Business vehicles are chosen based on commercial needs. The types of vehicles include sole proprietorships, partnerships, companies and variable capital companies. 

Key Features of Sole Proprietorships 

In a sole proprietorship, the business is owned by an individual. The sole proprietorship is not a separate legal entity, and the owner has unlimited liability. For income tax purposes, income derived from the sole proprietorship will be taxed in the hands of the owner. 

Key Features of Partnerships

There are three types of partnerships: general partnership, limited liability partnership and limited partnership. A general partnership requires 2–20 partners. A limited liability partnership requires at least two partners, with no upper limit on the number of partners. A limited partnership requires at least one general partner and one limited partner, with no upper limit on the number of partners. 

A general partnership and limited partnership are not separate legal entities from their partners while a limited liability partnership is. Partners in a general partnership and general partners in a limited partnership have unlimited liability. In contrast, partners in a limited liability partnership and limited partners in a limited partnership have limited liability. 

For income tax purposes, partnerships are tax transparent. Income derived from partnerships is taxed in the hands of the partners. 

Key Features of Companies 

A company is a separate legal entity. There are three types of companies: private company, exempt private company and public company. 

A private company has a maximum of 50 shareholders and has a constitution restricting the right to transfer its shares. An exempt private company is a private company which has a maximum of 20 individual shareholders and no corporate shareholders. A public company is a company that is not a private company and can have more than 50 shareholders. 

For income tax purposes, these three types of companies are taxed as separate legal entities. 

Key Features of Variable Capital Companies 

A variable capital company is a new corporate entity tailored for investment funds. With this, Singapore fund managers can domicile funds locally to enjoy cost economies and reduced compliance hurdles. A variable capital company can be either a standalone fund or an umbrella fund with many sub-funds. The latter creates cost savings because the sub-funds can share a common board of directors and engage the same service providers. 

Unlike companies, variable capital companies can vary their share capital without investors’ approval. This gives investors the flexibility to exit their investments in the funds when they wish to do so. Additionally, unlike companies which must pay dividends out of profits, variable capital companies can pay dividends out of capital. This allows investment funds to fulfil their dividend payment schedules. 

For income tax purposes, a variable capital company is treated as a company.

Limited partnerships and limited liability partnerships are commonly used by professional services firms and in fund structures. For example, private equity funds may use partnerships as part of a master-feeder fund structure to qualify for a tax incentive under Section 13U of the Income Tax Act 1947 (the “Act”). 

Companies 

A company is a Singapore tax resident if its control and management is exercised in Singapore in the preceding calendar year. The concept of control and management is not defined in the Act but are generally taken to refer to the location where the board of directors’ powers of control and management are exercised. This is a question of fact to be determined by the circumstances of each case. 

Tax Transparent Entities 

Tax transparent entities, such as partnerships, do not have a separate identity for income tax purposes. Instead, one has to determine the partners’ tax residency. 

An individual partner is a Singapore tax resident if, in the preceding calendar year, they reside (except for reasonable temporary absences) in Singapore, or they are physically present or exercise employment in Singapore for at least 183 days. Foreigners are considered Singapore tax residents under two administrative concessions: 

• they stay or work in Singapore continuously for three consecutive years; or 
• they work in Singapore for a period straddling two calendar years (subject to other conditions). 

A corporate partner’s tax residency is determined in the same manner as a company.

Companies

The corporate tax rate is 17%. Companies may be exempt from tax on certain types of income. They may also be taxed at a concessionary rate on qualifying income under the various tax incentives.

Tax Transparent Entities

The tax rate for tax transparent entitles, such as a partnership, will depend on the profile of the partner. 

An individual partner who is a Singapore tax resident is taxed progressively, with the top marginal tax rate (with effect from year of assessment 2024) at 24%. An individual partner who is not a Singapore tax resident will be taxed at a flat rate of 24% on their trade income.

A corporate partner’s tax rate is the same as that of a company. 

