Tax residency holds a pivotal role in shaping an individual's tax responsibilities within a specific jurisdiction.
In Singapore, the determination of tax residency involves a set of criteria, the duration of stay, and international considerations that collectively influence an individual's tax obligations.
Individual Tax Residency
In Singapore, an individual is deemed a tax resident if they have a substantial connection to the city-state. Factors considered in establishing this connection encompass the duration of stay, employment, family ties, and business interests. Tax residents in Singapore include:
- Individuals Ordinarily Residing in Singapore: Those with a habitual residence in Singapore.
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Number of Days in Singapore: The duration of stay is a crucial factor. An individual who stays in Singapore for 183 days or more during a calendar year is typically considered a tax resident.
Cross-Border Employment and Dual Residency
Individuals engaged in cross-border employment, dividing their time between Singapore and another country, should navigate double taxation avoidance agreements (DTAs). Singapore has established DTAs with numerous jurisdictions to prevent the same income from being taxed twice. Analysing the terms of the DTA is essential to ascertain tax liabilities and potential tax credits.
For individuals residing in another country and paying taxes in Singapore, claiming a foreign tax credit in their home country might be an option. This credit aims to prevent double taxation, but the process can vary between countries. Seeking advice from tax professionals is crucial to ensuring accurate compliance with relevant tax treaties and regulations.
Corporate Tax Residency
According to Singaporean tax law, a company's place of control and management determines its tax residency. An organization's residency status could vary from year to year.
For a given Year of Assessment (YA), a corporation is generally regarded as a tax resident of Singapore if its management and control were exercised in Singapore throughout the previous calendar year. For example, if a corporation managed and controlled its business entirely from Singapore during 2023, it is a Singapore tax resident for YA 2024.
When a firm does not exercise control or management over its business in Singapore, it is considered a non-resident.
The process of deciding on strategic issues, like those related to the company's policy and strategy, is known as "control and management." It is a matter of fact where a firm exercises its control and management.
Control and management are typically exercised in the same area as the Board of Directors meetings where strategic decisions are made. In some cases, having board meetings in Singapore might not be enough. In such cases, IRAS will take into account all information submitted by the company to ascertain if control and management of the company are, in fact, carried out in Singapore.
A Board of Directors meeting which involves the use of virtual meeting technology will generally be regarded as having strategic decisions made in Singapore if either of the following conditions is met:
- At least 50% of the directors (with the authority to make strategic decisions) are physically in Singapore during the meetings; or
- Chairman of the Board of Directors (if the company has such an appointment) is physically in Singapore during the meeting.
How Tax Residency Affects Corporate Income Tax
While tax resident and non-resident companies are generally taxed in the same manner, tax resident companies enjoy certain benefits, such as:
- Exemption or reduction in tax imposed on specified foreign income that is derived in a jurisdiction that has an Avoidance of Double Taxation Agreement (DTA) with Singapore;
- Tax exemption on specified foreign income such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947;
- Foreign tax credit for the taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income;
- Tax exemption for new start-up companies.
Certificate of Residence
The Certificate of Residence (COR) is a letter issued by IRAS to certify that the company is a tax resident of Singapore for the purpose of claiming tax benefits under the DTAs that Singapore has concluded with other jurisdictions. It is generally required by the foreign tax authority to prove that the company is a Singapore tax resident.
IMPORTANT: Company/Partnership/Trust/Body of Persons Incorporated or Constituted Outside Singapore but Managed or Controlled in Singapore: Entities managed or controlled in Singapore, even if incorporated elsewhere, may be treated as tax residents.
Conclusion
Navigating the intricacies of tax residency rules, particularly in the context of cross-border employment, demands a nuanced understanding. Seeking guidance from tax professionals ensures compliance and helps minimize tax liabilities.
For a complimentary consultation on your tax residency, contact us today. Stay informed about relevant tax treaties and regulations to make informed decisions about your tax obligations.