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Guide to Setting Up an Offshore Company in Singapore

Guide to Setting Up an Offshore Company in Singapore

Setting up an offshore company in Singapore means that you operate a tax-efficient company that is simple and easy to manage in a politically and economically stable environment in Singapore.

If you’re ready to incorporate a company in Singapore and looking to get all the paperwork sorted, why not leave it to us? Drop us a chat to find out more.

What is the Meaning of Offshore Company?

An offshore company is a company incorporated or registered away from the country of its investors, and the region of its main operation and offices. Usually, it operates outside the country where it was formed.

Why Register Your Offshore Company in Singapore?

There are many advantages to incorporating an offshore company in Singapore. Among them are:

  1. Less taxes: Singapore has a very flexible tax system. The standard corporate tax is 17%, one of the lowest in Asia.
  2. Easy offshore company incorporation: An offshore company could be incorporated in 1-2 days. Talk to us to start incorporating. Our record to incorporate a company is in 30 minutes when all your papers are in order!  
  3. Politically stable: The Singapore government is transparent, corrupt-free, and pro-business, with a just and reliable legal system.
  4. Foreigners can own a company in Singapore: If you’re wondering, “Can a foreigner still incorporate in Singapore?”, the answer is yes.  You’ll just need a corporate secretary, a nominee director, and a registered address. We provide all that for you so you can open your company from anywhere in the world without having to fly into the country
  5. Credible image for your company: As Singapore is a trusted name, having a Private Limited in Singapore will give your company a credible image to run your business
  6. Modern banking facilities: Opening a business bank account is a must when you start a company, to keep your accounting in order. We have partnered with a few business account providers that enable you to open a company and a business account within the same day from anywhere in the world. No visits to the bank, and no paperwork required at all.

These are the main sectors where offshore companies prefer to set up in Singapore:

  • Trading, investment, and asset holding: Singapore is known as the Asian financial hub
  • Consultancy services in various fields of activity, such as IT
  • Ship management and yacht ownership: Singapore is one of the most important maritime hubs in Southeast Asia due to its strategic geographic position
  • Intellectual property ownership: Singapore is one of the most advanced countries in this area, well-supported by its strong legal and enforcement systems;
  • Real estate: constantly relevant and profitable business sector in Singapore due to Singapore’s size.

When Should you Consider an Offshore Company Incorporation in Singapore?

When you are expanding your business

When there is an increase in investment or shareholders, and, your investors -especially institutional investors- prefer to invest through an offshore jurisdiction.

When you are retaining assets to gain income

Or, if your company is into investment holding, where the main purpose of retaining assets is to gain income or invest in them, for example in real estate. In Singapore, there is a substantial relief from Stamp Duty and Capital Gains.

When you are developing an Intellectual Property

Or perhaps, you are developing an Intellectual Property and intend to use it in different countries. Singapore is ranked second in the world and top in Asia for having the best IP protection in the World Economic Forum’s Global Competitiveness Report 2019. Overall, Singapore is ranked first as the world's most competitive country.

These are a few other reasons why you would want to set up an offshore company in Singapore:

  • To get a higher return on investment;
  • Tax planning and relief;
  • Estate planning;
  • Enhanced privacy.

What do Offshore Company Owners Need to Know about Tax

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. As Singapore follows a territorial basis of taxation, only your income that is gained, accrued or received in Singapore would be taxed. A Singapore offshore company is subject to zero corporate tax if the company is controlled overseas, has no local corporate bank account and only has overseas business operations.

Despite having zero corporate taxes, these jurisdictions are not labelled as tax havens because the companies are subject to a high level of accountability, due diligence and reporting requirements. Each company registration will go through a Know-Your-Customer process to ensure that all companies incorporated here  and financial transactions flowing into Singapore are not from suspicious activities.

Some types of foreign-sourced income received in Singapore, and any foreign-sourced income not banked into Singapore are exempted from.

Here are some types of income that will be exempted.

  • Foreign-sourced dividends;
  • Foreign-sourced service income.
  • Foreign branch profits;

We elaborate more on how dividends and service income from foreign sources will be exempt from tax:

Foreign-sourced service income

To qualify as tax-exempt, foreign-sourced income remitted to Singapore must meet all three of the following conditions:

  1. The base tax rate of the foreign jurisdiction is at least 15% at the time the foreign income is received in Singapore;
  2. The foreign income was taxed in the foreign jurisdiction the rate at which the foreign income was taxed can be different from the headline tax rate
  3. The Singapore government is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

Let us demonstrate this with an example.

A Singapore offshore company, Azure Pte. Ltd. (fictional) derived and received the following incomes: locally from Singapore, and from two foreign countries, Lithuania (sample tax rate 20%) and Georgia (sample tax rate 5%), during the financial year 2019 [i.e. Year of Assessment (YA) 2020]:

Amount Foreign tax paid Expenses applicable to foreign income
Service Income – Singapore $300,000 - -
Service Income – From Lithuania $50,000 $10,000 -
Deductible expenses & capital allowances for service income $15,000 - -
Foreign income – interest (From Georgia) $20,000 $1,000 $100

Azure Pte. Ltd. is entitled to claim the foreign tax credit on the service income of $50,000 from Lithuania and interest income of $20,000 from Georgia. This income is not granted tax credit as the headline tax rate, or tax rate suffered is not more than or equal to 15%.

