Doing Business in Singapore

Establishing an entity

Foreign entrepreneurs are free to establish a Singapore entity.

There are several types of business structures available in Singapore. These include: Limited Liability Company (often called “private limited” company and abbreviated to “Pte. Ltd.”), Limited Liability Partnership (LLP) and Sole Proprietorship (SP), just to name a few. However, setting up a Pte. Ltd. is the preferred and most widely used incorporation vehicle used by foreign investors.

A Pte. Ltd. is the most flexible and advanced type of business entity available. It is a legal entity, separate from its owners;therefore, its liabilities do not extend to its owners. Furthermore, foreigners residing overseas can be 100% owners of a Singapore Pte. Ltd.

The required paid-up capital when registering a Singapore company is nominal and the concept of authorised capital no longer exists. The company should have a minimum of one director, one shareholder, and at least one director must be a local resident [Singapore citizen, permanent resident or Employment Pass (EP) holder]. The company must have a local registered address and a company secretary.

Foreign business restrictions

There are no strict rules on establishing and registering a company in Singapore as long as it complies with the minimum requirements mentioned in the preceding paragraphs. A company would be required to register itself with the Accounting and Corporate Regulatory Authority (ACRA) before starting to trade. It may also be relevant to ensure that appropriate licences have been applied and obtained accordingly. INVESTMENT INCENTIVES

Foreign businesses that choose to register a Singapore company are well positioned to take advantage of the country’s pro-business policies. The primary benefits of setting up a business in Singapore include ease of company formation, low taxes, a stable political climate, excellent business infrastructure and an efficient regulatory environment, amongst others.

The Economic Development Board (EDB) is keen to stimulate business investment in Singapore and offers a number of incentives and development schemes. The schemes are available in the following categories: financial incentives (which are mainly to provide funding on certain business undertakings) and tax incentives (which provide exemptions or reduced tax rates on specific transactions/activities). Incentives are typically assessed and awarded on a case by case basis.

Work permits and visas

Foreigners need to apply for relevant work visas to stay and work in Singapore. The most common types are the S Passes and EPs. These passes are applied for after the incorporation of the company. The approval of a work visa is subject to review and approval by the government authorities.

The S Passes are for mid-level income skilled workers earning a minimum of SGD 2,200 per month. They operate under a quota system with the number of passes that the company is entitled to, being dependent upon the number of Singaporean and PR staff it employs.

There is no quota for the EPs but the applicant has to be earning a minimum of SGD 3,600 per month, with tertiary educational qualifications and reasonable number of years of relevant experience.

There is another type of pass targeted specifically for entrepreneurs known as EntrePass which requires the applicant to prepare a detailed business plan, invest a minimum of SGD 50,000 of which 30% must be owned by the applicant and to hire local employees.

For those who do not plan to move to Singapore but just need to incorporate a Singapore company, they may do so and operate the company from overseas. They are free to visit Singapore on a typical visitor visa for company meetings, meetings with business partners, corporate retreats or to attend seminars and conferences as a participant.

It is important to note that a foreigner on the visitor visa cannot operate/manage the Singapore company while in Singapore. A valid work visa is required for such. Therefore, the company needs to identify a local resident director or appoint a local team for the management of the operations instead.

Taxation

The company’s taxable income for the year is subject to corporate tax in Singapore. Corporate tax rate in Singapore is a flat, low rate of 17%. Income exemptions and tax rebates are available that make the effective tax rate for taxable income of up to SGD 300,000 less than 6%.

For Year of Assessment 2017 and 2018 (basis period for financial year 2016 and 2017), there is a corporate tax rebate of 50% capped to SGD 20,000. As such, the effective tax rate for taxable income up to SGD 300,000 will reduce to 2.8%. There is no tax on capital gains (unless constructed as trading income) or qualifying dividend distributions. Any after-tax income can be distributed by the Singapore company to its shareholders anywhere in the world and is free from tax in Singapore.

It is also important to note that in order to avoid double taxation from occurring, Singapore companies can claim a tax credit in Singapore for any tax paid overseas, subject to meeting the qualifying conditions.

Goods and Services Tax (GST) in Singapore is a tax on domestic consumption. The tax is paid when money is spent on goods or services, including imports. In general, goods sold or services performed in Singapore are taxable supplies subject to GST. Some of the exceptions are financial services or the sale or lease of residential properties, which are exempt supplies. In Singapore, GST is currently charged and accounted for at a rate of 7% on the value of supply. Actual time of filing is within one month after the end of a quarter (e.g. March, June, September, December...).

