Offshore Company Formation in Singapore
– The Reality and the Myths
The tax system in Singapore is distinctive because taxes are imposed only on the income that is gained in Singapore or in the event of international bank transfers to a local bank account. This system of taxation is called ‘territorial taxation’, and is advantageous during international tax planning and also, has become popular due to the same reason.
However, there are both pros and cons of this type of taxation system. Yes, the beneficiaries can avail 0% income tax. Also, investors can benefit from Singapore’s participation in global institutions such as the OECD & FATF. Yet, on the other hand, a local Director has to be appointed who is responsible to pay penalties, if any. Thus, the running costs pertaining to Singapore overseas offices are higher than inother countries.
Global investors can benefit from setting up offshore companies in Singapore in specific business areas such as international trade, intellectual property such as patents or trademarks, financial organizations, and investing companies holding shares of other companies.
In the field of international trade, offshore jurisdictions have features such as reduced VAT rates, lowered taxes on shareholders’ dividends, low operating costs, and less income tax.
In addition to the corporate tax rate of 17%, Singapore applies the ‘territorial principle’ to the offshore setups where only the income earned in Singapore or acquired from trade activities outside the country are taxable.
Incorporation of Singapore-based Offshore Companies
As part of the registration and incorporation process of Singaporean companies, the former can be completed online; while for the latter, a visit to the country is a must.
Moreover, the client has to tend to certain formalities such as finalizing the company name and structure. Also, the company’s principals are to furnish information on the list of shareholders as well as directors, the company’s registered office address, company secretary, company constitution, and charter capital – to the stipulated authorities.
The uniqueness of Singapore Offshore Company
To set up an offshore company in Singapore, one of the mandatory requirements is the appointment of a Native Director. This clause was included to have somebody responsible for the business carried out by the enterprise. Besides, the local Directors cannot resign unless they find a substitute.
Keeping in mind the high risks associated with the local Directors position, they get a deposit payment for rendering their services. As a commonpractice, the deposit amount is equivalent to the sum of annual fees for maintaining the entity’s good standing status. Also, submission of all the required documents to the tax authorities is obligatory. Unfortunately, you cannot abandon a Singapore offshore company, unlike other jurisdictions.
However, there is no requirement for the local Director to be a Singapore national. Even a foreigner having the country’s resident status qualifies.
Singapore Offshore Company Norms
Singaporean offshore companies have to follow certain norms as seen in the following details.
Having Good Standing
To maintain good standing, Singaporean offshore companies have to draft and submit the required documents within the stipulated duration to the concerned authorities. This includes handing over the annual reports to ACRA and IRAS, which is the country’s local tax authority.
Accounting and Auditing Requirements
The offshore setups are required to maintain accounting records. Also, conducting audits of the company’s balance sheets, annually, is a must to maintain their good standing.
Annual Reports
Within 6 months from the end of each financial year, the submission of the annualreport along with other mandatory financial documents to ACRA is the norm for Singapore-based offshore companies.
Singapore Tax System
As mentioned earlier, the ‘Territorial Taxation’ principle applies to Singapore. Under this system, only the income that is earned within the country jurisdiction is subject to taxation or money that is transferred to the company’s Singapore bank account. This taxation system is followed in several worldwide jurisdictions, including Panama and Hong Kong.
For this reason, Singapore’s tax system has a unique character where the companies can avail zero tax rate, owing to the fact that they are situated in a country that conforms to all the FATF and OECD legalities.
Moreover, to fulfill tax regulations if questioned by the tax authorities of other countries, Singapore has the option of dividing profits into onshore and offshore offices for adjusting the tax burden of the Singapore-based enterprises.
Opening Bank Account of Singapore Offshore Companies
Singapore is ranked third in the list of financial hubs, following London and New York. Thus, Singapore is considered to have an efficient banking system. The investors have a choice in around 200 registered banks – including the local, regional and global players.
The process of opening a bank account for Singapore or overseas companies is quite similar, with a few exceptions pertaining to minimum balance and turnover requirements. Also, the company’s principals – including the CEOs, Directors, and Shareholders – have to personally attend bank meetings to be updated on the banking regulations.
Moreover, the required documents have to be furnished for opening the bank accounts. Normally, the banks will take a few weeks to process the documents and open the bank account. Thereafter, the bank account number and other relevant details are sent to the clients; and then, they can start operating the bank account.
Singapore Offshore Closure
There are 2 ways to shut down a Singapore offshore company: strike-off or removal from the ACRA registry and complete liquidation.
Strike-Off from the ACRA Registrar
Striking off a Singaporean offshore company means that the company does not have to submit tax returns and annual sheets thereon. However, the company can be revived by creditors and shareholders.
For a complete strike off, the company has to omit assets and liabilities from their balance sheets and also, close all related accounts.
The time frame for fully striking off the company is 6 months.
Complete Liquidation
Under complete liquidation, all activities of the company are suspended. Only through court rulings, there is a possibility of company revival from thereon. Moreover, liquidation is more expensive and time-consuming than striking off the company. A Liquidation Manager has to be consulted and involves payment of service fees. The company’s Creditors, shareholders, and Directors can apply for complete liquidation.
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