Sole Proprietorship

The tax rate of a sole proprietor is the same as that of an individual partner.

Singapore taxes income based on source and receipt. The source basis applies to income, such as gains and profits from trade, employment and interest, which accrues in or is derived from Singapore. The receipt basis applies to income received in Singapore from outside Singapore, such as when it is remitted into Singapore.

Taxable profits are calculated based on accounting profits after making tax adjustments. The usual tax adjustments include the adding back of non-deductible expenses, non-taxable receipts, and current and brought-forward capital allowances, losses and approved donations. 

In addition to the usual tax deduction for R&D expenses, various additional deductions may be available (subject to conditions) for intellectual property and R&D expenses, including:

• additional deduction of 300% on up to SGD400,000 of qualifying intellectual property registration costs (excluding government grants or subsidies) until the year of assessment 2028; 
• additional deduction of 300% on up to SGD400,000 of expenses (excluding government grants or subsidies) to license from another person any qualifying intellectual property rights (excluding trade marks and software user rights) until the year of assessment 2028; and
• additional deduction of 150% on staff costs and consumables for in-house R&D conducted wholly in Singapore until the year of assessment 2028.

There are various tax incentives available for different industries, including those explained below.

• The financial sector incentive (FSI) scheme, which applies to licensed financial institutions such as banks and fund managers. The FSI scheme provides for concessionary tax rates of 5%, 10%, 12% or 13.5% on income derived by an FSI company from qualifying activities. It was announced in the 2023 Singapore Budget that the existing concessionary tax rates will be streamlined to 10% and 13.5% for new and renewal awards approved on or after 1 January 2024.
• The global trader programme (GTP) scheme, which applies to companies engaged in the business of international trading of commodities or commodities derivatives, or of brokering international trades in commodities, or both. The GTP scheme provides for concessionary tax rates of 5% or 10% on prescribed qualifying transactions. As announced in the 2024 Singapore Budget, a rate of 15% will be introduced from 17 February 2024. More details will be released later in 2024.
• The finance and treasury centre (FTC) scheme, which applies to companies providing treasury, investment or financial services in Singapore. The FTC scheme provides for a concessionary tax rate of 8% on income derived from qualifying FTC services to approved network companies and qualifying FTC activities carried out on its own account with funds obtained from qualifying sources. As announced in the 2024 Singapore Budget, a rate of 10% will be introduced from 17 February 2024. More details will be released later in 2024.

Carry Forward

Any unabsorbed losses can be carried forward indefinitely to be deducted against the statutory income in the following year of assessment, subject to the fulfilment of the shareholding test, where at least 50% of the total number of issued shares of the company must be held by the same persons on: 

• the last day (ie, 31 December) of the year in which the loss was incurred; and
• the first day (ie, 1 January) of the year of assessment in which such loss would be deducted.

Carry Back

Unabsorbed losses of up to SGD100,000 can be carried back for one year of assessment immediately preceding the year of assessment the losses were incurred. To carry back losses, an irrevocable election must be made by the time the income tax return is lodged. This is subject to the fulfilment of the same shareholding test on:

• the first day (ie, 1 January) of the year in which the loss was incurred; and
• the last day (ie, 31 December) of the year of assessment in which the loss would be deducted.

Offset of Income Losses Against Capital Gain

Where a capital gain on the sale of a foreign asset is taxable in Singapore, losses incurred by the seller entity from the sale or disposal of any other foreign asset can be deducted from such gains. This applies where had such other sale or disposal resulted in capital gains and all of those gains had been received in Singapore, they would have been chargeable to tax in Singapore. Certain other exceptions also apply.

Interest expenses are generally deductible if they are incurred wholly and exclusively in the production of income. Interest expenses from non-income producing assets will not be deductible. As an administrative concession, the Singapore tax authorities do not require taxpayers to identify the interest expense incurred from income-producing assets. Instead, taxpayers may use the total asset method to attribute common interest expenses to their assets. Under the total asset method, the proportion of common interest expenses that is attributable to income producing assets is deductible. In contrast, the proportion of common interest expenses that is attributable to non-income producing assets is not deductible. 

