Determining Tax Residency in Singapore

Last updated on 31 October 2023

Singapore has long been seen as a hub for business expansion in the region due to its business-friendly environment. This has led to an influx of foreigners planning on starting a business in SingaporeHowever, one crucial aspect that these foreign entrepreneurs need to consider, when setting up company in Singapore, is tax residency.

The Inland Revenue Authority of Singapore (IRAS) generally considers a company to be a tax resident in Singapore if the control and management of the company are exercised in the country. The control and management of a company are usually determined by the location where strategic decisions are made. These decisions could include company-wide policies and other significant matters affecting the company.

For instance, if the Board of Directors, who are responsible for making these strategic decisions, is located overseas, IRAS may consider the company a non-tax resident. This holds true even if there is a local nominee director. Simply holding a Board meeting in Singapore is not sufficient for a company to be considered a tax resident. Typically, non-Singapore incorporated companies and Singapore branches of foreign companies are not considered tax residents of Singapore.

Being a tax resident has significant implications, especially for foreign-owned companies that wish to avail the benefits of Singapore’s double taxation agreements (DTA) with other countries and other tax benefits. For example, tax exemptions for new start-up companies and foreign tax credit claims for taxes paid in foreign jurisdictions only apply to Singapore tax resident companies.

To prove their tax residency, companies can apply for a certificate of residency. This certificate can be used to claim tax benefits in countries with which Singapore has DTAs. Accounting firms in Singapore can assist foreign companies with this process. Therefore, companies seeking accounting services in Singapore should consider engaging a firm that offers a comprehensive range of business support services and has a strong track record in providing this as a one-stop service.

In conclusion, while Singapore offers a conducive environment for starting a business, foreign entrepreneurs must understand the implications of tax residency. By understanding the implications of tax residency, they can make informed strategic decisions, ensure compliance with tax laws, and fully leverage on the benefits offered to tax resident companies.