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Expert view: The tax incentives of being in Singapore

Thursday 16 June 2011 - by Yeo Tuan Yao

Financial services companies basing themselves in Singapore enjoy an array of tax benefits, not least an exemption on foreign earnings, writes Yeo Tuan Yao, tax counsel at Portcullis TrustNet.

Financial institutions seeking to expand or diversify their business in Singapore can enjoy a favourable business environment, skilled and experienced workforce, excellent infrastructure and most importantly, cost competiveness and a competitive tax environment.

Singapore's corporate tax system operates on a territorial and remittance basis, where tax is imposed on income sourced in Singapore and foreign income received in Singapore for which no tax incentives apply.

Accordingly, foreign-sourced income not received or deemed to be received in Singapore is not subject to Singapore tax.

Furthermore, foreign income in the form of dividends, branch profits and service income remitted into Singapore by Singapore resident companies are exempt from Singapore income tax if it is received from a jurisdiction where the headline tax is at least 15 per cent and it has been subjected to tax in the foreign jurisdiction.

This, and the absence of gift tax, capital gains tax and estate duty provide Singapore with an internationally competitive tax regime to attract foreign businesses and investors.

Singapore's corporate tax rate of 17 per cent is amongst the lowest in the Asia-Pacific. This corporate tax rate can be further reduced to an effective tax rate of approximately 5 or 8 per cent for the first S$300,000 under the tax exemption scheme for new start up companies or partial tax exemption scheme. In addition, all dividends payable by a Singapore company to its shareholders are exempt from tax.

Apart from an attractive corporate tax rate, Singapore has a range of other tax incentives for the financial services sector.

In 2004, the Financial Sector Incentive Scheme came into effect to provide for various tax incentives to attract financial institutions to set up and expand their operations in Singapore. This scheme is administered by the Monetary Authority of Singapore.

Under the FSI scheme, income derived from a FSI company from a range of activities enjoys a concessionary tax rate of either 5 per cent or 10 per cent.

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