Singapore does not impose thin capitalisation rules. However, the terms of the loans between related parties must be at arm’s length. Otherwise, the Comptroller may make an adjustment to reduce the amount of interest expense deductions allowed.

The arm’s length interest rate is the interest rate which would be imposed if the parties were not related parties and were dealing independently with each other under similar circumstances at the time the indebtedness arose.

There is no consolidated tax grouping in Singapore. 

However, subject to meeting certain qualifying conditions, a Singapore-incorporated company may make an irrevocable election to transfer its unutilised current year capital allowances/losses/approved donations under the group relief system to be deducted against the assessable income of another Singapore-incorporated company from the same group. 

The transferor and transferee companies are members of the same group if one holds 75% of the other, or a third Singapore company holds 75% in each of the companies. Further, the holder must be entitled to at least 75% of:

• any residual profits of the other company available for distribution to that company’s equity holders; and 
• any residual assets of the other company available for distribution to that company’s equity holders on a winding up.

Capital gains from the sale of foreign assets that occur on or after 1 January 2024 are taxable in Singapore where such proceeds are received in Singapore. This applies to sellers which are members of corporate groups that are not all incorporated, registered or established in a single jurisdiction, or any entity in that group has a place of business in more than one jurisdiction. Capital gains from the sale of assets situated in Singapore would not be taxable. Other exemptions may apply.

In ascertaining whether gains from a transaction are revenue or capital in nature, the Comptroller may examine the characteristics of the transaction according to certain factors known as the “badges of trade”. These include:

• the taxpayer’s motive;
• the financing method;
• the frequency of similar transactions;
• the duration of ownership; and
• the reasons for the realisation.

Whether a transaction is revenue or capital in nature is a question of fact – the badges of trade should be considered holistically and no single factor is determinative.

An incorporated business may be liable to pay other taxes on a transaction. These include:

• goods and services tax (GST) of 9% with effect from 1 January 2024 on: 
1. any supply (except an exempt supply) of goods or services made in Singapore by GST-registered persons in the course or furtherance of their business;
2. any business-to-business (ie, supplies made to GST-registered persons) supplies of imported services under the reverse charge regime;
3. any business-to-consumer (ie, supplies made to non-GST registered persons) supplies of imported services under the overseas vendor registration regime;
• stamp duty on agreements for the sale of shares, and the purchase or disposal of immovable properties; and
• additional conveyance duty for the purchase or disposal of shares in property-holding entities owning primarily prescribed immovable properties.

In addition to the taxes that an incorporated business may pay on a transaction (see 2.8 Other Taxes Payable by an Incorporated Business), it may also be subject to property tax. Property tax is imposed on the owners of properties based on the annual value of the properties. Residential properties are taxed progressively whereas non-residential properties are taxed at 10% of the annual value.

According to statistics collated by the Accounting and Corporate Regulatory Authority, as at December 2022, there are about 406,000 local and foreign companies in Singapore compared to about 143,000 sole proprietorships and partnerships. While there is no further breakdown available of whether most closely held local businesses operate in corporate or non-corporate form, the data suggests the former.

Individual professionals have the prerogative to determine their business structure. This is subject to the anti-avoidance provision under the Act. Where the arrangement to earn income by setting up a company is carried out for bona fide commercial reasons and does not have as one of its main purposes the avoidance or reduction of tax, the anti-avoidance provision is unlikely to apply. Otherwise, the Comptroller can disregard or vary the arrangement and make any appropriate adjustment to counteract any tax advantage obtained.

There are no rules preventing closely held corporations from accumulating earnings for investment purposes in Singapore.

Dividends

Individuals are exempted from tax on dividends paid by any Singapore tax resident company.

Gains on the Sale of Shares

If the gains on the sale of shares arose from the carrying on of a trade, such gains will be considered revenue in nature and will be taxable. Conversely, if the gains are capital in nature, this will not be taxable. 

