Business Line : Features / Mentor : Singapore, a preferred tax haven
A Canadian company is in the process of investing in India and examining modes of investments that will make its overall global tax rate most effective. The company is convinced that the investment may be made through a tax haven to achieve this goal, and the key command decision lies in routing the investment to India.
BENEFITS OF TAX HAVENS
An understanding of tax havens will help the decision process. A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens provide almost no financial information to foreign tax authorities.
The main benefits of investing in a tax haven accrues from the fact that they offer a range of taxation levels from which to choose, allow for the creation of offshore entities to increase privacy, and have complex and detailed legislation to protect investors' assets. Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland, St Kitts and Nevis are all considered to be tax havens.
Many foreign institutional investors route their investments into India through one of these tax havens, so that the benefits of capital gains as well as dividend taxations are idealised. The recent past witnessed many such investments routed through Mauritius which, till recently, was the preferred destination for this purpose. Though Mauritius is a proven tax haven, disturbing stories regarding this country and the review of the Double Taxation Treaty with this country are forcing genuine investors to look at some other alternatives. Pressure from foreign governments, which want to collect tax revenue heretofore perceived by them to be hidden in havens, has caused some tax havens to sign tax information exchange agreements and mutual legal assistance treaties. This provides foreign governments with formerly secret information regarding investors' offshore accounts.
While countries such as Netherlands, Cyprus etc are still considered as tax haven choices, Singapore, with an area of 712 square kilometres, an equatorial climate, income tax only on repatriation basis, and a wide treaty network with around 50 countries, is fast becoming a preferred destination. Let us look at some of the relevant information related to this tiny nation.
The corporate tax rate in Singapore is 17 per cent. GST Tax is applicable when annual turnover exceeds S$1 million. Dividends and capital gains earned from foreign subsidiaries/branches aren't liable to tax in Singapore. There is no withholding tax on dividend distribution by Singapore companies. The withholding tax on interest is 15 per cent, and on royalties 10 per cent.
Personal income tax rates in Singapore are one of the lowest globally. Tax rates are progressive and determined by residency. Taxes come into play if the income exceeds S$ 22,000. The maximum rate is 20 per cent for income in excess of S$320,000 per annum. Capital gains aren't taxed, nor are inheritance taxes charged, and the interesting point is that individuals are taxed only on the income earned in Singapore.
A non-resident of Singapore will be taxed on all net income earned in Singapore post deduction of expenses and donations at 15 per cent for employment income, and 20 per cent for director's fees and consultant fees. Estate duty payable on the death of an individual stands abolished since 2008.
Foreigners can set up a company in Singapore with a single shareholder, one resident director with a local address, and a minimum paid up capital of S$1 within a day or two. Though self-registration isn't permitted to foreign individuals or entities, local professional firms can support not only company formation but also arranging of local nominee directors. Foreigners can get employment visa or entrepreneur visa and short-term visa for attending to company matters.
The latest infrastructure, developed capital markets, an educated workforce, comparatively stable political institutions and a low crime rate are considered to be further attractions in addition to the tax benefits. However, on the downside, a few negative aspects, such as high cost of living for employees, mandatory filing of audited accounts of the parent company of an alien nation (control also becomes an issue when a subsidiary is partially owned by another outside organisation), mandatory designation of a working secretary from Singapore etc, need consideration.
The company in this particular case is convinced that Singapore is a location where East meets West — both geographically and culturally — and it provides an alternative gateway to all major Asian markets.