Tax Computation for YA 2020

$
Service income - Singapore 300,000
Service income - Lithuania 50,000 (A)
Total service income 350,000 (B)
Less: Deductible expenses and capital allowances (15,000)
335,000 (C)
Interest (Georgia) [20,000 - 100] 19,900 (D)
Total statutory income 354,900 (E)
Less: Approved donations (assumed) (1,000)
Chargeable income (before exempt amount) 353,900
Less: Partial tax exemption (152,500)
Chargeable income (after exempt amount) 201,400
Tax payable @ 17% 34,238.00 (F)
Less: Foreign tax credit (5,616.87) #
28,621.13
Less: Corporate income tax rebate (25% X $28,621.13) (7,155.28)
Net tax payable 21,465.85

# Calculation of Foreign Tax Credit

$
Singapore tax payable on service income from Lithuania [A/B x C/E x F] 4,616.87
Foreign tax paid in Lithuania 10,000.00
Foreign tax credit = lower of Singapore tax payable or foreign tax paid 4,616.87
Singapore tax payable on the interest income from Georgia [D/E x F] 1,919.80
Foreign tax paid in Georgia 1,000.00
Foreign tax credit = lower of Singapore tax payable or foreign tax paid 1,000.00

In summary, Azure Pte. Ltd. had a total statutory (combined income after appropriate deductions and exemption) income of $354,900, received total foreign tax credit of $5,616.87,  and a 25% corporate income tax rebate (as part of the Singapore government's Stabilisation and Support Package due to the coronavirus outbreak for the year 2020) of $7,155.28, and thus, its net tax payable is $21,465.85.

Foreign-sourced dividend

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.

An offshore company, Peninsula Pte. Ltd. (fictional company) has a foreign-sourced income that is kept offshore ("foreign-sourced offshore income"). It wants to transmit the foreign-sourced offshore income from its offshore bank account to Premier Bank Pte. Ltd., its bank account in Singapore, for the payment of one-tier tax-exempt scripless dividends to its shareholders. (Scripless shares are shares which are held in a securities account.)

The foreign-sourced offshore income here is not considered received in Singapore and not subject to tax. This is subject to the condition that the one-tier tax exempt dividend is paid directly into the Premier Bank’s bank account and does not involve any physical remittance, transmission or bringing of funds into Singapore by the dividend-paying company for the purpose of the dividend payment.

Ok, I Want to Register an Offshore Company Now, What Do I Do?

The company registration process of a Singapore offshore company is swift and can be completed between 2 days to one week.

Anyone can start a company in Singapore, regardless of their nationalities. Foreign investors have the same rights as Singapore residents but are granted different types of incentives for opening companies here.

Here are the steps:

  1. Decide on the company name;
  2. Decide which company structure to open (Sole proprietorship, private/public limited liability company, or subsidiary/branch/representative office).

For offshore companies, usually the private limited is chosen because of the ease of raising capital, limited liability, credibility as a corporate structure, and tax benefits and incentives available in Singapore.

Foreign entrepreneurs would require professional firms or local agents for Singapore offshore company incorporation:

  1. Prepare incorporation documents: most important of which is the Company Constitution;
  2. Translate and notarize business incorporation documents and owners’ identification papers;
  3. File all documents with ACRA and obtain business license and company’s business profile;
  4. Registering with the Inland Revenue Authority of Singapore for taxation purposes and to obtain a GST number.

What you need to prepare before Company Registration

The following are the requirements for setting up a private limited company in Singapore.

  • At least one shareholder;
  • At least one ordinarily resident director;
  • At least one company secretary;
  • Minimum of $1 as initial paid-up share capital;
  • A registered office address. P.O. Box address is not valid.

Steps to take after registering your company

Once the company is registered with ACRA, there are several steps to be taken. Generally, your company will be required to register with different authorities, such as:

  1. Registration for Singapore Goods and Services Tax (GST);
  2. Application for required business licenses depending on the activity carried out;
  3. Opening a corporate bank account;
  4. Registration for the Central Provident Fund (CPF);
  5. Registration for the Skills Development Levy (SDL).

Registrations for CPF and SDL are required for paying taxes associated with hiring workers in Singapore.

Administrative things you have to do annually

1. Singapore law states that all annual unaudited financial statements should be submitted to the IRAS, together with the tax filing.

2. An offshore business incorporated in Singapore must update details of its company to ACRA’s public register. Names and addresses of all directors, address of the principal place of business, and details of all share-holdings should be updated yearly.

3. The company must appoint a resident company secretary and a resident director and maintain a legal registered Singapore offshore business address. Professional agencies would offer these services.

It is useful to note too that the process of deregistering a Singapore-based offshore company will take at least 6 months. During the 6-month period, it is mandatory to maintain the resident company secretary and the legally registered office.

Start your own offshore company in Singapore with Osome

And voila, your very own Singapore offshore company would be good to go! If you are still deciding on whether to take the leap or think that there are too many things to do and need a hand, we can help you incorporate a company and even show you how to set up a business bank account within a day.

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