Where employees derive any gains from a right to acquire shares by reason of their employment, such gains will be taxable at the time of the exercise and are computed based on the open market price, less any amount paid for the shares. Where there is a restriction on the sale of the shares, the gains will be taxable when the restriction ceases to apply, and are computed based on the open market price, less any amount paid for the shares.

For a foreign employee who ceases employment before the right to acquire shares is exercised, or before the restriction on sale has lifted, the gains will be deemed income derived by the foreign employee one month before the later of:

• the date employment ceases; or 
• the date the right is granted.

The gains will be computed based on the open market price of the shares on that date, less the amount paid for the shares.

Dividends

Individuals are exempted from tax on dividends paid by any Singapore tax resident company.

Gains on the Sale of Shares

The tax treatment on the gains on the sale of shares in publicly traded corporations is similar to 3.4 Sale of Shares by Individuals in Closely Held Corporations. However, the gains on the sale of shares acquired by reason of employment will be calculated based on: 

• for non-treasury shares, the open market price at the last transaction on the date on which the shares are first listed on the Singapore Exchange after the acquisition of the shares by the person, less the amount paid for such shares; and
• for treasury shares, the open market price at the last transaction on the date an appropriate entry is made in the Depository Register by the Central Depository (Pte) Ltd to effect the acquisition of the treasury shares by the person, less the amount paid for such shares.

Interests

Subject to certain exceptions, interests and other payments in connection with loan or indebtedness which are paid to a non-Singapore tax resident will generally be subject to withholding tax of 15%. 

Dividends

There is no withholding tax for dividends paid to a non-Singapore tax resident.

Royalties

Royalties which are paid to a non-Singapore tax resident will generally be subject to withholding tax of 10%. 

Singapore has signed agreements for the avoidance of double taxation (DTAs), including limited DTAs, with more than 100 countries. The DTAs generally provide for the avoidance of double taxation and reduced rates of taxation on interest, royalties, etc. The primary DTA countries that foreign investors would use will depend on the relevant country the transaction relates to.

Singapore signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “Multilateral Convention”) in 2017. The Multilateral Convention implements DTA measures proposed as part of the BEPS Project. As a signatory, Singapore has updated a significant number of its DTAs to, amongst others, include an anti-treaty shopping provision and a principal purpose test provision.

Under the principal purpose test provision, DTA benefits will be denied in abusive cases. Where one of the principal purposes of using treaty country entities by non-treaty country residents is to obtain treaty benefits for artificial arrangements or structures without commercial purpose, this will fail the principal purpose test.

Inbound investors should bear in mind that local transfer pricing rules (which are largely aligned with the OECD Transfer Pricing Guidelines (the "OECD Guidelines")) will apply if they choose to operate through local corporations, including:

• maintaining contemporaneous transfer pricing documentation (subject to certain conditions and exemptions);
• submitting a Form for Reporting Related-Party Transactions as part of the corporate income tax return if the value of related party transactions disclosed in the financial statements for a financial period exceeds SGD15 million; and
• filing a country-by-country (CbC) report if the local corporation is a Singapore-headquartered multinational enterprise (subject to other conditions).

Where the use of related-party limited risk distribution arrangements is at arm’s length, the Comptroller is unlikely to make an adjustment to increase the amount of income that is accrued in Singapore, or reduce the amount of deduction allowed. An arrangement is at arm’s length if the same terms and conditions would have been made if the contracting parties are unrelated and dealing independently with one another in similar circumstances.

The transfer pricing rules and administrative guidelines in Singapore are generally aligned with the OECD Guidelines. 

Domestic Transfer Pricing Issues

The Comptroller may raise transfer pricing queries when assessing the taxpayers’ corporate income tax or conducting transfer pricing audit. Taxpayers will be selected for a transfer pricing audit based on risk indicators such as the value of related-party transactions, and the performance of business over time. In making transfer pricing queries, the Comptroller can use “new” information received to re-open earlier years. Except in cases of fraud, the statutory time limit to re-open earlier years is four years after the expiry of that year of assessment. Taxpayers should bear in mind that a surcharge of 5% will be imposed where transfer pricing adjustments are made by the Comptroller, regardless of whether any additional tax is payable on the adjustments. 

