In this article, we will cover:

• Introduction
• Cover income: gains from the sale or disposal of foreign assets 
• Received in Singapore 
• Received by an entity of a relevant group
• Adequate economic substance in Singapore (excluding for foreign Intellectual Property Rights) 
• Foreign Intellectual Property Rights 
• Conclusion

Singapore has recently amended its Income Tax act by introducing the new Section 10L on gains from Sale of foreign assets effective from January 1, 2024. The purpose of this new section is to bring Singapore’s tax regime in line with international anti-tax avoidance norms and to encourage substantial economic activities to be anchored in Singapore. 

Indeed, this section subjects gains or losses arising from the sale or disposal of any movable or immovable property situated outside Singapore, referred to as a “foreign asset,” to taxation in Singapore. 

Prior 2024, gains from the sale of foreign assets that were capital in nature were not subject to tax. Consequently, only gains from the sale or disposal of assets that were revenue in nature, irrespective of whether the income was Singapore or foreign-sourced, where taxed when received in Singapore.  

To ascertain if the gain were capital or revenue in nature, an analysis was required to determine if the company was engaged in trade. This assessment involved the use of the six badges of trade as defined by the Royal Commission on the Taxation of Profit in 1955.  

Now, as of January 1, 2024, gains from the sale or disposal of foreign assets shall be chargeable to tax under section 10(1)(g) of the Income Tax Act if all the below conditions are met. 

First, gains from the sale or disposal of foreign assets will trigger taxation if: 

• the gains would not otherwise be chargeable to tax as income under section 10(1); or
• the gains would otherwise be exempt from tax under this Act.

Then, gains from the sale or disposal of foreign assets will be chargeable to tax in Singapore if:  

• the gains are received in Singapore from outside Singapore; and  
• by an entity of a relevant group and if one of the two below conditions is met: 
  • the gains are derived by an entity without adequate economic substance in Singapore; or  
  • the gains are from the disposal of foreign Intellectual Property Rights. 

1. Covered income: gains from the sale or disposal of foreign assets

Gain or loss from the sale or disposal of any movable or immovable property situated outside Singapore, commonly refer to (not limited):  

• immovable property is situated outside Singapore;  
• equity securities and debt securities are registered in a foreign exchange;  
• unlisted shares are issued by a company incorporated outside Singapore;  
• loans where the creditor is a resident in a jurisdiction outside Singapore;  
• Intellectual Property Rights where the owner is a resident in a jurisdiction outside Singapore. 

2. Received in Singapore 

Received in Singapore, means that if the foreign sourced disposal gain is:  

• remitted to, or transmitted or brought into, Singapore; 
• applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; 
• applied to the purchase of any movable property which is brought into Singapore.  

As a result, if the gains belong to a foreign entity that is neither incorporated nor registered nor established in Singapore and that is not operating in or from Singapore, the gain will not be considered as received in Singapore.  

3. Received by an entity of a relevant group  

An entity is considered a member of a group of companies if its assets, liabilities, income, expenses and cash flows meet either of the following conditions:  

• included in the consolidated financial statements of the parent company of the group; or 
• excluded from the consolidated financial statements of the parent company of the group solely on size or materiality grounds or on the grounds that the entity is held for sale. 

A group is a relevant group if:  

• the entities of the group are not all incorporated, registered or established in Singapore; or  
• any entity of the group has a place of business outside Singapore. 

4. Adequate economic substance in Singapore (excluding for foreign Intellectual Property Rights) 

The foreign-sourced disposal gains will not be subject to tax in Singapore if the entity receiving the gain has adequate economic substance in Singapore.  

a. Pure equity-holding entity 

A pure holding company is a company that only owns interest in other companies in order to receive dividends and/or disposal gains in relation to shares and equity interests.  

Consequently, to meet the economic substance requirement the pure equity holding entity needs to satisfy the below conditions:  

• Submits required returns (i.e tax return) 
• Manages and performs its operations in Singapore; and  
• Possesses sufficient human resources and premises in Singapore to conduct its operations. 

b. Non pure equity holding entity  

A non-pure holding company is a company that not only owns interest in other companies. 
The economic substance requirement will be assessed based on the non-pure holding income-generating activity in Singapore. Therefore, to meet the economic substance requirement, the pure equity holding entity needs to fulfill the following conditions: 

• Manages and performs its operations in Singapore; and  
• Has adequate economic substance in Singapore, by considering the following:  
  • the number of its full-time employees in Singapore; 
  • the qualifications and experience of such employees or other persons;  
  • the amount of business expenditure incurred in respect of its operations in Singapore;  
  • whether the key business decisions of the entity are made by persons in Singapore. 

5. Foreign Intellectual Property Rights 

Qualifying Intellectual Property Rights (“IPRs”) means any patent or application for a patent under the Patents Act 1994 or the equivalent law of any country or territory; or any copyright subsisting in software by virtue of the Copyright Act 2021 or the equivalent law of any country or territory.  

