Singapore is often chosen as a regional business hub for Australian companies looking to expand into Asia or beyond. This is largely because Singapore is one of the countries where there are limited restrictions on foreign businesses setting up. Accordingly it is possible for a fully Australian owned company to operate a business in Singapore.
This blog considers the potential tax implications of running a business in Singapore through an Australian resident company.
A company may be an Australian company due to one of three possibilities:
This means that even if the decision is made to incorporate a company in Singapore to oversee the business, the company may still be considered an Australian company if the business is managed in Australia, or if the controlling shareholders are Australian residents.
A company is considered a Singapore tax resident when the control and management of the company is in Singapore. This means that even if a company is incorporated in Singapore, if it is controlled and managed in Australia, then the company will simply be an Australian resident company.
However, if the company is incorporated in Australia but controlled and managed in Singapore then both Australia and Singapore will consider the company to be a resident company. When this situation occurs the company will need to consider the double tax agreement between Australia and Singapore.
For the purposes of this blog we are looking at a company that is an Australian resident company operating a business in Singapore through a subsidiary incorporated in Singapore.
An Australian resident company is subject to Australian taxes on income from worldwide sources. This means that all business income and any capital gains, will need to be reported in an annual income tax return.
If the company is not a resident company in Singapore but it operates a business in Singapore then the company is usually only taxed on the Singapore-sourced income that is generated through the business.
The Singapore company tax rate is a flat 17%, but many concessions can apply to reduce the effective tax rate.
The company may also be required to register for GST in Singapore. Other local taxes may also be payable.
Under the double-taxation agreement between Australia and Singapore an Australian resident company only has to pay taxes in Australia. However, where the Australian company runs a business in Singapore through a permanent establishment in Singapore then Singapore has taxation rights over the profits generated through this permanent establishment.
As a business operating in Singapore the company will be required to pay income tax on such business income at a rate of 17%.
When the income is reported in the Australian tax return the company will be eligible to claim the foreign tax paid as a credit against the Australian tax assessment. This ensures that the company will only be paying taxes at the higher Australian tax rate.
When you decide to expand your business into Singapore it is important to ensure that you get your structuring right, and that you understand the full tax implications of your various options. There are a range of questions that need to be addressed including profit repatriation to Australia, withholding tax, transfer pricing, debt/equity and foreign currency issues.
Make sure that you speak to an experienced international tax expert before making your move.