International Transfer Pricing Dispute

Where there is an international transfer pricing dispute, a Singapore tax resident taxpayer can resolve the issue either by taking legal remedies in the country where the transfer pricing adjustment is made, or by making a Mutual Agreement Procedure (MAP) application under the relevant tax treaty. There is a general increase in the number of transfer pricing disputes resolved through MAPs. The Comptroller endeavours to resolve a MAP case within 24 months after receiving a complete application.

The Comptroller may make a transfer pricing adjustment to increase the profits of taxpayers who do not comply with the arm’s length principle and have understated their profits. Where a transfer pricing adjustment has been made, a surcharge of 5% on the transfer pricing adjustment will also be payable. Subject to certain conditions, the Comptroller may wholly or partly remit any surcharge payable.

Compensating adjustments may be made when transfer pricing claims are settled through MAPs.

Both local branches and local subsidiaries of non-local corporations will be subject to Singapore tax on their income which is accrued in, derived in or received in Singapore. The same corporate tax rate of 17% will apply to both. However, a local branch will only be taxed on the profits attributable to its permanent establishment in Singapore. 

The capital gains on the sale of shares in local corporations are not taxable in Singapore. However, the capital gains on the sale of shares in a non-local holding company are taxable if the sale occurs on or after 1 January 2024, and the gains are received in Singapore from outside Singapore by an entity of a “relevant group”. A group is a “relevant group” if either the entities of the group are not all incorporated, registered or established in a single jurisdiction, or any entity of the group has a place of business in more than one jurisdiction. This tax treatment is subject to certain exceptions, and applies regardless of whether such non-local holding company owns the shares of a local corporation.

For corporate income tax purposes, Singapore does not have any change of control provisions. 

However, it is likely that the shareholding test in relation to loss relief (refer to 2.4 Basic Rules on Loss Relief) and the 75% shareholding requirement in relation to group relief (refer to 2.6 Basic Rules on Consolidated Tax Grouping) will not be satisfied upon a change of control. A change of control event may also have additional conveyance duty implications where the company in question is a property holding entity for stamp duty purposes.

No mandatory formulas are used to determine the income of foreign-owned local affiliates selling goods or providing services. The usual transfer pricing principles apply. 

Deduction is generally allowed if the expense is revenue in nature, and incurred wholly and exclusively in the production of income. Local affiliates will not be able to claim a tax deduction on management and administrative expenses incurred by a non-local affiliate.

For cross-border loans, the interest rate of a related-party loan has to be based on the arm’s length principle. The arm’s length principle is the interest rate that would be charged if unrelated parties are dealing independently with one another in comparable circumstances.

Foreign income derived from outside Singapore is taxable if it is:

• remitted to, transmitted or brought into Singapore;
• used to repay any debt incurred for a Singapore trade or business; and
• used to purchase any movable property which is brought into Singapore.

Nonetheless, subject to meeting certain conditions, foreign-sourced dividends, foreign branch profits and foreign-sourced service income are tax exempt. Further, where the foreign income is taxed in both the foreign jurisdiction and Singapore, tax reduction or exemption may be available under the relevant DTAs.

There are generally no deductions allowed against foreign exempt income. 

Dividends from foreign subsidiaries of Singapore tax-resident corporations are tax exempt where they fulfil the following conditions:

• the dividends are subject to tax of a similar character to income tax under the law of the jurisdiction in which the foreign subsidiaries are incorporated;
• at the time the dividends are received in Singapore by the Singapore tax-resident corporation, the highest rate of the aforementioned tax on any gains or any profits from any trade or business carried on by any company in the aforementioned foreign jurisdiction is not less than 15%; and
• the Comptroller is satisfied that the tax exemption would be beneficial to the Singapore tax-resident corporation.

