Taxation Immigrants: Singapore Tightens its Regulations

The reaction of countries to the GFC by - increasing taxes has raised the profile of Singapore as a tax shelter for individuals. Independently, Singapore is now tightening the rules for admitting foreigners at a time when many are seeking to escape their home country’s burdensome tax environment.

The scope of Singapore’s income tax system is generally limited to locally sourced business income whereas most countries have worldwide taxation on all types of income. The Singapore rates of taxation between 17-20% are also comparatively lower than most countries. Generally, the economic, family and physical home of a person determines whether the Singapore taxation system applies exclusively.

Singapore has also traditionally promoted economic immigration through a variety of schemes granting permanent residency to high net worth investors as well as entrepreneurs. These schemes have been adopted by many individuals from various countries including certain high profile personalities from the US, China, India, and Indonesia.

The increase in foreigners resulted in a political backlash and these schemes have now been tightened or cancelled in favor of individuals who are able to demonstrate committed business expenditure in Singapore and an intention to relocate.

With effect from April 2012, the following changes were made:
  • The Global Investor Program now applies exclusively to entrepreneurs with a business turnover of SGD50 million and a local expenditure of SGD2.5 million. For renewal after 5 years, 5 Singapore residents will need to be employed by the business.
  • The Financial Investor Scheme (FIS), which granted permanent residency to investors placing SGD20million with local financial institutions, has been terminated.
Individuals holding PR pursuant to the previous versions of the scheme will be grandfathered from the changes. However, some uncertainty exists as to their renewal where the individual and their family do not reside in Singapore.

Existing operating businesses remain able to sponsor employment passes for individuals. In this respect, factors such as the amount of contributed capital, the physical presence of the individual and business in Singapore, the level of expenditure of the business, the level of Singapore taxation and the number of employees with employment passes would be determinative.

The establishment of family funds and fund management operations also suffices for sponsoring employment passes and ultimately obtaining permanent residence status.

For more information please contact Rashmi Oberoi or Shaun Zheng of Amicorp Singapore.
Rashmi Oberoi

Shaun Zheng
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The Indonesia - Hong Kong Tax Treaty: A False Dawn?
The draft of the Indonesia-Hong Kong tax treaty was released on 23 March 2010 with some surprise given the relative low withholding tax rates and concessional treatment of capital gains. It took two years for the treaty to be ratified and will now be effective from 1 January 2013 for Indonesia and as of 1 April 2013 for Hong Kong.

According to Bapepam (Indonesia’s Capital Market Supervisory Board) figures for 2011, the top ten nations investing in Indonesia include Singapore, the British Virgin Islands, the Netherlands, the USA, Japan, South Korea and China. A quick comparison of the new Hong Kong treaty against these traditional investor jurisdictions shows the relative advantages for maximizing returns.

Given the new treaty, Hong Kong is now able to better leverage its traditional positioning as a financial hub and marshalling point for resource-hungry Chinese investors to provide low cost financing for Indonesia and higher-return investments.

No tax treaty
Singapore The Netherlands Hong Kong
wef 1/1/13
Indonesia WHT on:          
• Dividend 20% 10% 10% / 15% 10% 5% / 10%
• Interest 20% 10% 10% 0% / 10% 10%
• Royalty 20% 10% 15% 10% 5%
Indonesia Capital Gain Tax (5% on sale price) Yes No Yes No No
However, several uncertainties remain as to the application of the Hong Kong tax treaty which as yet, remains unresolved.

Process for tax resident certificate and DGT1

Most importantly, payments from Indonesia need to be supported by a DGT1 form and tax resident certificate in order to avoid Indonesia from withholding tax. The process for the certification of DGT1 forms by the Hong Kong authorities has not yet been clarified.

Scope of the DGT1 form

Issues will also arise from inconsistencies in the DGT1 form with the tax treaty. The tax treaty is the law and provides tax rate relief for dividends, interest, royalties and capital gains.

The DGT1 form contains additional requirements (not in the treaty) stating that the income be subject to tax (i.e. dividends are not taxable in Hong Kong), that an active business be conducted with sufficient employees, and that less than 50% of the income be paid out as interest, royalties or other fees.

In practice, the Indonesian tax authorities require the DGT1 to be completed for all payments to foreigners not relating to the purchase of goods.

The Hong Kong authorities may either decline to stamp the DGT1 form (like the USA) or will consider a broader interpretation of the form in order not to compromise the treaty.

Anti-tax avoidance and tax havens

Indonesia has international tax laws against “tax haven” companies controlled from Indonesia or indirect transfers of “tax haven” companies holding Indonesian assets.

The treaty is subject to the domestic anti-avoidance rules of Indonesia. Indonesia also considers a tax haven to countries which apply bank confidentiality policy and do not perform exchange of information.There is uncertainty as to how the Indonesian rules will operate in conjunction with Hong Kong, given that Hong Kong banks guard the client’s information very closely.

Judging from the treatment of Singapore, Hong Kong will not be considered to be a tax haven by the Indonesian authorities.

Given these implementing issues, investors will need to wait for clarification before adopting Hong Kong as a long term strategy for investing in and doing business with Indonesia.

From Amicorp’s experience, other countries such as the Netherlands and Singapore will continue to be preferred due to the more established procedures and acceptance by the authorities.
Tobias Tirtaatmadja

Suresh Lee
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Tax Authorities Closing in on BVI Assets: Exchange of Information
The changes now occurring are vastly facilitating government cooperation with the British Virgin Islands, Singapore and the USA, and will exponentially improve tax enforcement.