The exemption is available for income derived from the use of a qualifying IPRs if the entity has incurred qualifying expenditure on Research and Development (“R&D”) activities related to the qualifying IPRs. There must be a direct nexus between the income receiving benefits and the expenses (qualifying expenditures) contributing to that income. 

Indeed, the portion of gains from the sale or disposal of qualifying foreign IPRs could be exempt from tax in Singapore if the modified nexus approach is applied to calculate this portion.  

The modified nexus approached corresponds to the below formula: 

¹QE: Qualifying expenditure: means the qualifying Research and Development expenditure incurred in respect of the qualifying IPRs to which the qualifying IP income disposal gains relate.

NE: Non-qualifying expenditure: means the nonqualifying expenditure incurred in respect of the qualifying IPR.

Conclusion

The introduction of Singapore’s new Section 10L marks a significant shift in the Singapore tax landscape, aligning it with the EU Code of Conduct Group’s updated guidance on FSIE regimes. This fundamental change underscores the importance of timely action, especially for low or no substance investment holding entities.  

For personalized assistance in understanding and managing the impacts of Section 10L, reach out to us for customized guidance and support. 

If you appreciate our content, you will also appreciate our other articles:

• You need to prepare the GST rate change of 2024 now!
• Understand how the ONE Pass and how to apply for this special Pass in Singapore.
• How to Calculate Singapore Taxes for Individuals in 2024?
• Learn everything about the Stamp Duty for shares and calculator in Singapore
• Making Sense of the Dividends Taxation and Regulations in Singapore

The post Section 10L: new tax treatment for gains from sale of foreign assets received in Singapore  appeared first on MyBusiness in Asia.

By the way, the GST rate increased from 7% to 8% in Singapore on January 1st 2023, and is increasing to 9% in 2024.

Is there any other increase scheduled?

No, so far the Singaporean Government has not announced any further increase of GST rate beyond the 9% in 2024.

.

About MyBusiness in Asia – MBiA

We are a tech multi-disciplinary advisory firm providing accounting, tax and corporate secretarial solutions to entrepreneurs, startups and SMEs for all their business matters.

Our experts help you to understand all aspects of doing business in Asia. Feel free to reach out to know more.

What is the GST?

The Goods and Services Tax (GST) is the equivalent of a Value-Added Tax (VAT) in other countries. The tax levied on the consumption of goods and services in Singapore.

To know more about GST and if your company require to register to GST, read our full guide on GST.

You should prepare for the GST rate change of 2023!

What do I need to do to change the GST rate?

For most businesses collecting GST (see if you are required to collect GST here), the GST rates stated on invoices will need to be updated from 8 to 9%. All invoices and payments received on January 1^st of 2024 or after must account for 9% GST rate (if your business is GST registered).

Please make sure all your accounting systems are up to date with the new rate, this includes your point-of-sale, invoicing, accounting software and all systems which include the GST.

What if my product or service has been fully provided and/or fully paid before 2024?

The GST is 8% for goods and services fully delivered and/or fully paid before January 1^st 2024.

If you have completed the order by fully delivering the good or perform all services before the end of the year 2023, then you may charge the GST at 8%.

In the other case, if you have issued the invoice and received full payment for the invoice in 2023, then you may charge a 8% GST rate.

What if my product or service has been partially completed OR partially paid before 2024?

If you have been partially paid before January 1^st 2024, you are required to collect a 9% GST rate on all remaining payment made on or after January 1^st 2024.

If you have partially delivered your goods or services, you are required to collect 9% GST rate on the remaining value of the service performed and/or good delivered on January 1^st 2024 or after.

On the other hand, if your service or goods have not been paid or delivered in 2023, the 9% GST rate applies to the entire transaction value.

For instance:

• You sold a good or service worth SGD 100 (excluding GST) on December 10^th 2023.
• On December 20^th 2023, SGD 40 worth of the good or service has been delivered.
• On December 22^nd 2023, the tax invoice for the full good or service of SGD 100 has been issued.
• On January 5^th 2024, the client paid the full invoice for GST 107.00 (including GST at 8%).
• The full good or service is expected to be delivered before the end of January 2024.

In that case you need to:

• Issue by January 15^th 2024, a credit note:
  • For the entire invoice (SGD 100 + SGD 7 for the 8% GST collected), OR
  • For the part of the good or services delivered after the end of 2023 (SGD 60 + SGD 4.2 for the corresponding 8% of GST collected).
• Issue a new tax invoice by January 15^th 2024 a new tax invoice:
  • For the entire invoice with 2 separate parts (SGD 40 + SGD 2.8 for the 8% GST collection AND SGD 60 + SGD 4.8 for the 9% GST collection) each corresponding to the part of the good/service delivered before 2024 and during 2024, OR
  • For the part of the good or service delivered in 2024 (SGD 60 + SGD 4.8 for the 9% GST collection)

What if my product or service has been partially completed AND partially paid before 2024?

In that case, you must charge a 9% GST rate on the smaller remaining value of goods/services to be delivered OR payments to be made.

