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Benefits of a Singapore Offshore company with economic substance
In our days, one of the main things that you need to consider when going offshore is economic substance. The last decade has seen an increase in international regulations like CRS, BEPS, and substance.
In other words, to enjoy an offshore company in Singapore or any other low-tax jurisdiction you have to prove to have economic bonds in the country in question. Knowing and complying with these requirements is vital for the success of any business whether this is your IBC in Singapore, Hong Kong, Panama, Nevis, or any other offshore destination.
Establishing economic substance for a Singapore company
Because Mundo experts have been working in the international arena of corporate services for a long time, they provide state-of-the-art services. We won't leave you high and dry when it comes to your offshore company in Singapore. Instead, we will help you comply with every economic substance requirement.
Like any other offshore hub, Singapore has established certain conditions through which you can prove the existence of operations and your company’s physical presence in this country. Although you may be subject to some extra costs, the fact that you'll be in compliance will bring you peace of mind. You won't have to worry about being sanctioned by the regulator or any other entity whether local or international. Moreover, substance in Singapore equals prestige and helps you build a good reputation for your business.
This article is about Singapore’s substance requirements. It's worth mentioning that the following services apply to companies that are already registered but we can also help you to open a new entity. All you have to do is contact your Mundo representative and you'll be on your way.
Advantages of opening an offshore company in Singapore with substance
At this point, you're probably wondering if going through all this trouble is worth it and the answer is yes.
Generally speaking, offshore jurisdictions bring many benefits when it comes to taxes and profits. However, they should not be interpreted as tax evasion vehicles because they are not. The offshore world is just a tool for you to optimize your business using resources that are available at a global level but all of these must be carefully structured so you actually get the benefits, otherwise, you may even get fines or sanctions.
Next, we present the reasons why Singapore is worth the effort of going offshore and complying with economic substance requirements. Besides being a beautiful country to live in, a Singapore offshore company will bring benefits to your business as well.
Singapore has implemented interesting incentives to support business development in the region. This is why new companies are eligible to apply for zero-tax status including an exemption of income tax. The exemption will be valid for three years and doesn’t apply to companies owned by holding companies or 100% corporate shareholders. Moreover, Singapore doesn't apply capital gains tax or dividends tax.
Here are some other tax advantages that you’ll enjoy:
- Corporate income tax of only 17%
- Unilateral tax credit
- Exemption on gains derived from disposing of equity investments (under certain conditions)
- Reduced rates on withholding tax on income deriving from foreign sources
- Tax credit pooling
Secrecy and protection
The banking secrecy in Singapore goes hand to hand and is at the same level as Swiss banks. However, there are some reservations when it comes to UBOs as shown in the amendments recently applied by Singapore within the framework of macroeconomic trends.
Stability and strong currency
The Singapore dollar is a stable and solid currency which makes it a good choice when it comes to long-term savings. If capital growth is one of your goals, this will be a great advantage for you.
Singapore doesn't apply exchange controls or repatriation restrictions when it comes to withdrawing your capital. Although this is probably not good reason enough to go through the economic substance procedure, it's one of the perks that come with a Singapore offshore company.
If you want to create a company in Singapore, you’ll be pleased to know that the process is simple. Also, you'll find that getting a residence permit is free of red tape. If you own a company that proves to have real economic substance in the country, you will obtain a long-term residence permit.
Opening a bank account whether personal or corporate is also quite straightforward. However, if your company doesn't have real substance, you may encounter obstacles. Generally, banks refuse to work with companies that don't have a tangible presence in Singapore. Nonetheless, they make no difference when it comes to resident or non-resident companies, although in both cases they must prove to have substance.
Modern business environment
In line with the demands of the 21st century, Singapore has implemented a digitalization process of 360 degrees. This means that Singaporean companies interact with the government through online means. Here we can see how economic substance benefits you once again because you have to meet these requirements to access the online system. However, once you get substance in Singapore all processes are streamlined and easier.
A company with substance enjoys a higher reputation both in Singapore and on a global level. Create a company in Singapore and gain the respect of partners, clients, and regulators. When it comes to the country, Singapore is one of the top financial hubs in the world being ranked number 1 for ease of doing business.
Vibrant corporate environment
Singapore is undoubtedly the leading corporate center in Asia. It has one of the busiest ports in the world and is a key region for Asian trade and the economic activities of the region.
Besides the tax advantages that we described above, Singapore has a territorial tax system which is a big plus for international businesspeople, even though taxes are applied on certain remittances.
Being commerce-oriented by nature, this country has a pro-business economy and provides excellent trading opportunities. Moreover, its wide range of agreements to avoid double taxation can be of great help to optimize your profits.
Language will not be a barrier here, since Singapore is an English-speaking country and a world-class business center. If you choose to create a company in Singapore, you can rest assured that you'll be operating in a stable political environment and in a jurisdiction with very low corruption levels.
Substance in Singapore, requirements
Although substance is usually associated with having a brick-and-mortar space, the concept goes way beyond this. This is a fact only to some extent, but the reality is that economic substance in Singapore encompasses way more.
Here are the standard economic substance requirements for a Singapore offshore company.
Virtual address or long-term lease
This is the most important requirement but not the only one. If establishing a long-term lease or a physical office is too expensive for you at the moment, you can start with a virtual office before you fully establish your business in the country.
