This post is also available in: 简体中文 (Chinese (Simplified))
The Guide of Company Setup in Singapore to do Business in Australia
As one of the most dynamic and business orientated nations in the world, Singapore’s excellent connectivity, world-class infrastructure, strategic location, first class labour force and breadth of global industry experts and professionals offer unrivalled opportunities for Australian businesses.
Singapore is a global financial hub and is considered to be one of the premier asset management centres of Asia, with steady growth and total assets under management of around AUD $1 trillion. As a business centre, there are some 37,400 international companies with headquarters in Singapore, including 7,000 multinationals. Singapore is Australia’s largest trading partner in Southeast Asia, and fifth largest overall.
Singapore is said to be one of the most politically stable economies in the world. Its high ease of operations is due to its almost negligent rate of corruption. Furthermore, its strategic location makes it the perfect hub to gain access to the South East Asian markets. It is difficult to enter markets like Malaysia, Vietnam, Indonesia and Philippines without a Singapore setup, which helps ease issues like language constraints and cultural habits of people and businesses in these countries.
Encouraged by the Singapore Government’s liberal foreign direct investment policies, business-friendly corporate tax policies, tax exemptions on foreign-sourced incomes and first-world infrastructure, more and more Australian companies are making Singapore their incorporation destination.
Ease of Doing Business
The World Bank’s yearly Doing Business Report, has ranked Singapore consistently amongst the top in the world for ‘Ease of Doing Business’. Singapore scored high points in areas that are important for entrepreneurs and start-ups; namely access to capital and credit, as well as how effectively insolvencies are resolved. Singapore is the only country in Asia to hold an AAA credit rating from each of the world’s three leading agencies.
Robust legal system
As a former British colony, Singapore has a strong, English-language legal system with similarities to Australian law. Companies are establishing in Singapore as a result of Singapore’s sound and comprehensive legal, institutional, policy and supervisory framework. Its business friendly location makes Singapore an attractive base for overseeing operations in other South East Asian nations.
Better Access to Emerging Economies
One factor that works in Singapore’s advantage is its location. Any start-up based in Singapore places itself right at the doorstep of multiple emerging economies in South-East Asia, including Indonesia and Thailand. Singapore is very well-linked with the rest of the world thanks to its excellent infrastructure. For many start-ups, expanding to international markets in the early stages is crucial and Singapore provides a much better platform.
Fewer wage restrictions
Australian labour restrictions may be one of the most problematic factor for doing business, with commonly raised issues being high wages, union spats, and restrictive hiring and firing practices.
In contrast, Singapore rated well on the World Economic Forum’s “labour market efficiency” metrics and the EDB boasts of a “highly motivated” workforce with good labour-employer relations. Australian companies would also be drawn to Singapore’s highly educated, English-speaking workforce.
Low Singapore corporate tax rate
Singapore has one of the most attractive corporate tax rates in the world. A study has found that Australia has the 8th highest corporate tax rate in the world. Singapore has a corporate tax rate of 17%, compared to Australia’s 30%. In addition, Singapore offers tax exemption for newly-formed companies.
This has often been one of the prime factors why businesses choose Singapore as their hub for South and South-East Asia. It is only natural then that even start-ups would want to benefit from this. Singapore has a comprehensive Avoidance of Double Taxation Agreement (DTA) in place with Australia, which insures that Australian entrepreneurs are not penalised for establishing their start-ups in Singapore.
Tax advantages of incorporating a Singapore Company
Singapore’s double taxation agreement (DTA) with Australia puts a limit on the level of withholding taxes payable on dividends from overseas holdings. Moreover, the city-state’s low corporate income tax rate (17 percent) and lack of a capital gains tax make it an ideal jurisdiction for basing the holding company operations. Comparatively, the headline corporate tax rate in Australia is 30%.
Understanding the Australia-Singapore DTA
Taxation on Dividends
Dividends distributed by the Australian subsidiary to the Singapore Holding is not subjected to withholding tax in Australia. However, Australia does levy a dividend distribution tax at 15%.
If qualifying conditions are met, the dividends received from the Australian Subsidiary can be exempted from tax under Singapore’s foreign-sourced income exemption scheme. This exemption apply only when the headline corporate tax rate in the foreign country from which the income (which is Australia in this case) is received is at least 15%, and the income had already been subjected to tax in that particular country.
Taxation on Interest Income
According to the DTA, the interest income is taxed at a rate of 10% in the country in which the income arises. A similar tax may be levied in the recipient country as well.
Taxation on Royalties and Fees for Technical Services
Similar provision to the tax on interest income, though the rate is fixed at 10% only.
Avoiding Double Taxation
If Australia sourced income of a Singapore company is subjected to taxation twice (once in Australia and then again in Singapore upon remittance), then the Singapore company can claim relief under the Foreign Tax Credit (FTC) scheme, which allows the company to claim a credit for the tax paid in Australia against the Singapore tax that is payable on the same income. The claim is called Double Tax Relief (DTR).
Moreover, under the Singapore Government’s tax exemption for new start-up companies, newly-incorporated qualifying companies in Singapore are given tax exemptions of up to 100% on normal chargeable income of up to S$100,000 for each of the first three consecutive tax years of its operation.
Other benefits such as the Corporate Tax Rebate scheme (50% on tax payable), no tax on dividends, tax exemption on foreign-sourced income, and the Foreign Tax Credit (FTC) pooling system, are added advantages.
Especially, the FTC Pooling system is noteworthy, which the Singapore Government introduced in 2011. This scheme while simplifying tax compliance has reduce the tax payable on foreign-sourced income for Singapore companies. To qualify for FTC Pooling, the headline corporate tax rate in the foreign country from which the income is received (which in this case is Australia) must be at least 15% (which it is), and the income must already been subjected to tax in that particular country.