For instance:

• You sold a good or service worth SGD 100 (excluding GST) on December 10^th 2023.
• On December 20^th 2023, SGD 40 worth of the good or service has been delivered.
• On December 22^nd 2023, the tax invoice for the full good or service of SGD 100 has been issued.
• On December 26^th 2023, payment is received for SGD 60 of the good or service.
• The full good or service is expected to be delivered before the end of January 2024.

In that case you need to:

• To issue a credit note and new tax invoice for the smaller remaining amount in value:
  • In that case, there is SGD 60 worth of good or service to be delivered in 2024, and, SGD 40 payment expected to be paid in 2024.
  • The SGD 40 expected payment is the smaller, the 9% GST rate should apply to the remaining payment in 2024.

What if an invoice has already been issued on 8% GST rate?

If your invoice has not been fully paid or the services or goods fully delivered before 2024, the GST rate needs to be adjusted on for a part or the invoice in full.

In this case, you can issue a credit note and a new tax invoice to the customer/client before January 15^th 2024 to reflect the new GST rate and the GST amount chargeable.

Please note that you are not allowed to issue a simplified tax invoice subject to two rates. But you can issue an invoice clearly stating which parts of the supply are subject to a 8% GST rate or 9% GST rate. Or, you can issue 2 separate tax invoices, one for each GST rates.

What if I use Xero for my accounting?

You should easily find a button set up by Xero to increase your GST rates to 9% by default “Update to 9% defaults”. Although you should still check in your Xero account that the new 9% rate applies in the following:

• Invoices and bills (including repeating templates)
• Bank reconciliation and bank rules
• Drafted transactions (invoices, bills and manual journals)
• Xero HQ Chart of Account template
• Financial practice settings in Xero Practice Manager
• ALL apps you have connected through the Xero App Store

You can find more information on Xero’s website.

My issue is not part of the list above?

You can either check the e-tax guide assembled by the Inland Revenue Authority of Singapore (IRAS) on GST Rate Change.

The alternative is to avoid the struggle and let MBiA handle your accounting, all your accounting, including the GST rate change of 2024!

The post You need to prepare the GST rate change of 2024 now! appeared first on MyBusiness in Asia.

Tax Residency for individuals in Singapore

Tax Residency for Individuals in Singapore

It is important to understand that taxation in Singapore is contingent upon an individual’s residency status as defined by the Inland Revenue Authority of Singapore (IRAS). An individual is deemed a tax resident for a specific Year of Assessment (YA) under the following circumstances:

1. If they are a Singapore Citizen or Singapore Permanent Resident residing in Singapore, except for temporary absences; or
2. If they are a Foreigner who has been in Singapore:
   • For a minimum of 183 days in the preceding calendar year; or
   • Continuously for three consecutive years, even if the duration of stay in Singapore is less than 183 days in the initial and/or third year; or
3. If they are a Foreigner who has been employed in Singapore for a continuous period spanning two calendar years, with a total stay of at least 183 days (including the period preceding and following the employment). This pertains to employees entering Singapore, excluding directors, public entertainers, or professionals.

If you meet these criteria, you will qualify as tax resident, which means that all income acquired within Singapore is subject to taxation.

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About MyBusiness in Asia – MBiA

We are a tech multi-disciplinary advisory firm providing accounting, tax and corporate secretarial solutions to entrepreneurs, startups and SMEs for all their business matters.

Our experts help you to understand all aspects of doing business in Asia. Feel free to reach out to know more.

Foreign-sourced income for Singapore residents

At the same time, Foreign-sourced income, barring that received through partnerships within Singapore, remains tax-exempt upon its entry into the country. Opportunities for tax optimization arise through deductions applicable to expenses, donations, and personal reliefs. Further details on deduction strategies are available to enhance tax efficiency.

The income of tax residents undergoes taxation at progressive rates, ranging from 0% to 22%, post the deduction of allowable expenses, donations, and personal reliefs.”

However, failure to meet the aforementioned conditions designates an individual as a non-resident for tax purposes in Singapore.

Breakdown of the Taxable Incomes in Singapore

Now that we have covered the distinctions between resident and non-resident individuals, let’s dive deeper into what constitutes taxable income for individual residents in Singapore:

1. Employment Income: This is the bread and butter. Any income you earn from your employment, including salaries, wages, bonuses, allowances, and benefits-in-kind, is considered taxable. It’s the core of your taxable income.
2. Gains from Stock Options: If you’re a stock maven and benefit from stock options or stock awards from your employer, the gains from these are also included in your taxable income, subject to certain conditions.
3. Rental Income: If you’re a landlord, the rental income you receive from leasing out your property is taxable. However, you can deduct certain expenses related to the property, such as property tax and maintenance costs.
4. Taxable Benefits: Certain perks and benefits provided by your employer may be considered taxable. These can include things like housing allowances, car benefits, and more.
5. Director’s Fees: If you’re a director of a company and receive fees for your services, these fees are also part of your taxable income.

