British Virgin Islands: Doing Business In Singapore

There are no restrictions on the types of businesses that may be set-up in Singapore, but some have to apply for special licences from the Government e.g. banks, finance companies, insurance and stock-broker firms.

Business in Singapore may be conducted through several types of vehicles, namely :-

1. sole proprietorships or partnerships;
2. limited liability companies;
3. unlimited companies (where no limit of liability is placed on the members thereof);
4. branches of foreign corporations; or
5. representative offices.

These types of businesses are registered under the Business Registration Act (Cap. 32) of the Republic of Singapore. It is easy and inexpensive to register such businesses. It is a requirement that a local manager who is a Singapore citizen or a permanent resident be appointed.

The maximum number for a partnership is twenty which may comprise individuals or companies.

The establishment procedures and compliance requirements are the same except the liability on its members.

The first step is to apply to the Registrar of Companies ("ROC") for the approval to reserve the name of the proposed company. Upon approval, the incorporation documents will have to be filed with the ROC. These documents comprise of :-

• Memorandum and Articles of Association ("M&A");
• A certificate of identity of the officers and subscribers to the M&A;
• a statutory declaration of compliance;
• a statutory return of the details of directors and secretary (if appointed at incorporation);
• a notice of the situation of the registered office; and
• a notice of allotment of shares.

The company must comply to the following : -

1. at least two individual subscribers/shareholders for purposes of incorporation;
2. at least two directors, one of whom must be ordinarily resident in Singapore;
3. a registered office established within one month of its incorporation. This will be the location where the statutory records are kept and where notices of any legal proceedings will be served upon the company.
4. a qualified company secretary who is resident in Singapore;
5. a company auditor who is a resident person or firm qualified under the Companies Act.

The branch, being part of the foreign corporation, is not a separate legal entity. As such, it can only engage in activities authorised under the Memorandum of Association or Constitution of the foreign corporation but its liabilities extend to all the assets of the foreign company as a whole.

A branch is subject to similar filing and reporting requirements as an incorporated company in Singapore. The special requirement for the branch is that the foreign corporation must appoint and authorise two or more persons resident in Singapore to accept on its behalf service of process and any notices required to be served on it.

A representative office is a special entity under the administration of Singapore Trade Development Board ("TDB"). It is not monitored by the Registry of Companies. The TDB however, issues guidelines on permissible activities which the representative office can carry out. These activities are strictly limited to promotion and liaison - it may conduct marketing, advertising and market research but it may not be involved in negotiating contracts, the order acceptance process, invoicing, collection of payments or after sales service.

Tax is levied on income accruing in or derived from Singapore, i.e. a Singapore source income as well as on income from outside Singapore if such income is remitted or received in Singapore.

The chargeability to tax of income accruing in or derived from Singapore is not affected by the residence status of the person entitled to the income. Section 53 of the Income Tax Act (Cap. 134) of the Republic of Singapore (hereafter known as "ITA") prescribes who shall be assessed on behalf of a non-resident in respect of income accruing in or derived from Singapore.

Corporation tax rate in Singapore is a flat rate of 25.5%. There is no withholding tax for dividend payment, the only tax due is the underlying tax on profits.

There is no capital gain tax in Singapore. The question of whether a receipt is income or capital is very much a question of fact rather a question of law.

As with most countries, Singapore has a withholding tax mechanism to collect income tax from non-residents.

Interest, royalties and rent for movable properties paid to non-residents are subject to withholding tax at a rate of 15% if they are accrued in, derived from or deemed to be derived from Singapore. Singapore has an extensive network of tax treaties that could reduce the withholding tax from 0% to 10%.

In the early years of economic development, numerous tax incentives were in place to encourage industrialization. Many of them relates to the manufacturing sector and financial sector. As the economy progresses, tax incentives are driven to promote industries that are beneficial to the country. With a proactive government approach to drive the economy, tax incentive is now available to the technology industry.

Many more of these tax incentives are contained in the Income Tax Act itself. The Economic Expansion Incentives Act covers more for the industrial sectors particularly the manufacturing sector. The Economic Development Board or the Trade Development Board or the Monetary Authority of Singapore is the approving authorities for granting the tax incentives.

To encourage businesses to venture overseas and to facilitate repatriation of foreign income, exemption from tax is granted with effect from the year 1992 on dividends paid out of foreign-sourced income where a double taxation relief or unilateral tax credit has been allowed against tax payable on the foreign income. This exemption is provided under Section 13E of the Income Tax Act. This section only applies to a resident company that receives foreign-sourced income where the income has been allowed a tax credit. If unilateral tax credit granted, it includes credit for underlying corporate tax, where the recipient owns more than 25% of the shares of the company. The exemption does not apply to a preference shareholder.

Where tax exempt dividends are received by a holding company resident in Singapore owning not less than 50% of the beneficial interest in the declaring company, it can in turn pass on the exempt dividends to its shareholders. This flow-through effect is extended to all levels of shareholdings in a group corporate structure so long as the dividend originates from the foreign income is received in Singapore.

Having a competitive edge on strategic location, stability and skilled workforce is crucial for Singapore to add value to foreign investment. Being a small market in itself, it is thus critical to generate an external economy for the future.