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A Presentation on Singapore Tax System and Formation of Companies & Trusts in Singapore Presented By Kenny Lim, Tax PowerPoint Presentation
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A Presentation on Singapore Tax System and Formation of Companies & Trusts in Singapore Presented By Kenny Lim, Tax

A Presentation on Singapore Tax System and Formation of Companies & Trusts in Singapore Presented By Kenny Lim, Tax

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A Presentation on Singapore Tax System and Formation of Companies & Trusts in Singapore Presented By Kenny Lim, Tax

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  1. A Presentation on Singapore Tax System and Formation of Companies & Trusts in Singapore Presented By Kenny Lim, Tax Director Asia Pacific Business First Island Fiduciary Consultants Pte Ltd Services Pte Ltd

  2. Main Topics • Overview of Singapore Tax System - Taxation of Individuals - Taxation of Partnerships and LLPs - Taxation of Companies • India-Singapore DTA – CECA • Singapore – Tax Planning Strategies • Trust and Settlements - Tax Treatment of Business/Foreign Trusts • Formation of Companies/Licensed Trust Cos • Q & A

  3. Overview of Singapore Tax System Types of Taxes • Corporate Income Tax • Personal Income Tax • Goods and Services Tax (GST) • Stamp Duty • Property Tax • Customs Duty (liquor, petrol, tobacco & MV) • Estate Duty • Withholding Tax • NO Capital Gains Tax

  4. Comparison of Highest Personal Tax Rates Hong Kong Hong Kong Singapore Singapore Malaysia Malaysia India India Philippines Philippines Indonesia Indonesia Thailand Thailand Korea Korea Taiwan Taiwan China China Vietnam Vietnam 0 10 20 30 40 50

  5. Taxation of Individuals

  6. Basis of Assessment Year of Assessment (YA) - the tax year runs from 1 January to 31 December annually Preceding Year Basis - the calendar year preceding the YA (income and gains derived from trade, business, profession or vocation assessable on preceding accounting year basis) Eg: YE 2004 business income would be assessable in YA 2005

  7. Concept of Tax Residence Qualitative v Quantitative Test • A Singaporean is a tax resident in Singapore if he normally resides in Singapore except for temporary absences that are consistent with the claim to be a resident. • A foreigner will be regarded as resident in Singapore  if he was physically present or exercised an employment in Singapore for 183 days or more during the year preceding the Year of Assessment. This is other than a director of a company.

  8. Resident v Non Resident

  9. Area Representative Who qualifies as an area representative? 4 criteria: • Employed by a non-resident employer; • Based in Singapore for geographical convenience; • Required to travel outside Singapore in the course of duties; and • Remuneration paid by foreign employer and not charged directly or indirectly to the accounts of a PE in Singapore.

  10. Area Representative • Taxability of an Area Representative (AR) • An AR will be taxed on the amount of his • remuneration attributable to the number of days • spent in Singapore. • If treated as a Singapore tax resident, the higher of • this amount or the remittance of employment • income will be taxed. However, foreign sourced • Employment income received by a resident individual • on or after 1.1.04 will be exempt.

  11. Dual Employment An individual employed in Singapore will generally be assessable to tax on his full income, notwithstanding that he may occasionally travel overseas in performing official duties on behalf of the overseas company. However, it is possible to draw up separate contracts where his employment is provided by more than 1 company and he has to travel extensively in performing duties for an overseas company.

  12. Dual Employment • Conditions • Salary expense cannot be recharged to its Singapore entity; • Foreign income must not be received or remitted • into Singapore; and • Overseas employment under the separate contract must be exercised exclusively outside Singapore. • Duties performed outside Singapore are separate and distinct from duties performed in Singapore. • Income attributable to Singapore employment • must commensurate with responsibilities in • Singapore.

  13. Not Ordinarily Resident (NOR) • Who qualifies as an NOR • A taxpayer can opt for the NOR scheme commencing • from YA 2003, if the following criteria are met: • He is resident of Singapore for income tax purposes for that YA; and • He is not a resident of Singapore for income for 3 consecutive YAs immediately before that YA. • Once successful, he will be accorded NOR status for 5 • years.

  14. Not Ordinarily Resident (NOR) Tax concessions 1. Time apportionment of Singapore employment income The NOR taxpayer must spend at least 90 days outside Singapore for business reasons pursuant to his Singapore employment and his tax on his total Singapore employment income must be greater than 10% of the total Singapore employment income. 2. Tax exemption of pre-assignment income remitted to Singapore 3. Tax exemption of employer’s contribution to non-mandatory overseas pension fund or social security scheme Tax exemption is granted to a resident NOR Singapore employee on any contribution made by his employer to any non-mandatory overseas contribution scheme.