Not all that is received by an individual is taxable. Certain items, like gifts, inheritances, and winnings from betting or lottery, are typically exempt from income tax. To calculate your Singapore taxes thus require an understanding of all your revenues.

Focusing on Taxes payable on Bonuses (as part of your income as an employee in Singapore)

In the realm of taxation, the compensation you receive, commonly known as salary, is subject to taxation. This encompasses remuneration, whether in cash or other forms, received for the services rendered as an employee to an employer. Bonuses also fall within the tax ambit. Bonuses, whether contractual or non-contractual, carry tax implications.

A. Contractual Bonus

A contractual bonus aligns with the terms stipulated in a service contract and holds legal weight, impervious to withdrawal by the employer without legal repercussions. Examples include the 13th-month payment or annual wage supplement, and bonuses dispensed under schemes such as a ‘deferred bonus plan’ or ‘retention bonus plan’. The entitlement to a contractual bonus arises in the specified year outlined in the contract or bonus plan, typically corresponding to the year of service.

• Example 1: Taxable Contractual Bonus

If an employer’s obligation to disburse a bonus is dependent on future conditions, entitlement arises only upon meeting these conditions.

• Example 2: Conditions Contingent Contractual Bonus

Should such bonuses be disbursed before condition fulfilment, taxation occurs at the payment of the bonus. If conditions remain unmet and the employee returns the bonus, the refunded amount is treated as an income adjustment in the year of refund.

• Example 3: Advance Payment with Future Conditions

Discretionary bonuses transmuting into legally binding agreements are taxable when the employer commits contractually to disburse them, and employees gain entitlement.

B. Non-contractual Bonus

Conversely, a non-contractual bonus is subject to withdrawal or cancellation by the employer before actual payment without legal ramifications. Taxation is contingent upon the bonus payment date.

After reviewing the taxation on your salary and bonuses in Singapore comes the question of taxes to pay for individuals in Singapore.

How much Taxes do you have to Pay in Singapore?

Singapore follows a progressive tax rate, which means that the more chargeable income is declared the more taxes are payable to the local tax authority. The framework has been amended in 2022 to reflect the new salary landscape in Singapore. You calculate your Singapore taxes with the table below:

Calculate your Singapore Taxes based on your Taxable Income (2024)

This calculator is for your information only and does not include additional tax reliefs and other taxable incomes.

When and How to Pay Individual Taxes?

Taxation in Singapore adheres to the calendar year as the taxable period. Income earned in the preceding calendar year undergoes assessment in the subsequent calendar year, constituting the year of assessment.

Taxpayers are obliged to submit an annual income return, inclusive of necessary particulars for determining personal reliefs and deductions. This submission follows the calendar year and is due by the 15th of April, with an extension to the 18th of April for electronic filings.

The assessed tax is due for payment within one month from the assessment date, irrespective of whether a notice of objection has been filed with the tax authorities. The window for objecting stands at 30 days from the notice of assessment date, beyond which the assessment attains finality.

Employees can opt, upon application, for a convenient monthly instalment payment plan with no interest, facilitated through the Interbank GIRO system—an interbank fund transfer mechanism endorsed by the tax authorities.

Individual Taxes for non-resident in Singapore

Non-resident tax obligations in Singapore encompass distinct rates depending on the nature of income. For employment income, non-residents face taxation at a flat rate of 15% or the prevailing progressive resident tax rates—whichever results in higher tax liability (refer to the table above).

As for director's fees, consultation fees, and miscellaneous income, a consistent tax rate of 22% applies to non-resident individuals. This rate encompasses a spectrum of earnings, ranging from rental income to pensions and director's fees. It excludes employment income and specific categories subject to reduced withholding rates (refer to the section on Withholding taxes on income of non-resident individuals below).

Beginning from the Year of Assessment 2024, there is a slated adjustment in the income tax rate for non-resident individuals (excluding employment income and select categories with reduced withholding rates), seeing an increment from 22% to 24%. This measure aims to uphold congruence with the top marginal income tax rate applicable to resident individuals, maintaining a balanced fiscal landscape.

If you appreciate our content, you will also appreciate our other articles:

• Share Certificates in Singapore: Overview and Legal Considerations 
• Tout comprendre sur fiscalité des entreprises à Singapour en 2024 
• Work Permit Quota System in Singapore: A Concise Guide for Small Business Owners
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The post How to Calculate Singapore Taxes for Individuals in 2024? appeared first on MyBusiness in Asia.

Over the years, the holding structure became one of the most popular setups that businesses operate in Singapore, as this structuring offers various advantages for your business.

Key aspects to understand the Company Framework

A holding company, also known as the “parent” or the “umbrella” company, is a legal entity that usually does not conduct business but owns shares or assets in other companies.

All business operations are carried out by its subsidiary companies. The parent company can access the resources of its subsidiaries and benefit from their profits, and it is not affected by the liabilities of the subsidiaries. A company will be defined as a subsidiary, if more than 50% of its ownership are owned by the parent company.