The Minister for Finance also retains the discretion to grant tax exemptions on foreign-sourced income on a case-by-case basis.

Although the Act does not define “royalties”, the Economic Expansion Incentives (Relief from Income Tax) Act 1967 (which is to be construed as one with the Act) defines “royalties or technical assistance fees” to include any consideration for the use of copyright, patents, designs, secret processes, formulae, trade marks, licences or other like property. 

If the royalties are accrued in or derived from Singapore, they will be subject to Singapore corporate tax even if the intangibles were used by non-local subsidiaries. The Act also deems royalties to be derived from Singapore if such payments are borne by a Singapore tax resident or Singapore permanent establishment, or are deductible against any income sourced in Singapore.

Singapore does not implement any CFC-type rules.

Singapore does not have any rules relating to the substance of non-local affiliates.

Revenue gains on the sale of shares in non-local affiliates will be taxable. Capital gains will also be taxable in certain circumstances – refer to 5.3 Capital Gains of Non-residents. Whether the gains are revenue or capital in nature depends on the facts and circumstances of each case. The “badges of trade” test may also be applied – refer to 2.7 Capital Gains Taxation. 

However, the Act provides certainty on the exemption of tax on gains arising from the disposal of ordinary shares in the non-local affiliate. The conditions are:

• the disposal happened between 1 June 2012 and 31 December 2027 (both dates inclusive); and 
• the divesting local corporation legally and beneficially owned at least 20% of the non-local affiliate for a continuous period of at least 24 months immediately before the disposal.

This tax exemption does not apply to certain situations such as where a non-local affiliate is not listed and: 

• is in the business of trading immovable properties;
• principally carries on the activity of holding immovable properties; or
• has undertaken property development (except where the immovable property is used by the non-local affiliate to carry on its trade or business, and the non-local affiliate did not undertake any property development for at least 60 consecutive months before the disposal of shares).

There are general anti-avoidance provisions in most of Singapore՚s tax legislations including the Income Tax Act 1947, the Goods and Services Tax Act 1993 and the Stamp Duties Act 1929. Generally, the anti-avoidance provision applies to any arrangement where the purpose or effect of such arrangement is:

• to alter the incidence of any tax that is payable or would have been payable by any person; 
• to relieve any person from any liability to pay tax or to make a return; or
• to reduce or avoid any liability imposed or which would have been imposed on any person.

The Comptroller has the power to disregard or vary the arrangement and make any appropriate adjustment to counteract any tax advantage obtained or obtainable by that person under the arrangement.

However, the anti-avoidance provision does not apply where an arrangement is carried out for bona fide commercial reasons and does not have as one of its main purposes the avoidance or reduction of tax.

The Comptroller conducts routine audits according to compliance risk and by randomly selecting taxpayers according to industry sectors. The industries or areas of concern may be announced beforehand and letters highlighting common mistakes made by taxpayers in that industry may be issued to facilitate self-reviews prior to audits. Taxpayers are advised to keep up-to-date on their correspondence with the Comptroller and, where given the opportunity to before an audit commences, review their tax affairs conscientiously. In-person visits to business premises may also be made. A taxpayer’s case may be referred for further investigation where the results of their audit are unsatisfactory to the authorities or disclose wilful intent to evade taxes, at which stage, a raid will be conducted.

Singapore is a BEPS Associate and has implemented the following four minimum standards: countering harmful tax practices (Action 5), preventing treaty abuse (Action 6), transfer pricing documentation and CbC reporting (Action 13), and enhancing dispute resolution mechanisms (Action 14). 

The Singapore government is generally supportive of the BEPS Project and has agreed to give effect to both Pillars One and Two. The implementation date of Pillar One remains unclear whereas Pillar Two will be implemented from 1 January 2025. It was announced in the 2024 Singapore Budget that Singapore will implement two components of Pillar Two: the Income Inclusion Rule (IIR) and the Domestic Top-up Tax (DTT). The implementation of the Undertaxed Profits Rule, another component of Pillar Two, will be considered at a later stage.

