People often associate offshore companies with tax evasion, but they’re missing the point. As the world becomes more globalised, global traders set up offshore companies to conduct business in overseas markets.
When entering the South-East Asia market, many international merchants turn to Singapore for its favorable tax regime, political stability, and strategic location. There are advantages – tax benefits, straightforward incorporation and new administration.
This article will look at the definition of an offshore company, the benefits of choosing Singapore, and the administrative aspects of setting up an offshore company in Singapore.
This article at a glance:
Offshore companies are distinct from typical companies because they’re located in a different jurisdiction to the one where the principals of the company reside. The benefits of setting up an offshore company in Singapore include low taxes and easy access to the South East Asian market. Indeed, foreign companies are treated very favorably by the local authorities and can receive tax exemption if they don’t receive any income from the residents of Singapore.
What is the difference between an offshore company and a typical company?
An offshore company operates in a different jurisdiction to where the principals (directors, shareholders) reside, whereas a typical company – based in the home country of the principals – operates according to the rules of their home country’s jurisdiction.
Kinetics Hub Ltd is a technology company based in Sheffield, UK. Their main business activity includes servicing domestic IT accounts and distributing IT parts to domestic and global customers. As they are based in the UK, the company has to pay a 19% corporate tax rate. The company is ready to expand into South East Asia. The company director and the investors decide to incorporate an offshore company with a different jurisdiction, settling on Singapore as the location for their offshore company. With this choice, they can enjoy certain benefits, such as a 15% tax rate.
Benefits of setting up an offshore company
Let’s explore the benefits of setting up an offshore company in Singapore.
Reduce Tax Liability
Besides being recognised as a leading international financial hub in the Southeast Asia region, Singapore has one of the lowest tax rates in the world – indeed, companies aren’t subject to capital gains or dividend tax in Singapore.
The corporate income tax is approximately 8.5% for profits up to $300,000 and a flat rate of 17% for earnings over $300,000. Any newly incorporated company enjoys a 0% tax rate for the first $100,000 taxable income.
Liberal Foreign Ownership Policy
Singapore’s liberal foreign ownership policy is attractive to international merchants. There are no restrictions on permitted fields of business activity, and shareholders can be individuals or corporate bodies. Moreover, foreigners don’t require approval from the authorities of Singapore.
Singapore is a global financial hub with incredibly low rates of corruption. In short, it radiates credibility. When you set up an offshore company in Singapore, stakeholders will take your business seriously.
Sophisticated Banking Facilities
As a leading financial centre in Asia, Singapore has reputable local and foreign banks that offer attractive banking features – multi-currency bank accounts, internet banking, credit cards, and trade financing. Opening a bank account in Singapore will take approximately 10-15 working days.
Singapore is one of the most stable countries in the world, boasting a transparent legal system and an efficient government bureaucracy. There is minimal risk in setting up your offshore company in Singapore.
What should an offshore company owner need to know about taxation in Singapore?
Singapore’s tax regime boasts undeniable benefits.
Let’s start with tax exemption. This can only be achieved if your parent company maintains legal control outside of Singapore and if your offshore company doesn’t conduct any business or banking in Singapore.
Let’s suppose that your main business activities – importing, selling and manufacturing the products in question – all occur in the UK. But now you’ve decided to set up an offshore company in Singapore, where the business activities will be mainly administrative. If the company does not receive any income from the residents, it will be subject to zero corporate tax.
However, your company will still be subject to a high level of accountability – for example, diligence and reporting requirements. While Singapore boasts low taxes, its regulatory system is draconian.
All companies are required to go through a Know-Your-Customer process where you screen your customers. This allows the authorities to check whether your business transactions don’t derive from dubious activities.
There are some types of foreign-sourced income remitted to Singapore that can receive tax exemption:
- Foreign-sourced dividends
- Foreign-sourced service income
- Foreign branch profits
However, there are requirements:
- The base tax rate for foreign jurisdiction must be at least 15% when it is received in Singapore.
- The foreign income was taxed in the foreign jurisdiction from which it was received
Only then can you be exempt from tax in Singapore.
Windsor Pte. Ltd. is a UK trading company specializing in electrical spare parts. They have set up an offshore company in Singapore. At the end of the financial year, the company receives two incomes – one from the UK, which is £500,000, and one in Singapore, which is $20,000. Windsor Pte. Ltd. pays tax in the UK. The company can claim the tax credit of £500,000 on their foreign earnings.
Likewise, foreign-sourced dividends can be distributed to shareholders tax-free after taxing income on a corporate level.
Pinnacle Pte. Ltd has a foreign income that is not held in Singapore. But the company decides to transfer the foreign-source income to their bank in Singapore. In this case, foreign-source income will not be considered as being received in Singapore and therefore won’t be taxed. But it is subject to a one-tier exempt dividend, provided that the income is paid directly to their respective bank account.
Checklist for setting up an offshore company in Singapore
Starting a new offshore company in a foreign country can be daunting, so here are a few essential requirements:
- You need to appoint at least one resident director above the age of 18 years old. There is no limit to appointing additional local and foreign directors.
- You are required to appoint a minimum of one local or foreign shareholder.
- There is a maximum of 50 shareholders.
- The director and shareholder can be the same person.
- You must appoint a qualified company secretary who is a local resident.
- The director or shareholder cannot act as the company secretary.
- A minimum paid-up capital of $1 is required.
- You need to have a local registered address. Note that P.O. Box is not allowed.
Setting up an offshore company in Singapore builds credibility and stature among your stakeholders. More importantly, it protects your assets from creditors and attorneys. Singapore has one of the lowest tax systems globally, making it the perfect place to set up an offshore company.
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Author: Renee Yang
Illustration: Kate Faldina