In a way, a virtual office is a half measure that has proven to be valuable, but it has to meet certain basic requirements. Luckily, Mundo experts can help you navigate the administrative system and arrange your office efficiently.
Basic steps to consider:
- Management of phone calls
- Management of fax exchange
- Legal mailing address
- Forwarding official and business correspondence
All in all, your virtual office we'll make you significantly cut costs since you don't have to cover furniture, stationary, office equipment, and the cost of buying or renting.
Every Singapore company must have its tax residency in place. Since this service is based on each customer's needs, you can choose from different options:
- Registration of your company with the IRAS (Inland Revenue Authority of Singapore) which is the country's tax authority.
- Tax counseling
- Certificate of tax residency
At this point, it's worth mentioning that substance requirements are quite strict. Hence, we advise not trying to get them around by yourself. Instead, hire the help of an expert, which you can get through Mundo.
Accounting services that comply with substance include a variety of options:
- Bookkeeping, whether on-demand or based on subscription.
- Filing, preparing, and maintaining financial statements.
- Filing tax returns.
- Assistance on any issue that may be related to accounting including reports, control, or taxes.
Although Singapore law doesn’t specify that the company’s documents must remain in the country, the practice has shown that this is the best arrangement.
Staffing and putting together a team can be a headache but it's undoubtedly a solid proof of economic presence in any country.
Here are some alternatives in this regard:
- Recruiting and testing candidates both in Singapore and other countries.
- Documenting employment.
- Computation of payments including vacation payments, sick leaves, and salaries.
- Registration of the company with the tax entity.
- Filing mandatory reports.
Managing phone calls is a part of all the arrangements you have to make when establishing a physical office.
Here are some of the alternatives:
- Dedicated phone line.
- Internet connection.
- Availability of fax machine.
Besides getting your own host provider and an official web page you'll have to digitalize all the information concerning your services.
Consider the following:
- Website design
- Corporate e-mail registration
- Registration of the domain
- Choosing a reliable hosting provider.
- Choosing different web services that may be optional
Opening a bank account
Opening a bank account in Singapore is highly recommended by all experts. The procedure is quite complicated hence you need the help of an expert. Mundo provides the right knowledge, assistance, and diligence.
Key aspects of substance in Singapore
The first thing you need will be to share your personal details with your Mundo provider which includes e-mail, passport information, phone and second e-mail address, tax residency country, name of the company, economic activities of the company, amount of the authorized capital, whether you need to appoint a secretary, director or other staff. You also have to include the availability of the bank account or if you need to open a foreign one. You'll have to inform the approximate income and expenses within a year including incoming and outgoing payments, the jurisdiction where they come from, and their purpose. It's also necessary to indicate the residency status of the counterparts like suppliers, buyers, clients, or consumers.
Reporting and accounting
Every Singapore company with a tax presence must prepare, file, and maintain financial reports. This is a transparent and straightforward procedure, but there are some subtleties that you must consider.
Financial statements must include the following:
- Corresponding notes
- Report of the directors
- Statement of the shareholder’s equity
- Comprehensive income
- Financial position
- Cash-flow statement
- Auditor’s report (in case it’s necessary)
Small private companies are not required to submit audited financial statements if they meet two of the three following conditions:
- Less than 50 employees in the past fiscal year
- The total amount of assets in the past fiscal year is less than 10 million Singapore dollars
- The total revenue from the past fiscal year is lower than 10 million Singapore dollars
Tax returns must be filed annually and must include the signatures of the secretary and director. You also have to include information regarding authorized capital, physical or virtual office, and financial indicators. Auditing and accounting are mandatory, and you must keep financial reports.
You also have to consider the following:
- Annual reports should be submitted at the same time you submit financial statements.
- The director must appoint the auditor under strict qualification requirements.
- The tax report must be submitted to the Singapore income revenue entity before November 30th each year.
- Companies must pay VAT every two months.
- The tax report can be submitted by e-mail or through the government portal.
This article is purely informational, and the conditions and requirements described here may change due to variations in government policies and local legislation. To know the exact requirements for the service that you’re looking for, contact your Mundo expert.
What can we do for you
Mundo experts have a wide range of corporate services in Singapore and other jurisdictions. Here is a list of services that you may need:
- Company incorporation
- Assignment of secretary
- Audit and tax reports
- Mailing and registered address
- Bank account opening (we can open accounts in other jurisdictions too)
- Quarterly GST reporting
Note: Get in touch with your Mundo representative and ask for the services that are currently available for you.
Create a company in Singapore with Mundo
Establishing an offshore company in Singapore is possible with Mundo. With our experts, you can have a company in one of the freest economies in the whole world and this can be done remotely. Through an international courier, you can send the required documents and get the constitutive corporate documents as well.
Besides helping you choose the right structure and establish substance in Singapore, we support you when it comes to management and help you make difficult decisions.
Enjoy low tax rates and exemptions with an offshore company in Singapore and keep your reputation high by establishing economic substance in this country. Personal tax rates vary from zero to 22%, and corporate income tax can be as low as 8.5% and as high as 17%, providing an attractive way to fight tax erosion legally. If you're interested in this opportunity don’t hesitate and contact your Mundo expert now.
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