The IIR will apply to the overseas profits of certain multinational enterprise (MNE) groups that are parented in Singapore. The DTT will apply to the Singapore profits of certain MNE groups.

Singapore places importance on international tax and has implemented the four minimum standards as a BEPS Associate, namely:

• countering harmful tax practices;
• preventing treaty abuse;
• transfer pricing documentation and CbC reporting; and
• enhancing dispute resolution.

Singapore will also be implementing Pillar Two with effect from 1 January 2025.

The Singapore government is cognisant of the challenges of remaining attractive to foreign investors in light of the BEPS Project. It remains committed to strengthening Singapore’s non-tax competitive edge, including political stability, the ease of doing business locally, and high corporate governance standards.

In particular, to enhance Singapore’s attractiveness in the post-BEPS world, it was announced in the 2024 Singapore Budget that Singapore will be introducing the Refundable Investment Credit (RIC). Subject to certain conditions that will be released later in the year, the RIC can be used to offset corporate taxes payable, and any unutilised credits will be payable to the company as a cash refund.

Singapore has extensive tax incentive schemes to attract foreign investors to its shores. With the introduction of the BEPS Project, it remains to be seen whether Singapore will remove any of its tax incentive schemes. However, there are several notable changes to certain tax incentives in the 2024 Singapore Budget. For example, an additional concessionary tax rate tier of 15%, which is in line with the global minimum effective tax rate of 15% under Pillar Two, will be introduced under the Development and Expansion Incentive and Intellectual Property Development Incentive. Details of such changes will be released later in the year. 

In addition, Singapore does not tax the net wealth of individuals because of the practical difficulties in estimating wealth accurately, and because many forms of wealth are mobile. Nonetheless, Singapore taxes wealth in other ways, including property tax and stamp duties. The main manner of taxing wealth is through property tax, and the annual value bands for owner-occupier residential property will be adjusted upwards following the 2024 Singapore Budget.

The Singapore government also tries to lessen some of the wealth divergence through its home ownership policy. For example, the government has been heavily subsidising public housing so that occupants can gain from the increase in house prices.

Singapore does not have any legislation for dealing with hybrid instruments. Nonetheless, the Inland Revenue Authority of Singapore (IRAS) had, in 2019, published an updated guide on the income tax treatment of hybrid instruments. 

Since Singapore is a BEPS Associate committed to implementing the four minimum standards, it is unlikely that BEPS Action 2 – neutralising the effects of hybrid mismatch arrangements – will be implemented in Singapore.

BEPS Action 4 on limitation on interest deductions seeks to address BEPS risks arising from scenarios such as groups placing debts in high tax countries, or using intragroup loans to generate excessive interest deductions. One recommendation was to restrict an entity’s interest deductions to a fixed percentage (10%–30%) of its earnings before interest, taxes, depreciation and amortisation (“fixed ratio rule”).

Singapore has a territorial tax regime. As a BEPS Associate, Singapore does not have any interest deductibility restrictions under BEPS Action 4. In Singapore, interest is generally deductible if it is wholly and exclusively incurred in the production of income. As such, interest from non-income producing assets will not be deductible. While interest above the fixed ratio rule remains deductible in Singapore, BEPS risks are mitigated because Singapore is a low tax country. Additionally, any intragroup loans must be at arm’s length, otherwise the Comptroller may reduce the amount of deductions allowed.

Singapore does not have any CFC rules.

Singapore’s DTAs have either a limitation on relief provision or a principal purpose test provision. 

Limitation on Relief

The limitation on relief provision restricts the DTA benefits a Singapore resident may receive in relation to foreign-sourced income received in Singapore. As such, Singapore investors have to repatriate profits from their foreign investments, regardless of the commercial reasons. 