A Singapore Holding Company is the one that is registered in Singapore. Meanwhile, its subsidiaries and assets do not necessarily reside in Singapore.

Taxation and other Benefits of setting up a Holding Company in Singapore

Singapore has a well-known attractive tax system for companies. Holdings that settle there can benefit from a variety of tax incentives, such as the single-tier corporate tax system, foreign-income tax exemption, double-tax treaties, no capital gains tax, dividends tax-exemption and so on. Knowing more about taxation in Singapore will allow holdings to optimize their tax liabilities.

Many other benefits are worth to mention:

• Protection on assets: a holding company, being a separate legal entity, allows the protection of the assets transferred to a subsidiary and the reduction of loss risk resulting from any liabilities of the subsidiary.
• Protection from loss: the holding company is not liable for the actions of its subsidiaries. Besides, the subsidiaries of a holding company are separate legal entities, so the fall of one of them will not affect the others, which ensures safety for the structure.
• Flexibility: there is no obligation for the assets nor the subsidiaries to domiciliate in Singapore. This provides flexibility as it allows to conduct business operations wherever it is advantageous for the company.
• Favourable regulations: Singapore offers many favourable regulations for its holding companies. They may benefit from government incentives for qualifying activities, including the Global Trader Programme, or the Pioneer Certificate Inventive and the Development and Expansion Incentive. They also benefit from some deductive expenses allowed by the Accounting and Corporate Regulatory Authority (ACRA) and from a simplified compliance framework, with the two main obligations of usual tax filing and financial reporting.
• Gateway for investment: the holding company may be used as investment vehicle to acquire shares in another company, it will ease the acquisition and the future sale.
• Centralized management: in addition, the holding company may also be used to operate the group by defining global strategies for the subsidiaries under its control.

Challenges with a Holding Company

Despite the numerous advantages that implies the holding company, combined with its establishment in Singapore, this structure also has some challenges to face. Being separate entities, there can be some misinformation between the parent company and the subsidiaries, a misunderstanding of the overall goals of the parent company from its subsidiaries, a lack of transparency from both sides, or some conflicts of interest.

All of these disadvantages can result in jeopardizing the decision-making in a company.

Registration Process for a Holding Company in Singapore

Although a Singapore Holding Company can be registered under different corporate structures, a private limited company is generally the best option, as it offers the most optimal advantages (separate legal personality, limited liability, tax incentives…).

In that case, the registration requirements are:

• Having at least one local director resident of Singapore.
• Having 1 to 50 shareholders.
• Minimum issued share capital of SGD 1.
• Appointing one resident company secretary.
• Having a local Singapore address registered.

If these requirements are met, the incorporation follows a three steps process :

• Choosing a company name and getting it approved by the ACRA
• Submitting the application with the required company’s information with ACRA
• Opening a corporate bank account

This process of incorporation usually takes 3 to 5 days to complete.

It should be noted that a company that does not qualify for the audit exemption criteria in Singapore, is required to audit its accounts.

Wrapping up on Singapore’s key advantages

The minimization of risk, flexibility and asset protection all contribute to the popularity of holding companies. And the tax regime, regulatory framework and overall system in Singapore make it a prosperous place to operate business.

It should be noted that setting up the holding company as a private limited company is seen as an optimal choice.

Registering a holding company in Singapore is quite similar to incorporating any other company in Singapore. To do so, a corporate service provider may need to be appointed, in particular for foreign investors.

If you appreciate our content, you will also appreciate our other articles:

• Trends and View of the Startup Environment in Hong Kong
• Understand how the ONE Pass and how to apply for this special Pass in Singapore.
• Apply for an EP in Singapore and understand the new COMPASS framework.
• Learn everything about the Stamp Duty for shares and calculator in Singapore
• Making Sense of the Dividends Taxation and Regulations in Singapore

The post The Best Reasons to Incorporate a Holding Company in Singapore appeared first on MyBusiness in Asia.

Some companies utilize intermediation to charge for services that would typically be compensated through salaries. This approach allows the company to take advantage of the lower CIT rate compared to the PIT rate. Consequently, it may appear that employing intermediation through a company to charge for salary-like services enables the company to benefit from a lower tax rate.

However, if an individual establishes a company solely to receive income, the company can be disregarded, and all income derived from it will be subject to PIT.

As with any tax situation, taxpayers must substantiate the legitimate nature of this type of arrangement and demonstrate that the primary purpose was not to reduce or avoid tax.

Recently, the Singapore Courts have ruled on several cases of this nature, particularly regarding whether such arrangements constitute an abuse of rights under Section 33 of the Singapore Income Tax Act (ITA), also known as the Anti-Avoidance Rules.

Understanding avoidance rules according to Article 33 of the ITA

Principle

In principle, taxpayers have the freedom to structure their affairs through arrangements, encompassing regimes, trusts, grants, undertakings, agreements, dispositions, transactions, and the steps involved in implementing such structures (Section 33, (5) of the ITA).

