A company is either a tax resident or a non-resident of Singapore. In Singapore, the tax residency of a company is determined by where the business is ‘controlled and managed’. The residency status of a company can therefore change from year to year.
Generally, a company will be considered to be 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 2021 if the control and management of its business was exercised in Singapore for the whole of 2020. Conversely, a company is a non-resident if the control and management of the company was not exercised in Singapore.
‘Control and management’ is the making of decisions on strategic matters, such as those on company policy and strategy. The place of incorporation of a company is not necessarily indicative of the tax residence of a company.
Where the control and management of a company is exercised is a question of fact. Typically, the location of the meetings of a company’s Board of Directors, during which strategic decisions are made, is a key factor in determining where the control and management is exercised.
Foreign-owned investment holding companies – where 50% or more of its shares are held by foreign companies that are incorporated outside Singapore or individual shareholders who are not citizens of Singapore – with purely passive sources of income or receiving only foreign-sourced income are generally regarded as non-residents because such companies usually act on the instructions of its foreign companies/shareholders.
However, they may still be treated as Singapore tax residents and issued with a Certificate of Residence (COR) if they are able to satisfy the Inland Revenue Authority of Singapore (IRAS) that the control and management of the company’s business is exercised in Singapore and the company has valid reasons for setting up an office in Singapore.
To satisfy IRAS, such companies must demonstrate that decisions on strategic matters are made in Singapore, for example by showing IRAS that their Board of Directors’ meetings are held in Singapore. The company must also
- Have related companies in Singapore that are tax residents of Singapore or have business activities in Singapore; or
- Receive support or administrative services from a related company in Singapore; or
- Have at least one director based in Singapore who holds an executive position and is not a nominee director; or
- Have at least one key employee (CEO, CFO or COO) based in Singapore.
Non-Singapore incorporated companies and Singapore branches of foreign companies are controlled and managed by their foreign parent and are, therefore, regarded as non-residents. However, in exceptional situations, IRAS may still issue a COR if these companies are able to satisfy it that:
- The Singapore branch is exercising the full control and management of the company; and
- The company has valid reasons for not incorporating in Singapore.
While resident and non-resident companies are generally taxed in the same manner, resident companies enjoy certain benefits including:
- Tax benefits provided under Avoidance of Double Taxation Agreements (DTAs) that Singapore has concluded with other jurisdictions;
- Tax exemption on foreign-sourced dividends, foreign branch profits and foreign-sourced service income under section 13(8) of the Income Tax Act; and
- Tax exemption for new start-up companies.
Singapore tax residents that derive income from other countries may also apply to IRAS for a Certificate of Residence (COR). Tax residents need this certificate to claim benefits under the DTAs that Singapore has concluded with other jurisdictions.