Principal Purpose Test

The principal purpose test is to deny DTA benefits where one of the principal purposes of an arrangement is to obtain the said treaty benefits in a way that does not cohere with the relevant DTA՚s purpose. As such, if the arrangement relates to a core commercial activity and its form is not artificial, it is unlikely that this will be an abusive case where the provision will apply.

Impact of Transfer Pricing Changes Introduced by BEPS

The IRAS has published its own Transfer Pricing Guidelines (the “IRAS Guidelines”), which is prepared by taking guidance from the OECD Guidelines. The IRAS Guidelines generally adhere to the main principles set out in the OECD Guidelines. Accordingly, the transfer pricing changes introduced by BEPS does not significantly change Singapore’s tax regime.

Taxation of Profits from Intellectual Property

The taxation of profits from intellectual property is generally straightforward – royalties accruing in or derived from Singapore are taxable. Practical difficulties in ascertaining whether the royalties are sourced in Singapore are alleviated by the Act, which deems royalties which are borne by a Singapore tax resident or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore) or which is deductible against any income accruing in or derived from Singapore to be derived from Singapore. The valuation of intellectual property rights, however, remains an area of contention.

The provisions for transparency and CbC reporting have to balance the interests of taxpayers with that of the government. For example, MNEs may face higher compliance costs to prepare a CbC report. They may also have to disclose sensitive commercial information (eg, relating to research and development, and intellectual property) even though such information is disclosed confidentially to tax authorities. On the other hand, the additional data from CbC reports provide governments with a better overview of the entire group, which allows them to better assess transfer pricing risks.

In determining the right balance between the interests of the different stakeholders, any provisions for transparency and CbC reporting must contribute to BEPS’s policy goal of taxing profits in jurisdictions where the corresponding economic activities are performed and where value is created.

Singapore has recently introduced two methods to charge goods and services tax (GST) on profits generated by the digital economy businesses operating largely from outside Singapore:

• the reverse charge mechanism; and
• the overseas vendor registration regime.

Reverse Charge Mechanism

The reverse charge mechanism applies to: 

• GST-registered persons who:
1. obtain services from overseas suppliers; or
2. import low value goods, including from electronic marketplaces; and 
3. are not entitled to claim full input tax credit, or belong to a GST group that is not entitled to do so; or
• non-GST registered persons who: 
1. obtained services from overseas suppliers and imported low value goods (including from electronic marketplaces) in excess of SGD1 million in a 12-month period; and
2. are not entitled to claim full input tax credit even if they are GST-registered.

Under the reverse charge mechanism, GST-registered persons generally have to account for GST on imported services from overseas suppliers or on imported low value goods, as if the former is the supplier. Similarly, non-GST registered persons will have to be GST-registered and account for GST on their imported services and low value goods as if they are a GST-registered supplier.

Overseas Vendor Registration Regime

The overseas vendor registration regime applies to any overseas supplier and operator of an electronic marketplace (operator) (under certain conditions) which:

• has a global revenue exceeding SGD1 million; and
• makes supplies of digital services or remote services exceeding SGD100,000 to Singapore customers.

Under the overseas vendor registration regime, the overseas supplier and operator have to register and account for GST on supplies of digital/remote services to non-GST registered customers in Singapore.

Other than the GST on the digital economy business, Singapore has not introduced any other digital taxation rules or laws on income taxation. The tax authorities have provided certain guidelines on the tax treatment of transactions involving digital tokens.

Subject to certain exceptions, withholding tax of 10% will be imposed if royalties are paid for the use of offshore intellectual property to a non-Singapore tax resident. Such withholding tax is applicable if the payment:

• is borne by a Singapore tax-resident person or a person with a Singapore permanent establishment; or
• is deductible against any Singapore-sourced income.

The withholding tax rate may be reduced, or the royalty payments exempted from tax under the relevant DTA. The Act does not impose differing tax treatments on owners of IP in tax havens as long as any related-party arrangements for the use of intellectual property (if any) are at arm’s length and do not constitute an abuse of the DTAs.