Increasingly, companies and individuals are reconsidering their use of "offshore" corporate entities, in light of a growing international push for transparency and exchange of information amongst jurisdictions for tax purposes. Additionally, public scandals, such as Panama Papers leak, have brought added scrutiny to the motives and reputations of companies using offshore entities.
As of 11 October 2017, Singapore has adopted a regime which allows for a greater flexibility to re-organise corporate groups for regulatory, strategic or organisational purposes. In essence, it allows foreign corporate entities to transfer their company's registration to Singapore and become a Singapore company limited by shares – under the "Inward Redomiciliation Regime" (the Regime), under Part XA of the Companies Act of Singapore (sections 355 to 364A).
Re-domiciled entities may enjoy certain benefits, including more favourable tax treatment and access to Singapore's developed business environment. However, this Regime may not extend to, or benefit, all applicants.
Below, we explain (A) some of the benefits and implications of inward re-domiciliation; (B) requirements to transfer registration; and (C) the tax framework and considerations under the Regime.
A. Potential Benefits and Implications of the Inward Re-domiciliation Regime
This Regime stands as an alternative to setting up a business presence in Singapore through registering a branch or subsidiary, allowing a re-domiciled foreign corporate entity to retain its employees, corporate history, and branding. Additionally, as a Singapore company, the re-domiciled entity would need to comply with local legislation, including the Companies Act of Singapore.
Companies and individuals considering re-domiciling foreign corporate entities (FCEs) to Singapore, may enjoy several benefits under the Regime and Singapore's laws and business environment.
- FCE's Public Image: the FCE's public image may be significantly enhanced by choosing to operate in Singapore, a reputable jurisdiction with a large network of double tax treaties, rather than an offshore entity. Traditionally considered "tax havens," offshore jurisdictions are losing their lustre due to damaging scandals, such as the Panama Papers leak, and increased international scrutiny, leading to robust information-exchange regimes targeting tax evasion. Global tax transparency has been especially buttressed by the OECD's BEPS1 project and exchange of information regime, along with the CRS2 and the requirements for country-by-country reporting (i.e., CbCR) for transfer pricing purposes.
- Tax Benefits under the Regime: the FCE may benefit from tax credits if its originating jurisdiction imposes an exit tax on its unrealised profits, and those profits are also taxed in Singapore. The applicability of these benefits is discussed further in Section C.
- As a Singapore company, the FCE:
- Is not subject to capital gains tax payable in Singapore;
- Is not subject to restrictions on foreign ownership of business;
- May easily repatriate its dividends;
- May benefit from various government grants and initiatives; and
- May operate in an attractive business environment – including: access to an educated workforce, well-planned infrastructure, a robust financial and intellectual property ecosystem, thriving capital markets, and a stable socio-political environment.
While this is not an exhaustive list of potential benefits and implications of an FCE's re-domiciliation under the Regime, Dentons Rodyk is happy to help you understand further implications based on your circumstances.
B. Requirements to Transfer Registration of an FCE
Under the Regime, FCEs can apply to the Accounting and Corporate Regulatory Authority of Singapore (ACRA) for re-domiciliation. The Companies (Transfer of Registration) Regulations 2017 (Regulations) set out the minimum requirements to apply for transfer of registration.
|Size Criteria||The foreign corporate entity (the FCE) must satisfy any 2 of
Where the FCE is a subsidiary, the size criteria will apply on a single entity basis. The subsidiary will also meet the criteria where its parent (Singapore incorporated or registered in Singapore through a transfer of registration) meets the size criteria.
|Solvency Criteria||As at the date of application for registration:
|Laws of the Place of Incorporation||The laws of the FCE's place of incorporation:
|Policy Considerations||The application for transfer of registration must not be intended to defraud FCE's existing creditors and is to be made in good faith.|
|Other Requirements||There are other minimum requirements for example the FCE is not under judicial management, not in liquidation nor being wound up etc.|
The FCE should consult counsel in its current jurisdiction if (a) there is any criteria to be met or if there would be any objections or issues if it were to transfer its incorporation to another jurisdiction; and (b) if it has met any such criteria or resolved any such issues.
When re-domiciling, there may also be tax and stamp duty implications for the FCE. The FCE should understand how the transfer will be treated for tax and stamp duty purposes in the home country and assess whether they are prepared for the consequences, in addition to the tax implications in Singapore, further discussed in Section C.
C. Tax Framework and Considerations under the Regime
An important issue to consider when deciding whether to transfer the FCE's registration, is the tax treatment of the re-domiciled company. We highlight that the tax considerations arise not only in Singapore but also in the jurisdiction of the FCE's place of incorporation.
Tax Framework under the RegimeThe tax treatment of the re-domiciled FCE is set out in the proposed new sections 34G and 34H of the Income Tax Act (Cap. 134, Rev. Ed. 2014). The provisions specify the tax treatment of certain items of expenditure incurred, or assets acquired by a FCE that has never carried on any trade or business in Singapore before the date of registration. Furthermore, the new section 34H provides for a tax credit to be given to a re-domiciled company if its originating jurisdiction imposes an exit tax on its unrealised profits, and those profits are also taxed in Singapore. This is subject to the approval of the Minister and the conditions upon which the tax credit is to be allowed.
Tax Considerations under the RegimeThe Regime may be most suitable for foreign corporations that already have a presence or operations in Singapore (for example a branch), or foreign group companies that want to move their holding entities to Singapore. However, the Regime may not be suitable for all FCEs with an existing active business outside of Singapore. In addition, there are various tax considerations one should have regard to before deciding whether registration should be transferred. As mentioned above, there may be tax implications in the originating jurisdiction arising from the transfer. Aside from stamp duties, there may also be capital gains tax or exit taxes in the originating jurisdiction.
This Regime provides an added option for FCEs to shift base to, or set-up in, Singapore. A foreign corporate that has grown in revenue and size in its country of origin may wish to consider re-domiciling the parent entity, subsidiary or whole group to Singapore to enjoy several benefits of being a Singapore-domiciled company as set out above.
Dentons Rodyk is well positioned to advice any foreign entity considering a move to Singapore on the benefits, requirements and process if any assistance is required (including relevant filings with ACRA).
If you wish to speak to us on any of the above, or require our assistance on the same, please do not hesitate to contact the key persons listed in this article.
1. Base Erosion and Profit Shifting
2. Standard for Automatic Exchange of Financial Account Information in Tax Matters or Common Reporting Standard
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.