  15. Taxation of Other Sources of Income • Dividends • Interest • Net Rent / Net Annual Value • Annuity • Charge • Pension • Royalties • Overseas Remittances

  16. Personal Reliefs & Allowable Deductions • Types of Personal Reliefs • Earned income relief • Wife/Child/Parents relief • Relief for delivery & hospitalisation expenses for 4th child • Handicapped brothers or sisters relief • Provident fund/life insurance relief • Course fees relief • Relief for foreign maid levy • NSmen (self/wife/parent) relief • Relief for CPF cash top-up/SRS Contributions

  17. Personal Reliefs & Allowable Deductions • Allowable Deductions • Donations • Subscriptions to professional bodies • Travelling expenses • Entertainment expenses • Capital Allowances (for businesses only) • Unabsorbed tax losses, capital allowances and • donations (for businesses only)

  18. Taxation of Partnerships What constitutes a partnership • Partners may consist of resident individuals, non-resident individuals as well as companies. • A joint venture between 2 companies or between a company and an individual can also be classified as a partnership. • An association of persons would not constitute a partnership unless they carry on a business in common with a view to profit.

  19. Taxation of Partnerships • Not a person and not treated as a separate legal entity. • Tax is not imposed on the partnership. Instead partners are assessed individually on their respective share of profits/losses of the partnership.

  20. Taxation of Partnerships Partnership allocation of Profits • Income of partnership is computed in the same way as that of a person carrying on a trade or business. • Adjustments are made for partners’ salaries, interest on capital contributed and other personal expenses • Residual profit (also known as divisible profits) would be allocated in accordance to agreed profit sharing ratios.

  21. Taxation of Partnerships Partnership allocation of profits (cont’d) Net Profit xxx Add/(Deduct): Non-deductible expenses xxx Salaries to partners xxx Interest on capital xxx xxx Adjusted Profit(Loss) xxx Less: Appropriation (except share of profit) Salaries of partners xxx Interest on capital xxxxxx Divisible Profit/(Loss) xxx ===

  22. Income Tax Treatment of LLPs Background • Limited Liability Partnership (LLP) Act 2005 comes into operation on 11 April 2005. • Essentially partnership with limited liability. • Option of limited liability entity with internal flexibility of a partnership.

  23. Income Tax Treatment of LLPs Features • Partnership with limited liability. • Regarded as “bodies corporate” in law. • Function as a partnership but status of separate legal person. • Not affected by changes in partners. • At least 2 partners.

  24. Income Tax Treatment of LLPs Features (Cont’d) • Claims can be made against LLP to full extent of its assets. • Claims can be made against negligent partners and their personal assets. • Innocent partners’ liability limited to amount they contributed to the LLP.

  25. Income Tax Treatment of LLPs Tax Treatment • Treated as a partnership and accorded taxtransparent treatment. • Each partner taxed on share of profits, based on its own tax rate: • - Individual based on personal income tax rate; - Company based on corporate tax rate (20%).

  26. Taxation of Companies • Features of Corporate Tax System in Singapore • Tax Rates and Tax Incentives in Singapore • New Corporate Tax Regime – Partial Tax Exemption • Full Tax Exemption for New Companies • One-Tier Corporate Tax System • Tax Loss CF, Group Relief &Tax Loss CB System • Taxation of Foreign Income • Common Tax Planning Techniques

  27. Features of Corporate Tax System • Territorial Basis of Taxation • No capital gains tax • Preceding Year Basis • Tax Exemption on Certain Foreign Source Income • Foreign Tax Credit System • Comprehensive Tax Treaty Network • Tax Losses can be C/F indefinitely, C/B 1 year • Group Relief from YA 2003 • No thin capitalisation rules • Advance Ruling System from 2006 • CorporateTax Rate of 20%

  28. Comparison of Corporate Tax Rates

  29. New Corporate Tax Regime – wef YA 2002 - Partial Tax Exemption • 75% discount for 1st S$10,000 taxable income (TI). • 50% discount for next S$90,000 TI. Effectively, this means: Tax rate for 1st S$10,000 TI = 5% Tax rate for next S$90,000 TI = 10% Tax rate for TI in excess of 100,000 = 20%

  30. Full Tax Exemption for New Companies • New companies allowed full tax exemption on first $100,000 of normal chargeable income (excluding Singapore dividends) for any of their first 3 consecutive YAs falling within YA 2005 to 2009, subject to meeting all 4 qualifying conditions. • Partial exemption will still be granted for companies that do not meet the qualifying conditions.

  31. Tax Exemption for New Companies Qualifying conditions: • Incorporated in Singapore; • Tax resident in Singapore for that YA; • No more than 20 shareholders throughout basis period for that YA; and • All shareholders are individuals throughout basis period for that YA.

  32. Tax Exemption for New Companies Impact of Tax Changes: • Potential tax savings of up to $28,500 over 3 years. • Set up multiple companies? • Exemption scheme to be reviewed close to 2006.