Exception

Nevertheless, the ITA imposes limits on this freedom. Section 33 of the ITA grants the Inland Revenue Authority of Singapore (IRAS) the authority to reclassify an arrangement if its purpose or direct or indirect effect is to obtain a tax benefit.

Exception to the exception

However, an arrangement established for a legitimate business reason and with one of its primary objectives not being the reduction or avoidance of tax does not fall under the category of avoidance rules (Section 33(7) of the ITA).

Substantiating the Nature of the Company Intermediation

In most cases, tax avoidance is determined by the absence of, or low remuneration between the intermediary company and the taxpayer, rather than the mere incorporation and use of an intermediary company.

Thus, taxpayers retain the freedom to establish a company to receive income that would typically be obtained personally, as long as the level of remuneration, which is then taxable at a personal level, remains reasonable and aligned with market standards.

Therefore, the establishment of an intermediary company does not automatically qualify as an avoidance rule.

Moreover, an arrangement that reduces or modifies tax liability or relieves a taxpayer from tax obligations is not automatically considered tax avoidance.

It will only be deemed as such if the taxpayer can substantiate the commercial nature of the arrangement and demonstrate that one of its primary objectives was not to reduce or avoid tax.

If you appreciate our content, you will also appreciate our other articles:

• Trends and View of the Startup Environment in Hong Kong
• Understand how the ONE Pass and how to apply for this special Pass in Singapore.
• Apply for an EP in Singapore and understand the new COMPASS framework.
• Learn everything about the Stamp Duty for shares and calculator in Singapore
• Making Sense of the Dividends Taxation and Regulations in Singapore

The post The Singapore Tax Avoidance Rules for Company Intermediation appeared first on MyBusiness in Asia.

A Territorial based tax system

Profits made in Hong Kong will be subject to the local corporate income tax of 16,5% (8.25% for the first 2 million Hong Kong dollars of profits), while the foreign derived profits are exempt from tax in Hong Kong.

As a rule of thumbs, if the company has no economic substance in Hong Kong nor any of its investors and directors are based in Hong Kong, the company could see its profits qualified as offshore.

Indeed, unlike Singapore, Hong Kong does have a real offshore status for companies that have no economic substance in Hong Kong. Additionally, if none of the investors and directors are based in Hong Kong, the company could see its profits qualified as offshore.

It is important for businesses and investors to understand the different tax implications and regulatory environment when operating in different sectors. The onshore status offers more stability and transparency but also comes with higher tax liabilities, while the offshore status offers more tax benefits. However, it can be seen as insecure for potential investors or bring attention from tax authorities.

In order to mitigate risks and concerns, the Hong Kong government in response to the European Union, has refined its Foreign Source Income Exemption (FSIE) regime effective from 1st January 2023.

Onshore status of Profits in Hong Kong

As explained, if the incomes of the company are generated in Hong Kong, they must be taxed in Hong Kong.

Moreover, if the company qualifies for the resident status in Hong Kong, the company will have access to the tax benefits of DTAs (Double Taxation Agreements). Please note that to be tax resident of Hong Kong, the business of the company must be controlled and managed from Hong Kong.

As of today, Hong Kong has signed 43 DTAs with different countries. The purpose of a DTA is to define the tax residence and the place of taxation of an income in order to avoid double taxation of individuals and companies who are resident in the jurisdictions of the signatory countries.

The Profits that Qualify as Offshore

According to the existed territorial source principle of taxation, only profit sourced from Hong Kong is subject to profits tax in Hong Kong. Moreover, passive incomes arisen in or derived from outside Hong Kong and received by a Hong Kong registered company are not subject to tax under the FSIE regime.

Under the new FSIE Regime and for income received in Hong Kong, non–intellectual property passive income may be deemed to be sourced from Hong Kong and subject to Hong Kong profits tax if they are received by a multinational enterprise group entity in Hong Kong which fails to meet the economic substance requirements.

For intellectual property income, they will also be subject to Hong Kong profits tax if they are received by a multinational enterprise group entity in Hong Kong which fails to meet the specific approach.

The conditions are tightened but the offshore status remains in Hong Kong. Indeed, the offshore status is more defined but brings more security and could show more credibility to some groups of companies.

However, if companies are looking for tax optimization in Hong Kong, it is critical to understand the differences between the onshore and offshore status. The offshore status offers great tax benefits, but it is important to not forget that the corporate income tax rate in Hong Kong remains one of lowest in Asia.

If you appreciate our content, you will also appreciate our other articles:

• Trends and View of the Startup Environment in Hong Kong
• Understand how the ONE Pass and how to apply for this special Pass in Singapore.
• Apply for an EP in Singapore and understand the new COMPASS framework.
• Learn everything about the Stamp Duty for shares and calculator in Singapore
• Making Sense of the Dividends Taxation and Regulations in Singapore

The post Explanation of the Onshore and Offshore Profits in Hong Kong appeared first on MyBusiness in Asia.

