• Cora Cheung

What's a Tax Substance Package?

A guide to avoiding Tax Avoidance.

“If you are an executive or business owner looking to expand your company’s business into Asia through Singapore, you don't have to feign substance, you just need to utilise the infrastructure available in this highly efficient city-state.”

In the world of Base Erosion and Profit Shifting (“BEPS”) and growing tax transparency, many service providers tout the “substance package” to solve your difficulties in obtaining tax residency. If you are an executive or business owner looking to expand your company’s business into Asia through Singapore, you don't have to feign substance, you just need to utilise the infrastructure available in this highly efficient city-state.

This way, you will be able to enjoy the benefits of a Singapore Tax Resident without the worry of a tax query or audit coming your way.

Common Tax Substance Ruse

You might have come across the following service offerings in the industry which service providers may allude to as providing tax substance. At first glance, they may seem to provide a basis for tax residency, we suggest that you look deeper.

  1. Nominee resident director(s)

  2. Virtual office

  3. Administration headcounts

The basis for a company to claim tax residency is that Singapore must be the place in which the business is controlled and managed. Following this logic, it will be difficult to claim that control and management are exercised by a nominee resident director who does not make decisions on strategic matters.

Further, some service providers advise hiring low-cost administration headcounts to “check-the-box” of having employees. It may be better than not having employees at all but it does not satisfy the control and management requirement either.

Finally, a virtual office may suffice the local registered office requirement but unless one has access to the premise and the directors and employees work out of the premise, it is again difficult to justify that it is a place of business.

Not only such services may not help you achieve your objectives, worst-case scenario - the company can be accused of Tax Avoidance. It is therefore pertinent to choose a reliable, experienced and qualified service provider.

While you may encounter ineffective “substance packages”, not doing anything is not an option either.

The Singapore tax authority does not dictate explicitly the minimum requirement for tax residency besides the concept of control and management, however, they always follow the international standards closely.

  • Profession director(s) and employees

Singapore has a vast pool of talent and a growingly flexible workforce. We have access to strong profiles of local professional directors of various industry who are able to provide value to your organisation in strategic decision making. Their network and experience in your industry will be invaluable to your organisation.

  • Economical physical office with added networking opportunities

Our team will be able to connect you with co-working spaces, serviced offices and commercial property agents depending on your needs. This again allows flexibility for expansion without taking up too much cost from the beginning.

The Singapore government has been very supportive of the start-up community and there has been a sprout of low-cost co-working spaces in the country. These spaces are often the incubators for new businesses where investors seek out investment-worthy businesses, creating a highly interactive growth-centric ecosystem for your company.

  • Devil is in the details

It is not enough to operate in substance, documentation of such is equally important. Besides providing basic annual filing services, your corporate service provider plays an important role in your company's governance. If your provider does not understand your business and prepare documents without considering your company's structure, your tax position can be easily compromised.

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