Many are also aware that Asian countries, in particular China, India and Indonesia, now require disclosure of offshore assets held by individuals (nominees or otherwise) in their annual tax reporting. Given the traditional reluctance to disclose assets, authorities are deploying criminal penalties to demonstrate their seriousness.

Many of our Asian clients have traditionally held assets in their personal family names. Confronted and fatigued by the many changes affecting their business and families, clients are delaying decisions in this area or are choosing to leave the decision taking to the next generation.

Amicorp is recommending that you review your approach to asset holdings given these developments.

British Virgin Islands Exchange of Information

The British Virgin Islands (BVI) remain within the top 10 foreign investors for most Asian countries. BVI entities either disguise citizens round tripping investments into their home countries or are used to facilitate indirect transfers as investment exit strategies.

India and China have signed agreements for automatic exchange of information within 90 days of request. Following their precedents, Indonesia is progressing its negotiations to target signing in 2013.

Amicorp’s BVI office receives requests for information from several countries:
  • A typical request will cover personal client documentation (passport, address, source of wealth and reference letter) held by the BVI registered agent for each company or trust.
  • A director of a BVI company will be required to provide all accounting records and bank account information held outside the BVI but within a director’s control. A director of a company is generally considered to have access to all records.
  • Most BVI companies do not prepare accounting records or retain them in the BVI. This point is expected to be addressed by the BVI following the recent OECD Peer Group Review of phase 1 of tax transparency.
  • UBO will not be notified.
The presence of bank account information in Switzerland, Singapore or Hong Kong does not prevent the BVI director from dutifully accessing the information.

How to move forward?
  1. Seriously consider whether assets should be ultimately held under a fiduciary arrangement being a foundation or trust rather than an individual. The reasons (tax, asset protection, and ensuring inheritance for your family) against individual ownership are compelling and delaying a decision will not improve the issues but may leave children with a nasty legacy.
  2. Even if your structure is compliant, consider the impact of your BVI holdings from a reputational and nuisance perspective. The BVI name will attract scrutiny to Asian clients by association
  3. For those who are indecisive, please, contact Amicorp to discuss your options.
David Stone

Cora Cheung
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Family Investment Companies: Every Family should have One!
A family investment company is an important vehicle for consolidating the legal ownership and administration of family assets and wealth. A lot of Asian clients have not adopted a consistent approach for their structuring.
chart   The Singapore Family Investment Company (FIC) is the only company in the world where clients can conduct a diversified range of investment activities and benefit from an extensive range of tax treaties as well as tax exemption.

It is well suited to families who desire to transition their assets into an onshore structure in a tax effective manner.

The FIC concession was introduced in mid-2008 and expires in April 2013. FICs incorporated before the expiry date will continue to enjoy this unique concession irrespective of the expiry date.

Typical benefits and uses of the FIC:
  • Primarily, the company can serve as an on-shore investment holding entity under a nominee, a fiduciary or bare trust. There must be at least one individual directly or indirectly owning the company as a legal or beneficial owner;
  • The company has been used as a holding entity for cross border businesses. The tax treaties permit the entity to serve as a tax effective funds repatriation vehicle and an exit from Dutch, Luxembourg and other traditional holding jurisdictions.
  • Whilst the company is not permitted to trade in services or goods, the FIC can serve as a financing or licensing company. The company can hold portfolio or strategic shareholdings, debt, real estate, capital assets or intellectual property. Speculative gains can also be arranged to fall within the scope of the tax exemption.
  • Unfortunately for tourists, Singapore is not an exotic island paradise but a mature commercial and banking hub for Asia with strict confidentiality laws. This environment lends greater commercial credibility to the FIC.
Amicorp is a licensed Singapore trustee and is therefore able to assist with the establishment and administration of these particular companies.

Cora Cheung

Shaun Zheng
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Miscellaneous News
Safe harbour for taxation of share gains derived by Singapore companies

Gains derived by a Singapore company will not be taxable where the shareholding exceeds 20% of a private company and the duration is 24 months.

Singapore Bank rejected India Tax authority's request for information

Singapore has implemented information exchange procedures for India and China in a similar manner to the BVI. The release of client information by Singapore licensed banks and trustees are subject to Singapore High Court approval.

The recent decision of the Comptroller of Income Tax v AZP considered whether India was conducting a fishing expedition in requesting certain information pertaining to an Indian resident. India had obtained two transfer instructions for funds moving to a Singapore bank. However, the court held that there was insufficient evidence to show a connection between the Singapore bank accounts and the violation of Indian tax law.

We understand that there is a queue of cases awaiting adjudication and this decision will establish boundaries to facilitate future requests.

The FATCA Regime of USA

Many have been deluged with information on the Foreign Account Tax Compliance Act (FATCA) being introduced by the USA. In short, the USA is implementing a global reporting platform for foreign banks to report all account balances of US citizens or green card holders held outside the US.

In a similar manner, the USA is now agreeing to exchange information obtained from US banks for citizens of the UK, Japan and Australia. Once the process is established, it is expected that China and India will also arrange such agreements.
For further information please contact:

Amicorp Singapore Pte Ltd
30 Cecil Street
#10-05 Prudential Tower
Singapore, 049712
Tel: +65 6532 2902
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