Singapore is one of the best countries in the world to incorporate an offshore company. Its strategic location, highly-skilled workforce and pro-business environment allow it to be the ideal regional hub for multinational corporations and entrepreneurs seeking to venture into the sizable Southeast Asian market.
There are many advantages of incorporating an offshore company in Singapore. This article will go through some of the reasons.
A Note on Tax Exemption
Your offshore company enjoys tax exemptions if certain conditions are met, such as having legal control outside the country and conducting no business or banking in the country.
Singapore has low corporate and personal income tax rates. It also has various tax incentives and tax relief measures. There is a territorial one-tier tax system with no capital gains or dividend tax. Its tax treaty network is extensive, enabling companies to reduce tax liabilities by avoiding double taxation in treaty countries where cross border businesses and investments are conducted.
Territorial Basis of Taxation
As Singapore follows a territorial basis of taxation, taxes only apply to income that is gained or sourced from, or received in Singapore. Foreign-sourced income received in Singapore that meets the conditions listed below, is exempted from Singapore tax too:
- The foreign income had been taxed in the foreign jurisdiction (known as the "subject to tax" condition). The rate at which the foreign income was taxed can be different from the headline tax rate;
- The highest corporate tax rate (“foreign headline tax rate” condition) of the foreign jurisdiction is at least 15% at the time the foreign income is received in Singapore; and
- The Comptroller (i.e. the person in your company, usually management-level, overseeing the accounting and financial reporting of a company) is satisfied that the tax exemption would be beneficial to the person residing in Singapore.
Single-tier Tax Policy
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, protecting you against double taxation and to avoid paying taxes in both countries it is exposed to.
Kiraz Pte. Ltd. is a Singapore resident company. Its owner and shareholder, Mr. Malik, paid $70,000 in corporate income taxes, and reported a net income of $430,000 for the year 2019 for Kiraz. In the same time period, Kiraz Pte. Ltd. declared and issued $30,000 of dividends to its shareholders. Mr. Malik, who owns 70% of Kiraz's shares would receive $21,000 in dividends without being taxed again, and Ayse, who owns 30% of Kiraz Pte. Ltd.'s shares would receive $9,000 in dividends, also tax-free.
Low Tax Rate
Singapore has one of the most attractive corporate tax regimes in Asia. The corporate tax rate is set at a flat 17% and only those revenues which are derived from Singapore or remitted into Singapore are considered taxable.
Due to the tax exemptions available to companies, the effective corporate income tax rate is approximately 8.5% for profits up to S$300,000 and a flat 17% above S$300,000. A newly incorporated company enjoys even higher tax exemptions, they enjoy 75% tax exemption on the first S$100,000, 50% tax exemption on the next S$100,000 taxable incomes for each of the first three tax filing years. This is provided the company is incorporated in Singapore and has been a tax resident in Singapore. It also should have a maximum of 20 shareholders of which at least one is an individual shareholder holding at least 10% of the issued ordinary shares.
In addition to the tax exemptions, it may be worth noting that Singapore companies have been granted tax rebates ranging from 20 to 50% (subject to a cap) in the past 7 years of assessment as part of the government’s efforts to lower business costs and improve cash flow for companies. For instance, in Year of Assessment 2020, companies were granted a 25% tax rebate capped at S$15,000.
To illustrate, Alwan Pte. Ltd. is newly incorporated in 2020 and has $625,000 chargeable income in YA 2020.
Alwan Pte. Ltd. YA 2020
|Less: Tax exemption (first $100,000 x 75% + next $100,000 x 50%)||($125,000)|
|Chargeable income after exempt amount||$500,000|
|Tax payable at 17%||$85,000|
|Less: Corporate Income Tax Rebate ($85,000 x 25%, restricted to cap of $15,000)||($15,000)|
|Net tax payable||$70,000|
Singapore has a reputable image which instills trust in your stakeholders, bankers and business partners who would invest and work with you. As Singapore is not a tax haven, incorporating an offshore company here reflects the credible legal entity of your company. This helps in businesses being taken more seriously by the stakeholders.
Easy Incorporation Process for Offshore Company Incorporation
Here’s what you need to get ready before and after registering an offshore company in Singapore.
Singapore was ranked #2 as the world’s easiest place to do business in 2018 by the World Bank Group. The company registration process is fast, efficient and free of bureaucratic red-tape. The registration procedure is fully done online and involves only two distinct steps – company name approval and submitting incorporation documents. In normal circumstances, a Singapore offshore company could be incorporated in 1-2 days.
Furthermore, small Singapore offshore companies would also be exempt from annual statutory audits. Currently, a newly incorporated company is exempted from having its accounts audited if it is an exempt private company with annual revenue of $5 million or less in its first or second FY after incorporation.
A company qualifies as a small company if:
(a) it is a private company in the financial year in question; and
(b) it meets at least 2 of 3 following criteria for immediate past two consecutive financial years:
- total annual revenue ≤ $10m;
- total assets ≤ $10m;
- no. of employees ≤ 50.
Foreigners Can Own a Company in Singapore
Singapore’s foreign ownership policy is open and non-restrictive for all business sectors. For offshore companies, there are no restrictions on permitted fields of business activity. Shareholders can be individuals or corporate bodies. Foreigners who are incorporating an offshore company in Singapore do not require prior approval from Singaporean authorities.
However, Singapore law does not allow foreign individuals or entities to register an offshore company in Singapore on their own. You must engage a corporate service provider to register a Singapore offshore company.
The Political and Economic Risk Consultancy ranked Singapore as the most politically stable and least bureaucratic country in Asia. The Singapore government is known for its transparent, corrupt-free, and pro-business government, with a just and reliable legal system.
Companies are recognized as separate legal entities, which ensures a great environment for entrepreneurs and Small and Medium Enterprises (SMEs). There are clear-cut rules and regulations concerning commerce, intellectual property protection (Singapore was ranked 3rd in the world for best Intellectual Property (IP) protection in Global Competitiveness Report 2018), manpower and other business related areas.
As such, the level of risk involved in setting up and running a Singapore offshore company is really low.
Progressive Banking Facilities
Singapore has emerged as the leading financial center in the Asia Pacific region. As of 2019, Singapore is ranked 4th largest international financial centre in the world, after New York, London and Hong Kong. Over 200 foreign banks and 1,400 foreign financial institutions have chosen to open branches here, using the island as a major regional hub.
An offshore company in Singapore will thus have access to an unrivalled selection of financial services to support its operations. Banks in Singapore offer 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 banks could make an exception on a case-by-case basis. Account opening takes between 2-15 days depending on the bank.
Osome has a partnership with Aspire where you don’t have to be physically present in Singapore to open a business account here. No visits, no paperwork needed and best of all, your account can be set up within 24 hours.
Singapore is also one of the top fintech hubs in the world, with the Singapore government actively implementing policies to promote new initiatives in the sector. This allows a Singapore offshore company to access a variety of advanced fintech products to suit their financial needs, providing it with a strong competitive advantage in a fast-changing world.
We hope by now, you are convinced to incorporate your offshore company in Singapore. And when you do it, we can also help you with accounting. If you have any questions at all, drop us a chat and we’ll be happy to help.