This issue covers the critical decision factors in selecting where to start your tech startup in Asia. This includes:

• Incorporation and Set Up Requirements
• Tax Rules
• Immigration and Visa
• Costs and Expenses
• Environmental Risk

You can view the document or download it with the links below!

MBiA – MyBusiness in Asia is a multi-disciplinary advisory firm providing accounting, tax and corporate secretarial services to entrepreneurs and corporations for structuring and administrating their affairs.
Our services are fully integrated and digitalized to provide a high-quality and swift response to your needs.

We complement our virtual offerings with established and recognized know-how from experts able to support you. We can assist we insights going beyond our guide of Setting Up Your Tech Startup in Asia.

The post Guide on Setting Up Your Tech Startup in Asia appeared first on MyBusiness in Asia.

Overview of the Singapore Corporate Tax Rate System

Singapore operates a one-tier corporate tax rate system, under which corporate tax paid on a company’s profits is final.

Dividends paid by Singapore resident companies are tax exempt in the hands of the recipient. Foreign-source dividends are taxable as income for the company or individual if received or deemed to be received in Singapore, unless certain conditions are satisfied.

Singapore’s corporate income tax rate is a flat 17%, which applies to both local and foreign companies. For a company, this means that their taxable income (often, their profits), will be taxed at 17%. However, there are various tax exemptions and rebates that can reduce the effective tax rate for companies.

The Tax Exemption Scheme for newly incorporated Startups

The Start-Up Tax Exemption (SUTE) scheme is designed to encourage entrepreneurship and support new businesses in Singapore. Under this scheme, qualifying new companies are given the following tax exemption for the first three (3) consecutive Years of Assessment (YAs):

From 2020 onwards: 75% exemption on the first SGD100,000 of normal chargeable income; and a further 50% tax exemption on the next SGD100,000 of normal chargeable income .

This means that eligible companies with taxable income of SGD 100,000 will only have to pay taxes (of 17%) on SGD 25,000.

In this case, the effective tax rate for the first SGD 200,000 of revenues is ~6.38%. The normal tax rate of 17% then applies.

Qualifying criteria for SUTE Scheme

Although the Startup Tax Exemption Scheme is extremely beneficial to companies for their first 3 years of assessment, companies must meet the following criteria to be eligible:

• The company must be incorporated in Singapore;
• The company must be a tax resident in Singapore for that YA; (the criteria for a company to be considered tax resident are detailed below).
• The company must have no more than 20 shareholders throughout the basis period for that YA where:
  • All of the shareholders are individuals beneficially and directly holding the shares in their own names; or
  • At least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.

The SUTE scheme does not apply to the following types of companies:

• A company whose principal activity is that of investment holding; or
• A company whose principal activity is that of developing properties for sale, investment, or both.

Alternatively, another scheme is available.

The Partial Tax Exemption (PTE) Scheme

The Partial Tax Exemption (PTE) scheme is applicable to all companies that do not qualify for the SUTE scheme. Also, the PTE scheme is valid for every year of assessment until repealed or amended.

Under this scheme, qualifying companies are given the following tax exemption:

From 2020 onwards: 75% exemption on the first SGD10,000 of normal chargeable income; and a further 50% exemption on the next SGD190,000 of normal chargeable income.

A company with a profit of SGD 50,000 will be taxed at 17% on SGD 22,500 of income only (SGD 2,500 + SGD 20,000).

Under the SUTE Scheme, the effective tax rate for the first SGD 200,000 of revenues is ~8.29%. The normal 17% tax rates then applies.

How to be a Corporate Tax Resident in Singapore

The companies operating in Singapore, may be considered tax resident or a non-resident for income tax purposes. This is important because tax residents enjoy certain benefits and privileges that non-residents do not, such as lower tax rates, tax exemptions, and tax reliefs.

According to the Inland Revenue Authority of Singapore (IRAS), a company is a tax resident in Singapore if the control and management of its business is exercised in Singapore. This means that the strategic decisions of the company, such as those relating to policy matters, finance, and business operations, are made by the directors or senior management in Singapore.

The location of the company’s incorporation, registration, or head office is not relevant for determining its tax residency status. Similarly, the place where the company’s income is derived or received is also not relevant.

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The post How to Lower Your Singapore Corporate Tax Rate appeared first on MyBusiness in Asia.

Here is a list of tax incentives currently in force in Singapore

1. Pioneer Tax Incentive

Companies providing qualifying services or high technological content can be exempt from tax on their qualifying profits for 5 to 15 years.

2. Development and Expansion Incentive

Reduced tax rates apply to companies engaging in new high value-added projects, expanding or improving their operations, or undertaking additional activities after their pioneering period. Income derived from these activities is subject to a 5% tax rate.

3. Intellectual Property (IP) Development Incentive

A 5% or 10% tax rate may apply to income from the commercialization of specific IP.

4. M&A Allowance

The M&A allowance allows for the amortization of 25% of the value of qualifying merger or acquisition transactions completed between April 1, 2015, and December 31, 2025. The amount of the allowance, which can be claimed over five years, is subject to a cap of 5 million SGD or 10 million SGD, depending on the transaction completion date.