  33. Tax Exemption for New Companies Date of Incorporation 1.3.07 Example 1 1.1.04 31.12.04 31.12.05 31.12.06 31.12.07 31.12.08 YA 2008 YA 2009

  34. Tax Exemption for New Companies Date of Incorporation 1.3.02 Example 2 1.1.02 31.12.02 31.12.03 31.12.04 31.12.05 31.12.06 YA 2005

  35. One-Tier Corporate Tax System Replaces the imputation system from 1 Jan 2003 • Corporate tax paid by company is a final tax. • Dividends received by shareholders are tax-exempt. • Unlimited flow-through of exempt dividends.

  36. Utilisation of Tax Losses • Tax losses can be carried forward indefinitely within the same entity, subject to no substantial change in shareholders. • Tax losses can be transferred to another group entity wef YA 2003 (See Group Relief System). • Tax losses can be carried back for 1 year wef YA 2006 (See Tax Loss Carryback).

  37. Utilisation of Tax Losses - Group Relief System • With effect from YA 2003, companies in a group (comprising Singapore incorporated company and its Singapore incorporated group members) may transfer current year unutilised capital allowances, trade losses and donations to other company in the group.

  38. Utilisation of Tax Losses - Group Relief System • 2 Singapore incorporated companies are in the same group if they have the same accounting year and:- @ at least 75% of the ordinary share capital is beneficially held directly or indirectly by the other; or @ at least 75% of the ordinary share capital in each of the two companies is beneficially held directly or indirectly by a third Singapore incorporated company.

  39. Group Relief System - Illustrations (1) Direct(2) Common Parent(3) Indirect Parent (Local) Parent (Local) Parent (Local) 75% 75% 90% Sub. A (Local) Sub. A (Local) Sub. B (Local) 75% 75% 90% / 80% Sub. A (Local) Sub. B (Local)

  40. Group Relief System – Further Illustrations (4) Indirect (5) Common Parent(6) Indirect Parent (Local) Parent (Foreign) Parent (Local) 100% 100% 75% 100% 75% Sub A (Foreign) Sub. B (Local) Sub. A (Local) Sub. B (Local) Sub. A (Local) 100% 45% 30% Sub B (Local) Sub. C (Local)

  41. Group Relief System - specific exclusions • Losses of foreign branches • Loss items resulting from a trade/activity, the income of which is tax exempt (e.g. loss from pioneer trade). • Loss items not allowed for set off against income from other activities under existing law (e.g. income from finance leases). • Current year unabsorbed losses and capital allowances for 10E companies, i.e. only absorbed donations can be transferred to members of the same group, but the company is eligible to claim loss items from another group member.

  42. Tax Loss Carry-back System Current Loss carry-back (CB) not available Proposed A one-year loss CB scheme introduced to carry-back current year unutilised CAs and trade losses to the preceding YA wef YA 2006.

  43. Loss Carry-back System • Features of the scheme: • Available to all businesses, i.e. companies, partners of partnerships (including LLPs), sole proprietorships and bodies of persons (clubs and associations, trustees of trusts and executors of estates). • Only current year unutilised CAs and trade losses are allowed for carry-back for one YA immediately preceding the YA in which the CAs were granted or the trade losses incurred.

  44. Loss Carry-back System • Features of the scheme: • An aggregate amount of up to $100,000 of current year unutilised CAs and trade losses (excluding donations) can be CB. Any excess over this limit can still be carried forward. • The “shareholding test” and “business continuity test” will continue to be applied to the loss CB.

  45. Loss Carry-back System • General Conditions • “Business continuity test” for unabsorbed CAs, none for unabsorbed trade losses. • - Can CB unabsorbed trade losses, but not unabsorbed CAs for new businesses commencing from YA 2006. • Quantum of qualifying deductions • - lower of actual amount of such deductions or assessable income of immediate preceding year, subject to $100,000 cap.

  46. Taxation of foreign income Foreign income liable to tax if received in Singapore, ie • Remitted to, transmitted or brought into Singapore; • Applied towards satisfaction of any debt incurred in respect of a trade/business carried on in Singapore; • Applied to purchase any movable property which is brought into Singapore.

  47. Taxation of foreign income - exemption Granted to all tax residents who remit income from the following sources from 1 June 2003: • Foreign sourced dividends • Foreign branch profits • Foreign sourced service income

  48. Taxation of foreign income - exemption Conditions: • Foreign income is subject to corporate tax in the foreign jurisdiction from which income is derived; • Headline tax of the foreign jurisdictions from which income is received is at least 15% in the year the income is remitted to Singapore’ and • Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

  49. Taxation of foreign income - exemption “Headline tax” refers to the highest corporate tax rate of a foreign jurisdiction and need not be the actual rate of tax imposed. “Service income” excludes employment-related income and refers to professional, technical, consultancy or other services provided by a person in the course of its trade, profession or business.

  50. Tax Exemption for Foreign Income • Illustration – elimination of incremental tax • Old System New system • Adjusted profit for year 100,000 100,000 • Less dividend from HK 50,000 50,000 • 50,000 50,000 • Add dividend from HK 50,000 Exempt • Chargeable income 100,000 50,000 • Tax @ 20% 20,000 10,000 • Less: UTC (50,000 X 17.5%) 8,750 • Net tax payable 11,250