Tax Residency Status in Singapore: Top Tips for Determining

Tax residence is a critical factor that decides where individuals and companies are liable to pay taxes. It significantly influences tax obligations, including the rates applied to income tax and the nature of taxable income. This can mean access to favourable tax treaties that reduce withholding taxes and various tax reliefs.

Tax residency rules in Singapore can vary based on factors like physical presence and directors' control of management. Tax residency affects income tax rates and can lead to significant benefits or drawbacks depending on your situation for tax purposes.

For companies, tax residency is determined by where the control and management of the business occur. This is typically assessed by where the Board of Directors makes strategic decisions, often during board meetings held in Singapore. The location of these meetings and the strategic decisions made are crucial factors.

A company is classified as a tax resident in Singapore if its central management and control are within the country. This is often shown through the venue of board meetings and the presence of key employees or directors in Singapore.

Control and management

The concept of control and management refers to the strategic direction and decision-making authority of a business.

Several scenarios can indicate that a company is not exercising control and management in Singapore. These include situations where no board meetings are held in Singapore, local directors are merely nominee directors, strategic decisions are made outside of Singapore, and no key members or directors are based in Singapore.

Certificate of Residence (COR)

A Certificate of Residence (COR) is a vital document that certifies a company as a tax resident of Singapore. This certificate allows Singapore companies to claim benefits under the Avoidance of Double Taxation Agreements (DTAs). To obtain a COR, companies must complete the appropriate form and submit it to IRAS along with supporting documents.

Applying for a COR involves submitting an application to the Inland Revenue Authority of Singapore (IRAS), with processing times typically ranging from two to three weeks. Osome can assist with this process, simplifying it for both individuals and companies in Singapore. The Certificate of Residence is valid from the date of issuance and must be renewed annually if benefits are to continue in Singapore.

Tax residents generally benefit from lower rates and various deductions and credits. In Singapore, residents enjoy a progressive resident rates tax structure with rates ranging from 0% to 24%, depending on their income. In contrast, non-residents of Singapore are taxed at a flat rate of 15% on income from employment or at the progressive rates. Singapore tax residents may also claim deductions on allowable expenses, reducing their taxable income.

Director’s fees, consultation fees, and other types of income for non-residents are taxed at a flat rate of 24%. It applies to all income, except income from employment and certain income taxable at a reduced withholding rate. Non-tax residents in Singapore receiving dividends may still face withholding tax unless protected by a treaty.

In Singapore, foreign-sourced income is generally taxable only when it is remitted into the country, but specific exemptions exist. Exempt foreign income includes specified foreign-sourced dividends, provided they meet the conditions. Tax residents may claim exemptions under the foreign-sourced income exemption regime for the following types of income:

• Specified foreign-sourced dividends
• Foreign branch profits
• Foreign-sourced service income

These exemptions are crucial for reducing the overall tax burden on foreign-sourced income.

If the general conditions for tax exemption on foreign income are not met, specific exemptions may still be available under section 13(12) of the Income Tax Act. Additionally, tax relief may be granted if the foreign income has already been taxed in the source country at a rate of at least 15%.

Singapore also offers Foreign Tax Credit Pooling, allowing businesses to offset foreign taxes paid against their Singapore tax liabilities.

Maintaining accurate records is essential for substantiating your claims of residency and ensuring compliance with tax authority regulations. Companies should keep relevant documentation, such as board meeting minutes, to support their tax residency claims. Proof of residency may include rental contracts or property ownership records showing local ties. They must also submit a timely income tax return to comply with IRAS requirements. This is particularly important during periods of global disruptions when traditional practices may be affected. Keeping copies of every submitted form and board meeting record helps support claims of control and management in Singapore.

The Inland Revenue Authority of Singapore (IRAS) requires documentation such as income tax returns that evidence the control and management of a company’s operations in Singapore. Holding director meetings in Singapore and making strategic decisions during these meetings can strengthen your residency status.

Osome provides guidance on the necessary documentation and eligibility criteria for obtaining tax residency, ensuring you remain compliant with changing regulations.