A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd.

VOL 17, Issue 3 July 2015

Offshore Update

Singapore Calling! Reviewing a crowd favorite

It’s always easier to target the popular guy. Get away with a few shots in dark and some mudslinging, just because the person can take it. Singapore as a low tax jurisdiction can be viewed by many as that crowd pleaser that everyone loves to hate due to their popularity. There is more than one reason why Singapore is considered the ‘Alpha’ among offshore jurisdictions by wealth managers and investors alike

Singapore is arguably the world’s fastest-growing centre for private wealth management. A Wealth Insight report in April 2013 expects it to overtake Switzerland by 2020 as the world’s largest offshore wealth centre. In the spirit of broader international changes underway, Singapore has recently shown increased willingness to improve transparency. The overall approach of Singapore has been ‘offshore’ from the outset: an absence of liquidity and reserve requirements was complemented by various other lures such as the abolition of withholding taxes on interest income earned by non-residents, the provision of strong secrecy facilities, and freedom from exchange controls. Alongside home-grown offshore facilities, Singapore’s global position as a financial centre has been very much driven by economic growth in the wider Asia region. The increasing affluence of the domestic population in Singapore and growing wealth in the region (like Indonesia, China and India) presents attractive markets for financial services providers, particularly amidst the uncertain economic outlook in European and US economies.

In addition, Singapore has quite a wide array of tax treaties with other countries, and, partly as a result of this, has become a major hub for investing in and out of India and other countries, in competition with other centres like Mauritius.

Singapore over the years has risen in popularity and gone from strength to strength.

Advantage Singapore
Some of the principal advantages of incorporating an offshore company include tax benefits, simpler reporting requirements, ease of company set up and ongoing administration, etc. The choice of a particular jurisdiction for offshore company incorporation is an important decision as it can have a significant impact on your business. In this regard, a Singapore offshore company represents a tax efficient corporate entity that is simple and easy to operate in a politically and economically stable environment.

There are several benefits of incorporating a Singapore offshore company. Some of the main advantages include:

Manageable tax liability
Taxes are one of the key considerations for setting up an offshore company. One of Singapore’s unique advantages is its simple and low tax system. Singapore’s tax system is characterized by low corporate and personal income tax rates; tax incentives and tax relief measures; absence of capital gains tax; absence of dividend tax; territorial one-tier tax system and an extensive tax treaty network.

As Singapore follows a territorial basis of taxation, taxes apply to income that is accrued to or derived by the company from Singapore or foreign-sourced income received in Singapore. Foreign-sourced income received in Singapore that meets certain qualifying conditions is exempt from Singapore tax, while foreign-sourced income that is not remitted into Singapore is exempt from Singapore taxation.

Foreign-sourced income that is not remitted into Singapore is exempt from Singapore taxation

Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free. The corporate income tax rate is approximately 8.5% for profits up to S$300,000 and a flat 17% above S$300,000. Furthermore, a newly incorporated company enjoys 0% tax rate on the first S$100,000 taxable income for each of the first three tax filing years, provided the company has a maximum of 20 shareholders of which at least one is an individual shareholder holding at least 10% of the shares.

So just to recap the tax benefits:

  • All income generated or sourced from outside of Singapore by the entity is exempted from income tax.
  • Entities domiciled in Singapore are not taxed on any capital gains derived from selling assets or property outside of Singapore.
  • Entities domiciled in Singapore are not taxed additional withholding tax on dividends derived outside of Singapore.
  • Entities domiciled in Singapore are taxed a modest 10-15% withholding tax on interest or royalties derived outside Singapore.

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Since Singapore is not a tax haven, an offshore company that is incorporated in Singapore exudes credibility and stature as a legal entity. By incorporating a Singapore offshore company, a business will be taken seriously by stakeholders such as employees, bankers or other professionals they deal with.

Ease of incorporation
Singapore has been consistently ranked as the world’s easiest place to do business. The company registration process is quick and efficient, free of bureaucratic red-tape. The registration procedure is fully computerized and involves only two distinct steps – company name approval and submitting incorporation documents. Both these procedures can be executed online and under normal circumstances a Singapore offshore company can be incorporated in a few days.

Liberal foreign ownership policy
Singapore’s foreign ownership policy is open and liberal. There are no restrictions on permitted fields of business activity if you want to set up an offshore company in Singapore. 100% foreign shareholding is allowed in all sectors. Shareholders can be individuals or corporate bodies. Additionally, foreigners wanting to register an offshore company in Singapore do not require prior approval from the Singapore authorities.

Political stability
The Political and Economic Risk Consultancy has rated Singapore as the most politically stable country in Asia and also Asia’s least bureaucratic country. The Singapore government is noted for its high integrity and pro-business approach. It is often described as rational, pragmatic, transparent and corrupt-free. Singapore is also characterized by a transparent, sound and efficient legal system. There are clear-cut rules and regulations pertaining to commerce, intellectual property protection, manpower and other business related areas. As a result, the level of risk involved in setting up and operating a Singapore offshore company is minimal and almost non-existent.

Sophisticated banking facilities
Singapore has emerged as the leading financial centre in the Asia Pacific region. Singapore offshore companies have a broad choice of world-class local and foreign banks for opening an account. Banks in Singapore offer a wide-array of attractive features such as multi-currency accounts, internet banking, credit cards, trade financing, freedom to move funds across countries and more. Although most of the banks require physical presence at the time of opening the account some of them are willing to make an exception on a case-by-case basis. The account opening process may take anywhere from 3-4 weeks depending on the amount of due-diligence undertaken by the bank.

Some basic features of the Singapore offshore company are listed below:

PARTICULARS DESCRIPTION
Directors Minimum of one local resident director (Singapore citizen, Singapore permanent resident, or Singapore work pass holder).
Any number of additional local or foreign directors can be appointed.
Directors must be natural persons and above 18 years of age.
shareholders A minimum of one local or foreign shareholder is required.
There can be a maximum of 50 shareholders.
A director and shareholder can be the same or different person.
A shareholder can be an individual or corporate body.
Company Secretary A local resident and qualified company secretary is required.
Company secretary must be a natural person and not a corporate body.
A sole director/shareholder cannot act as the company secretary.
Paid-up Capital Minimum paid-up capital of S$1 is required.
No authorized capital required.
Registered Address The company must have a local registered address (commercial or residential).
A PO Box address is not allowed.
Appointment of Incorporation Agent You must engage a professional firm such as our company to register a Singapore offshore company.
Singapore law does not allow foreign individuals or entities to self-register an offshore company in Singapore.
Relocation to Singapore You are free to incorporate and operate your Singapore offshore company from overseas without the need to relocate.

 

Nothing can summarise Singapore better than this quote from American businessman, Jim Rogers who moved to Singapore in 2007 – “If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia… Singapore 40 years ago was a swamp with a half a million people. Singapore now, 40 years later, is the country with the largest foreign currency reserve per capita of any country in the world…. It’s got the best education in the world, the best health care in the world. It’s astonishing to come to Singapore and see that everything works…. Singapore is going to be the financial center of Southeast Asia, probably Asia, and likely one of the top financial centers of the world.”

(This article is compiled by Mr. Chaitanya Kirtikar, Manager, Offshore and Free Zone Division)