This incentive is available to companies incorporated, tax resident, and carrying on business in Singapore. A 200% tax allowance is also provided on transaction costs (capped at SGD100,000 per year of assessment) incurred in connection with qualifying transactions.

5. Financial Services Incentives

a. Finance and Treasury Center Incentive

A reduced rate of 8% may apply to income arising from finance and treasury approved activities.

b. Financial Sector Incentive

Financial institutions meeting specific criteria may apply for a reduced tax rate between 5% and 13.5% concerning income from certain high-growth and high-value-added financial activities.

c. Real Estate Investment Trusts (REIT)

Listed REITs may apply for a reduced tax rate and tax exemption concerning rental real estate income arising in Singapore or income received in Singapore arising from foreign investment.

d. Insurance Business Development Incentive

A 10% tax rate may apply to insurers’ income arising from insurance activities in Singapore. This rate also applies to income arising from insurance broking and advisory services.

6. Global Trader Programme Incentive

A preferential rate of 5% or 10% may apply to qualifying income from physical trading, brokering of physical trades, and derivative trading income made by international traders.

MyBusiness in Asia can assist you in determining if your business or activities are eligible for any Corporate Tax Incentives in force in Singapore. Do not hesitate to reach out to us and discuss your eligibility and how to structure your projects in Singapore and the rest of Asia.

Read our other articles

• Understand how the ONE Pass and how to apply for this special Pass in Singapore
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Or click our banner to discuss with us on how we can fully support your business

The post Unlocking Singapore’s Corporate Tax Incentives: A Comprehensive Guide appeared first on MyBusiness in Asia.

Employee stock options are an increasingly popular compensation tool used by employers to reward and retain staff by companies. With the right information and a thorough understanding of how they work, employee stock options can be a great way for the company to build wealth and secure future and present talents.

Employee incentives can also provide ownership in the company, which can help to motivate and retain them (to work towards the company’s goals). This can be an important factor in attracting top talents too.

Different Types of Employee Stock Options

Phantom Shares Option Plan

PSOP or “phantom shares option plan” grants an employee the right to receive a cash payment instead of becoming shareholders which will be paid at a designated time or in association with a designated event in the future. These plans normally grant a right to receive cash payments proportional to the price/value of the granted shares.

Employees participating in the plan generally receive cash bonuses of an amount based on the growth in value of the company. There are no specific legal requirements. Consequently, it will be the liability of the company to draft the PSOP agreement with additional diligence. PSOP are therefore legally similar to a bonus, but they track the value of the company instead of individual performance.

Hence, employees under PSOP have shared mutual interests with the shareholders.

Employee Stock Option Plan (‘ESOP’) and Employee Share Ownership (‘ESOW’)

ESOP gives an employee the right to purchase shares in a company at a pre-determined price within a specified period. An employee who is granted share options by an employer will be taxed on any gains or profits arising from exercising the share option.

ESOW plans allow for an employee to own or purchase shares in the company or in its parent company. They include share awards and other similar forms of employee share purchase plans (excluding phantom shares and share appreciation rights).

ESOPs and ESOWs are contractual agreements between employees and companies. They can be granted to selected employees on a discretionary basis. In some cases, the plan can include selling restrictions to prevent an employee from selling shares acquired through an ESOP/ESOW before a future event occurs or a certain period elapses.

Unlike PSOPs, ESOPs and ESOWs have clear legislative requirements. An ESOP or ESOW allows the company the flexibility to grant the plan on a discretionary basis and decide on the conditions, number of shares etc. However, the setup is complex and involves following rules and regulations.

Stock appreciation rights plan

SARs or Stock Appreciation Rights are a type of employee compensation linked to the company’s stock price during a predetermined period. SARs are a benefit for employees when the company’s stock price rises. Employees do not have to pay the exercise price with SARs. They receive an increase in stock or cash, which provides additional flexibility.

The primary advantage of SARs is that employees can receive extra benefits without buying stock. SARs are similar in some ways to phantom stock. The major difference is that phantom stocks are typically reflective of stock splits and dividends.

Setting up an Employee Incentive Schemes

Understanding how employee stock options work can be a complex process, and there are many resources available to help. But the most important is to work with a professional to ensure that the plan meets the company’s objectives and is compliant with the applicable laws and regulations.

Moreover, tax implications will not be the same for the employee. In this case, it is also recommended to understand the tax consequences of each schemes.

Read our other articles

• Understand how the ONE Pass and how to apply for this special Pass in Singapore
• Apply for an EP in Singapore and understand the new COMPASS framework
• Learn everything about the Stamp Duty for shares and calculator in Singapore
• Making Sense of Dividends Taxation and Regulations in Singapore
• Outsourcing Company’s Payroll Services in Singapore

Or click our banner to discuss with us on how we can fully support your business!

The post Most Attractive Employee Incentive Schemes for Startups appeared first on MyBusiness in Asia.