1. Tax residency of a company is crucial for it is one of the main criteria that determines the tax treatment and tax consequences of a company. For example, the scope of income chargeable to tax differs for a tax resident and non-tax resident. Some countries taxed its resident insurance and banking companies on a worldwide income basis while taxing similar non-tax resident insurance and banking companies on income accrued or derived from that country. Tax resident companies also enjoy certain benefits, such as exemption or reduction in tax.
2. Each country has its own laws that determine tax residency of a company. Generally, a company is resident for tax purposes in a country by domicile, residence, place of management or incorporation. In Singapore, a company is a tax resident of Singapore when its control and management is exercised in Singapore. A company is a non-resident when the control and management of its business is not exercised in Singapore. The residency status of a company may change from year to year.
3. As mentioned, a company is considered a Singapore tax resident for a particular Year of Assessment if the control and management of its business was exercised in Singapore in the preceding calendar year. For example, a company is a Singapore tax resident for YA 2023 if the control and management of its business was exercised in Singapore for the whole of 2022.
4. Actually, the concept of where the control and management of a company is exercised is a question of fact. According to IRAS, control and management is defined as the location or place where making of decisions on strategic matters, such as those concerning the company’s policy and strategy is made.
5. It is usually accepted that the location of the company’s Board of Directors meetings are where the control and management is exercised. It must be proven that the Board meetings are where strategic decisions are made for the company. Having said that, just holding Board of Directors meetings in Singapore may not be sufficient to prove that control and management of the business is indeed exercised in Singapore. If needed, IRAS will consider all facts provided by the company to determine the location of the control and management of the business.
6. Among the factors considered by IRAS include the following:
- Whether there is any board of directors’ meetings held in Singapore
- Whether any strategic decisions are made at the board of directors’ meetings held in Singapore
- Whether the directors are based in or outside Singapore
- Whether any strategic decisions are made by the local director in Singapore
- Whether there are key employees based in Singapore
7. In this era of the Internet, a virtual meeting of Board of Directors meeting will generally be regarded as having strategic decisions made in Singapore if either one 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.
8. Foreign-owned investment holding companies, non-Singapore incorporated companies and Singapore branches of foreign companies are generally not considered tax residents of Singapore by IRAS. However, they may still be treated as Singapore tax residents if they can satisfy certain conditions.
9. Please contact us if you require help in determining the tax residency of your company. At PL Biz Consulting Pte Ltd, we have the tax experts with many years of experience to advise and help you in making sure the right tax residency applies for your company.
