Updated: Apr 3, 2022
Guide to holding company regimes in Singapore
Multinational companies may decide to establish a holding company for a range of reasons. For example, a holding company may be an efficient way to manage a group of subsidiaries in a particular region by centralizing financing, licensing and management activities. A holding company also may provide tax efficiencies in relation to withholding taxes on dividends and taxes on capital gains.
Choosing the appropriate location for a holding company is a complex procedure - involving consideration of business, economic, logistical and operational requirements. The tax attributes of the location are also a relevant factor.
Singapore adopts a territorial system of taxation and the corporate tax regime applies equally to Singapore incorporated entities and foreign entities carrying on business in Singapore through vehicles such as a Singapore branch or permanent establishment. Singapore-incorporated holding company may be a type of vehicle used to carry on a business in Singapore.
It can be tax-advantageous for foreign investors to establish a Singapore holding company to acquire shares or assets in (or outside) Singapore. The primary tax advantages that could arise are as follows.
Income and gains of holding company and effective tax rate
Generally, companies that carry on a business in Singapore are taxed on their Singapore-sourced income when it arises and on foreign-sourced income when it is remitted or deemed remitted to Singapore. The corporate income tax rate is 17%. There is no tax on capital gains in Singapore.
Singapore does not have economic substance requirements.
A company must withhold tax when a payment of a specified nature has been made to non-resident companies. The rate of withholding tax depends on the nature of the payment. Certain payments made to non-resident companies are exempt from Singapore withholding tax.
Extensive tax treaty network
Singapore's open economy and global outlook are underpinned by an extensive network of comprehensive double taxation treaties (DTTs) and limited treaties with more than 85 countries/jurisdictions, including Australia, China, Indonesia, Japan, Malaysia, and the UK, to mitigate double taxation and allow cooperation between Singapore and overseas tax authorities in enforcing their respective tax laws.
Group relief system
Group relief arising from the option to transfer current-year losses, current-year unabsorbed capital allowances and donations within qualifying group companies (i.e. Singapore-incorporated companies) may be available.
Under the group relief system, a loss making company within a group is, subject to satisfaction of certain conditions, allowed to transfer its current year unutilised losses, capital allowances, and donations to offset the taxable profits of other companies in the same group.
Two Singapore companies are members of a group if one is at least 75% owned by the other or if both are at least 75% owned by another Singapore company.
Foreign-sourced dividends, foreign branch profits and foreign-sourced service income
Foreign-sourced dividends, foreign branch profits and foreign-sourced service income, which are taxable when received in Singapore by a Singapore resident company, may be exempt from Singapore tax where certain conditions are met. Alternatively, Singapore tax arising on such income may be mitigated or effectively eliminated through Singapore’s unilateral tax credit system and bilateral tax agreements, provided foreign tax has been paid on the income.
Under the Singapore Income Tax Act, Singapore tax residents are eligible to claim foreign tax credit in the form of Double Taxation Relief or Unilateral Tax Credit. The foreign tax credit granted is limited to the lower of the foreign tax paid or the Singapore tax that would have been payable on the foreign income.
For Singapore tax purposes, the tax residency of a company is determined by its place of management and control. The management and control of a company typically vests in its board of directors (BOD), and so where the BOD meets normally determines the entity’s place of management and control. To the extent that the BOD holds its meetings in Singapore to deliberate on and make strategic decisions concerning the Singapore entity, the IRAS normally accepts that the entity is a tax resident of Singapore.