GST registration can be mandatory or voluntary. Mandatory registration is required when the company’s annual turnover exceeds or is expected to exceed SGD 1 million. Companies are required to register for GST in Singapore within 30 days of the last day of the quarter of crossing the threshold or within 30 days from the day of recognising that the revenue will exceed threshold in the coming 12 months.

Transfer Pricing (TP) is the pricing of goods, services and intangibles between related parties. The Inland Revenue Authority of Singapore (IRAS) endorses the arm’s length principle as the standard to guide transfer pricing. While taxpayers apply the arm’s length principle when doing a transaction with their related parties, they should also prepare records as evidence that the pricing at arm’s length. Such records are known as transfer pricing documentation. In Singapore, it is a must to maintain TP documentation for transactions exceeding certain thresholds. With the adoption of the arm’s length principle, taxpayers and tax authorities will have a common basis to deal with related party transactions.

Though not an Organisation for Economic Co-operation and Development (OECD) member state, Singapore government representatives have on different occasions stated that it will follow the developments and will implement the outcomes of the recently issued OECD report/Base Erosion and Profit Shifting (BEPS) action plans. Singapore has joined the inclusive framework for the global implementation of the BEPS project, namely those profits should be taxed where the real economic activities generating the profits are performed and where value is created. Being a supporter of the key principle underlying the BEPS Project, Singapore does not condone activities aimed at base erosion and profit shifting. Also, Singapore will work with other jurisdictions to help develop the implementation and monitoring phase of the BEPS project. Under the BEPS project, there are 4 minimum standards, namely: the standards on countering harmful tax practices, preventing treaty abuse, transfer pricing documentation and enhancing dispute resolution. The country is committed to the implementation of these standards. Furthermore, Singapore intends to implement Country-by-Country Reporting (CbCR) for multinational enterprises, for financial years beginning on or after 1 January 2017.

As commented by the Deputy Prime Minister, Mr Tharman Shanmugaratnam, on the implementation of the BEPS measures, “Singapore is committed to working with the international community to counter artificial shifting of profits, and continues to welcome substantive economic activities. We will be actively involved with the OECD and G20 in ensuring the consistent implementation of the BEPS standards across all jurisdictions, so as to ensure a level playing field.”.

Audit and accounting

A company registered in Singapore is required to keep accounting and other records that will sufficiently explain the transactions and financial position of the company, and enable true and fair profit and loss accounts and balance sheets to be prepared. If such records are kept in a place outside Singapore, copies must be kept in Singapore.

As per the Singapore Companies Act, a company must file its audited accounts with ACRA on an annual basis unless it is a dormant company or a small company exempted from audit requirements.

A dormant company is exempted from audit requirements if no accounting transactions, other than transactions as prescribed by the Companies Act, occur during the period from the time of its formation; or since the end of the previous financial year.

A small company qualifies as being small if it is a private company in the current financial year and it should meet 2 out of 3 of the criteria below in each of the two financial years immediately preceding the current FY:

1. Total annual revenue is equal or less than SGD 10 million;
2. Total assets is equal or less than SGD 10 million; or
3. Number of employees is equal or less than 50.

If the Company belongs to a Group, then the Company must be a small company itself and the Group must qualify as a small group by meeting at least 2 of the 3 criteria above on a consolidated basis in each of the two immediate preceding financial years.

Singapore adopts Singapore Financial Reporting Standards (SFRS), which are made or formulated by the Accounting Standards Council of Singapore. The SFRS are closely modelled on the International Financial Reporting Standards issued by the International Accounting Standards Board. All companies incorporated or registered in Singapore to comply with the SFRS, unless approval is otherwise obtained from ACRA.

Compliance with the Code of Corporate Governance (the Code) is not mandatory but companies listed on the Singapore Exchange (SGX) are required to disclose their corporate governance practices and give explanations for any deviations from the Code in their annual reports.

Annual financial statements must be submitted to ACRA and IRAS. For clarification, small companies (with the exception of solvent exempt private companies) will need to submit the annual financial statements in the XBRL format to ACRA even though it is exempted from audit if it meets the criteria. All Singapore companies (with the exception of a representative office), must also submit annual tax returns to the IRAS.

Country quirks

• A company secretary must be appointed within 6 months of the incorporation of a company, and he/she must be a resident of Singapore.
• The company must have at least one local resident director, a local resident company secretary and a registered office address which is open to the public.

Visit Forvis Mazars Singapore for more information on the services available to help you set up your business.