Posted on Updated on

Currently, Singapore has a wide tax treaties network and these made Singapore be the most attractive and conducive place for foreign investment in Asia. Besides, the effective tax rate of the first $300,000 profit is only 5.66% for a newly start up Exempted Private Limited Company in Singapore. In addition, there are various government grants and funds are available to help companies grow their business in Singapore.

What is the Avoidance of Double Taxation Agreement (DTA)?

The Avoidance of Double Taxation Agreement (DTA) is an agreement signed between Singapore and another country that serves to relieve double taxation of income earned in one country by a resident of the other country. A treaty country refers to a country that has signed a DTA with Singapore.

The DTA states the taxing rights between Singapore and her treaty partner on different types of income arising from cross-border economic activities between the two countries. It also provides for tax reduction or exemption on certain types of income.

Only the tax residents of Singapore and the respective treaty country can enjoy the benefits of a DTA.

If you are a Singapore tax resident

When you earn foreign income from a treaty country, you may be subject to tax in that foreign country. However, you may wish to claim the DTA benefits that entitle a Singapore tax resident to enjoy a reduced tax rate or a tax exemption in that foreign country.

To enjoy this benefit, you need to submit the Certificate of Residency (COR) to the foreign tax authority to prove that you are a Singapore tax resident.

What is COR?

A COR (see sample COR) is a letter certifying that the company is a tax resident in Singapore for the purpose of claiming benefits under the Avoidance of Double Taxation Agreement (DTA).

A company is a tax resident in Singapore if the control and management of its business is exercised in Singapore. A Singapore tax resident company can enjoy the benefits in the DTAs that Singapore has concluded with other treaty countries.

Abuse of COR

Unfortunately, some companies abuse such tax treaty benefits, resulting in the Inland Revenue Authority of Singapore (IRAS) being more stringent in granting a tax residence status to companies today.

Company tax residence status

In Singapore, the tax residence status of a company depends on where the control and management of its business is exercised. A company is tax resident in Singapore if the control and management of its business is exercised in Singapore.

Generally, a Singapore branch of a foreign company is not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same. However, there are some benefits that a resident company can enjoy that a non-resident would not. These include:

– It is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.
– It can enjoy tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
– It can enjoy the tax exemption scheme for new start-up companies.

The meaning of this “control and management” is derived from common law principles— being the directing authority that controls the affairs of a company, usually the strategic management and decision-making body (the Board of Directors who make the fundamental policies of the company’s business). Such distinguishing factors of this control and management include the body’s power and ability to raise finance; to approve accounts; to appoint those who manage the company’s day-to-day operations; to declare a dividend; to decide on matters relating to a merger/acquisition/joint venture; and has control of the company’s bank accounts. To be regarded as tax resident in Singapore, it is therefore advisable to have as many of its Board meetings in Singapore, showing that key decisions by the controlling and managing authority of the company are made in Singapore— this is not at all a problem because, being an aviation hub for the Asia-Pacific region, Singapore is well-placed logistically to be a convenient venue for such board meetings. To further support the company’s case of being tax resident in Singapore, where the directors live, and the physical location of the books and records of the company are also important. Hence, where a company conducts its trading activities or physical operations is not necessarily where it is tax resident.

Is it difficult to apply for COR from IRAS?

The proof of being a Singapore tax resident to be furnished to the home/treaty country’s authorities may thus be difficult to obtain from IRAS if the requisite requirements are not fulfilled. Investment holding company owned by a non-Singapore entity having passive sources of income or receiving only foreign-sourced income may have difficulties getting this certification from IRAS and have to justify its reasons for setting up operations in Singapore or that its control and management is indeed in Singapore.

Tax resident status and annual income tax return submission

When preparing your annual income tax return in Singapore, all the above factors and other ancillary issues have to be taken into consideration in declaring how and where the control and management of the company is exercised, and a Singapore tax resident company may hold that status for one year but not in the next. Thus, Singapore company has to provide concrete evidence to show that the control and management was indeed in Singapore for the relevant year, in order for the tax resident status to hold valid.

Who can apply for Certificate of Residence

  • You can apply only if your company is a tax resident in Singapore. The application is for back Years of Assessment (YA), the current YA or the next YA.
  • The income is remitted or going to be remitted into Singapore.
  • This is not applicable to:
    • A nominee company as it is not the beneficial owner of the income derived from the treaty country. A nominee company is a company that is formed for the purpose of holding shares on behalf of the beneficial owners of the shares.
    • A foreign-owned* company which is an investment-holding company with purely passive sources of income or receiving only foreign-sourced income. However, COR may be issued provided that such a company can furnish the reasons for setting up an office in Singapore and provide evidence to substantiate that its control and management is in Singapore. In particular, IRAS considers the following factors:a) Board of directors’ meetings are held in Singapore even if decisions made pertain only to routine matters since the company is an investment holding company, and
      • Presence of other related companies (tax resident or with business activities) in Singapore; or
      • Receives support or administrative services from a related company in Singapore; or
      • Have at least 1 director based in Singapore who holds an executive position and is not a nominee director; or
      • Have at least 1 key employee (e.g. CEO, CFO, COO) based in Singapore.
    • A non-Singapore incorporated company or the Singapore branch of a non-Singapore incorporated company since the control and management of the Singapore branch is vested with the overseas parent company. COR may be issued if IRAS is satisfied that the control and management of the company is indeed exercised in Singapore and there are valid reasons as to why the company is not incorporated in Singapore.
  • IRAS reserves the right to request for additional information on the company.

* a foreign-owned company refers to a company where 50% or more of its shares are held by foreign companies/ shareholders.

How to apply COR?

3E Accounting can assist in your COR Application. The processing time is around 7 to 14 working days. Our processing fee for application of COR is $300 (W/GST $321).

Steps to apply for COR

1. Kindly email us at 3e@3ecpa.com.sg for the following information

  • Company name
  • Confirmation on the company is not an investment holding company with purely passive source of income
  • Confirmation on the company is not a nominee company formed for the purpose of holding shares on behalf of the beneficial owners of the shares.
  • Is the Company receiving only foreign source income
  • Confirmation on the company is not dormant
  • Name of treaty country
  • Nature of income derived: {Consultancy Fees, Dividend, Freight, Interest, Management Fees, Others, Professional Fees, Royalty, Service Fees, Technical Fees} (Please select one of the above)
  • Amount of income (If the amount of income to be remitted to Singapore cannot be ascertained, please provide an estimate of the income.)
  • Name(s) of the foreign company / person paying the income
  • Date(s) of remittance of income
  • Year of Assessment for which the certificate is required
  • Is the income remitted to Singapore? If yes, please provide the date of remittance; If no, please provide the expected date of remittance.
  • Kindly confirm that the control and management of the company for the whole of year has been / will be exercised in Singapore.
  • Kindly confirm that the application is made for the purpose of claiming benefit under the Avoidance of Double Taxation Agreement.
  • Kindly confirm that the company is the beneficial owner of the income.

2. Payment of our invoice
3. Preparation of application form and send to you for approval. Kindly sign and scan back to us for processing.
4. Submission the application to IRAS
5. Receive the COR in 7 to 14 days.