1) and are entitled to claim certain personal reliefs (i.e. deemed deductions). In addition, rebates of tax are announced on an annual basis (e.g. 5% for Year of Assessment 1998).
Non-resident individuals are subject to tax only in respect of income derived from sources in Singapore. The general rate of tax on non-residents is a flat 26%, but there are a number of exceptions under which lower rates are payable. For example, income derived by a non-resident from employment in Singapore (for more than 60 days but less than 183 days) may be taxed as if the individual were resident, but the total tax should not be less than 15% of the employment income. In addition, if a non-resident short-term visiting employee exercises employment in Singapore for less than 60 days during the calendar year, the resulting employment income is exempt from tax in Singapore.
Interest derived by a non-resident individual on monies held on deposits in an approved bank in Singapore is also tax exempt.
Husband and wife are generally treated as one taxpayer, although the wife may elect to be separately assessed on her income.
Regional representatives and dual employment arrangements
Regional representatives based in Singapore and employed by the representative office of an overseas company may be taxed concessionally on income pro-rated based on days spent in Singapore provided certain requirements are met.
Alternatively, dual employment contracts may be used to provide tax-effective remuneration in appropriate circumstances.
Fringe benefits
Employer-provided fringe benefits are taxed in the employee's hands. As a number of benefits are taxed on a concessionary basis (e.g. housing), it is possible to reduce an individual's tax liability through appropriate structuring of his/her remuneration package.
Central Provident Fund
Contributions by the employer to the CPF account of employees which are mandatory (currently set at 20% of cash remuneration, subject to specified limits) are tax free for Singaporeans and Singapore permanent residents. These employees (if resident) will also be entitled to a tax deduction for their own CPF contributions (currently also 20%, subject to limits). Interest earned in the employee's CPF account is tax exempt and the total sum is tax free when paid out. The sum may be withdrawn partially at age 55, subject to a minimum sum being retained in the CPF account. The latter may be drawn down gradually on a monthly basis from age 60.
With effect from 1 August 1995 all foreigners were exempt from mandatory CPF contributions, with certain transitional arrangements up to 31 December 1998. During the transition period, where the contributions are obligatory by way of a contract between employer and employee, the employee contributions are tax deductible, although the employer's contributions are taxable in the hands of the employee. With effect from 1 January 1999, the employee's ability to claim a tax deduction for his contribution has been withdrawn. The balance in the CPF account may be withdrawn in full when the foreign employee (except West Malaysians) ceases employment in Singapore and departs from Singapore permanently.
4. Partnerships & Trusts
These forms of operating entities are applicable to certain types of businesses and operations in Singapore. Generally, partners will be taxed on their share of income on an annual basis. The taxation of a trust will depend upon its structure.
5. Withholding Taxes
Interest, commissions, fees and other payments in connection with loans or indebtedness, royalties, rentals from movable property, and management and technical fees paid to non-residents are generally subject to withholding tax in Singapore. There is no withholding tax on the payment of dividends.
The non-treaty rate of withholding tax is 26%. However, for interest, royalties and rental from movable property derived from Singapore by a non-resident on or after 28 February 1996, the rate is reduced to 15%. The withholding tax on these payments may also be reduced by treaties to between 10% and 15%, or even exempted. Please refer to Appendix 2 for the withholding tax rates under the treaties. Withholding tax exemptions may also be available upon application under domestic laws in respect of certain royalties and interest payments to non-residents. Fees for services rendered outside Singapore are generally not subject to withholding tax, but where management fees are charged by related parties and a mark-up is included, withholding tax may be applicable.
6. Avoidance of Double Taxation
Double taxation can be avoided or minimised by unilateral tax credits and double tax treaties, depending on the type of foreign source income and the source country. Only Singapore resident companies and individuals are entitled to claim the tax credits.
Unilateral tax credits are granted in respect of branch income, employment income, and certain professional, consultancy and other service income derived by Singapore residents from certain non-treaty countries. Further, a unilateral tax credit is allowed on dividend income received with credit for underlying foreign corporate tax also allowed where the Singapore company owns at least 25% of the capital of the foreign company paying the dividend.
Singapore has concluded tax treaties with some 38 countries. Please refer to Appendix 2 for a list of these countries. Notably, there is no general treaty with the United States of America (although an international air and shipping treaty is in force). Singapore's tax treaty policy aims to avoid double taxation and encourage trade and foreign investment.
7. 1999 Budget Proposals
The following is a summary of the more significant proposals announced on 26 February 1999.
Tax changes for companies
Additional tax incentives are proposed to promote the financial markets and certain encouraged industries in Singapore. These include:
Automated procedure for tax exemption scheme for Syndicated Facilities
Tax exemption for Global Operational Headquarters
Approved Contract Manufacturer and Trader (ACMT) Scheme
Tax Incentive for international conference organisers
Tax exemption for floating production storage offloading vessels and floating storage offloading vessels
Tax exemption for income derived from funds of foreign investors managed by qualifying boutique fund managers
Personal tax changes
A 10% rebate on individual income tax for the year of assessment 1999
Rebates on government subsidised housing rental and conservancy charges, etc.
Increased tax deduction for certain educational expenses for individuals.
Other Tax
1. Goods & Services Tax
With effect from 1 April 1994, the Goods and Services Tax (GST) is levied on the supply of goods and services in Singapore. The features of the CST system are:
The 3% rate is fixed for a period of at least five years.
Businesses with annual taxable supplies of more than S$1 million must register for GST.
All exported goods and international services (as defined) wll attract a zero GST rate such that no GST is payable on such items. In addition, the supplier is able to claim a refund of the related input GST.
Imports of goods are generally subject to 3% GST at the time of importation, based on the CIF value. Where the importer is eligible for the Major Exporter Scheme (MES), no GST is charged upon importation. Goods brought into a registered bonded warehouse from overseas are treated as not having entered into Singapore, and are therefore not subject to GST until the goods leave the warehouse and are "imported" into Singapore.
Registered businesses have to file quarterly returns based on accounting periods allocated by the GST Comptroller. Approval is required if the taxpayer wishes to file on a monthly or six-monthly basis.
Certain financial services are specifically exempted from GST. As a general rule, any input GST incurred in making exempt supplies is not creditable or refundable. The sale or lease of residential accommodation is also exempt.
The input GST incurred in respect of exempt supplies is not creditable or refundable unless it falls within the de minimus rule or is limited to making certain types of exempt supplies. Such irrecoverable input tax will then become a business cost to the company.
2. Customs Duties, Property Tax, & Other Tax
There are limited customs and excise duties, property tax (rates) and betting duty. With effect from 28 February 1998, stamp duty is payable only in respect of instruments which relate to stocks and shares and immovable properties. There are also estate duties, entertainment duties, tourist promotion levies and heavy taxes on motor cars.
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