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Singapore as an Alternative to Offshore Companies
Singapore for Investment Holding purposes
Finding suitable corporate vehicles for investment holding is an on-going challenge for professionals who service private clients. So far, commonly used offshore jurisdictions have served the purpose well. However, recent world events have caused many global financial institutions to take action to prevent the inadvertent acceptance of funds from undesirable sources. Most, if not all, significant financial institutions have implemented internal policies of not accepting the opening of new bank accounts by offshore companies.
As a result, it is now extremely difficult for an offshore company to open a new bank account in Hong Kong, Singapore or any other city. This has caused practical problems in the use of offshore companies for investment holding purposes. What then is the solution?
The time has come to consider the use of a Singapore company for investment holding purposes. A Singapore company can bring about the same results as an offshore company. More importantly, a Singapore company is able to open bank accounts and Singapore is considered as a jurisdiction of a "premium stature" when compared to offshore jurisdictions.
It is widely known that Singapore is a highly regulated jurisdiction. A user may rightfully question whether it is really possible to use a Singapore company to achieve the same results as an offshore company. The answer is a resounding "YES" and the following are the bases for this assertion.
Recent developments in tax and corporate law in Singapore have made it easy to use a Singapore incorporated company to achieve the same results as that of an offshore company. Changes in tax and corporate law in Singapore and relevant existing legislations are summarised below:
- Singapore has abolished the two-tier tax system. Income of a corporation is only taxed once, i.e., at the corporate level. Dividend payments by a Singapore company are not taxable to the recipients.
- Offshore incomes that are not received in Singapore are not taxable in Singapore.
- Capital gains are not taxable in Singapore.
- The current corporate tax rate on taxable profit is 22%. It is Singapore's objective to reduce corporate tax rate to 20% over the medium term.
- Effective 15 May 2003, a company (of not more than 20 individual shareholders) with annual turnover of S$2.5 million or less (revised to S$5 million after one year) is exempt from annual statutory audits. This is a positive development, especially in a situation where a private client uses a Singapore company solely for investment holding purposes.
- Movable properties held by individuals who are not domiciled in Singapore are not subject to estate taxes in Singapore. Shareholding in a Singapore company is considered movable property.
- Singapore has a wide network of tax treaties. In certain cases, tax treaties can be used for the reduction of taxes in treaty countries where investments are held.
Business in Singapore
In summary, a private client that uses a Singapore company for investment holding will enjoy the following benefits:
- Ability to open a bank account in any country/city, subject to the usual due diligence policy of the financial institution.
- Is viewed by an investor's home country jurisdiction, as having a "premium stature" when compared to offshore companies.
- Enjoys the protection of the legal framework of Singapore.
- It may avail itself of tax treaty benefits for the reduction of taxes in certain treaty countries where investments are held.
- Is able to derive offshore profits and capital gains without incurring tax in Singapore.
- Is able to retain offshore profits and capital gains or pay a dividend out of such profits, without incurring tax in Singapore.
- Its shareholders are not subject to tax in Singapore on dividend income.
- The exemption from annual statutory audits would contribute to cost savings in maintaining the structure.
- Where a company has individuals as shareholders, there is no requirement to file financial statements with the Registry of Companies. Third parties are unable to access a company's financial statements.
- Shareholders and directors who do not wish to have their names disclosed can arrange for their shareholdings and directorship to be held in trust by nominees arranged by professional service providers.
- A non-domicile individual who uses a Singapore company for investment holding purposes would not be subject to Singapore estate taxes.
- A non-domicile individual can use a Singapore company to invest in real estate in Singapore to avoid Singapore estate taxes on investment in real estate.
A Singapore company has all the benefits of an offshore company and more.
- It is able to open bank accounts, which are essential to the carrying on of financial transactions.
- It is viewed by an investor's home country jurisdiction, as having a "premium stature" when compared to offshore companies. The "premium stature" status would contribute to placing the investor in a favorable position with relevant authorities in the investor's home country.
- The availability of a network of tax treaties to benefit the investor in certain situations.
These are the key factors when choosing a jurisdiction for investment holding. These are also the key added benefits that offshore companies are unable to offer.
Singapore is definitely a location of choice for private client servicing professionals in their continuing quest to search for and advise private clients on investment holding structures.