Tax Residency of a Singapore Company

Any Singapore-registered company can be either a tax resident or a non-resident of Singapore. This classification is not necessarily determined by a company’s place of incorporation, as it works in some other countries.

Under local tax laws, to be considered a Singapore tax resident, your company should be directly controlled and managed from Singapore. Conversely, a company is not treated as a tax resident when control and management is exercised outside of Singapore. This principle applies not only to Singapore-registered companies but to foreign entities as well.

In simple words, it means — all the strategic decisions on the company policies and activities should be made within Singapore (e.g. decisions on managing financial issues, controlling the company’s bank accounts, appointing of managerial positions, deciding on reorganization matters, and other essential business functions crucial to the running of the company). So, basically, you should consider the place where your company’s board of directors meetings are conducted.

COVID-19 impact

In view of the disruption to international travel and business operations caused by the COVID-19 pandemic, conducting board of directors’ meetings in Singapore was not always possible due to the inability of some chief executive officers to enter the country. This situation raised concerns about whether it might affect the company’s tax residency status.

Following OECD guidelines, to support local businesses, the Inland Revenue Authority of Singapore (IRAS) has released a notice on the implications of the COVID-19 outbreak in terms of tax residency. It provides that a temporary change in location of the c-suite executives is an extraordinary and temporary situation caused by the COVID-19 crisis, and therefore should not affect the company’s residency for tax purposes.

The IRAS has made an exemption that allows companies to remain tax residents of Singapore, whether its directors were physically present in Singapore or not within the last two years. Under this exemption rule, IRAS will consider a company as a Singapore tax resident for YA 2021 and 2022, provided the following conditions are met:

1. The company was a Singapore tax resident for the preceding YA.
2. There are no other changes to the economic circumstances of the company (i.e. the principal activities and business model of the company, the nature of the business operations, the place where business is conducted, and the usual locations in which the company operates).
3. The directors of the company must attend Board of Directors meetings that are held outside of Singapore or online meetings (if held through video or teleconferencing). This option is allowed only if the directors are temporarily unable to travel to Singapore as a consequence of COVID-19 travel bans.

Note that this exemption may no longer be valid after border restrictions are lifted. So it would be good to arrange for your company directors’ travel to Singapore as soon as possible (if they reside overseas) to retain the company’s tax residency status.

As each country has its own COVID-related regulations, there might be situations that trigger an issue with the company’s dual residency. For example, in some cases, a temporary change of the place from where the company is controlled and managed may result in a situation where the company is considered resident in two countries simultaneously under their domestic laws. But as long as your country is among the list of countries that signed a Double Taxation Agreement (DTA) with Singapore, there is nothing to worry about, as the DTA prescribes specific rules ensuring that the entity is resident in one state only.

Generally, Singapore tax resident and non-resident companies are taxed in the same way (i.e. at a flat tax rate that is capped at 17%). However, usually, tax residency can directly affect your company’s corporate income tax. For instance, having secured a status of a Singapore resident company for tax purposes, your company can take advantage of certain benefits, such as:

• Qualifying for tax allowances, grants, and loans under Singapore business support programs, such as the Tax Exemption Scheme for New Start-Up Companies (where one of the main criteria is tax residency).
• Enjoying tax exemptions on qualified foreign-sourced service income, foreign branch profits, and foreign-sourced dividends.
• Saving your company from additional taxation in a foreign jurisdiction. You can reduce  tax due significantly or even to zero on qualified income that was already taxed in Singapore in a foreign jurisdiction that concluded a DTA with Singapore.
• Reducing your tax liability in Singapore by deducting taxes already paid in a foreign jurisdiction.

Taxable companies by resident type and chargeable income

A Certificate of Residence (COR) is an official document that proves that your company is a tax resident in Singapore. It is a powerful document that lets you take advantage of Singapore's DTAs by claiming tax deductions in foreign jurisdictions with which Singapore signed an agreement. Here you can find a sample of a COR.

Not every company needs to apply for a COR and can actually benefit from it. But it can help you save money in the long run. As a business owner, having a COR may allow you to broaden your business without having to worry too much about taxes

Who is eligible for a Certificate of Residence?

As not all companies can apply for a COR, before submitting an application make sure your company is one of the following eligible entities:

1. A Singapore-registered company that is able to satisfy the above-mentioned requirements to be regarded as a tax resident of Singapore and provide the supporting documentation to justify it.
2. A foreign-owned investment holding company (i.e. 50% or more shares of which are held by foreign companies incorporated outside Singapore or individuals who are not citizens of Singapore) with purely passive sources of income and which is receiving only foreign-sourced income, if it can show that:
   1. The control and management of the company's business is exercised in Singapore (i.e. board of directors’ meetings are held in Singapore). IRAS may require you to demonstrate that decisions on strategic matters are made in Singapore.
   2. It has valid reasons for setting up an office in Singapore.
   3. The company has related companies in Singapore that are tax residents of Singapore or have business activities in Singapore; and
   4. Receive support or administrative services from a related company in Singapore.
   5. It has at least one director based in Singapore who holds an executive position (not a nominee director) OR has at least one key employee based in Singapore.
3. A non-Singapore incorporated company (including branches of foreign companies, as they are controlled and managed by their overseas parent company), if it can show that:
   1. The control and management of the company's business is exercised in Singapore (i.e. the Singapore branch is exercising the full control and management of the company).
   2. The company has valid reasons for not incorporating in Singapore.

How to apply for a Certificate of Residence

To obtain a COR, you can submit an application to IRAS on myTax Portal. The document can be issued for the current calendar year or even up to four preceding calendar years.