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    Wednesday 26 June 2019

    Singapore: tax haven or just misunderstood?

    Singapore comes under scrutiny as the international crackdown on tax sheltering continues.

    Much of the world is in the grip of a raging debate about whether countries are collecting their fair share of taxes. Tiny Singapore is not spared interrogation amidst the many ongoing probes into high-net-worth individuals and multinational corporations sheltering their wealth and profits in exotic locations.
     
    Singapore in the spotlight
    Singapore offers a low headline tax rate at 17%, particularly compared to the rest of the region where corporate tax rates are closer to 25% in China or 30% in the Philippines. Low rates are mirrored on the personal tax front as well, with Singapore’s 20% being the second-lowest in the region after Hong Kong’s 17%.
     
    But low tax rates are just part of the story. At the core of the Singapore tax system is a wide-ranging array of tax incentives designed to promote and sustain high levels of economic growth. However these tax incentives have also created a more implicit ‘shadow’ tax system contributing to the perception that Singapore is luring international companies at the expense of their home countries. The ease with which a company can be incorporated in Singapore underscores the business-friendly environment that Singapore promotes, but it also sits uncomfortably with those who feel that this encourages companies and individuals intending to shelter their profits or ill-gotten gains to make a beeline for the city state.
            
    Is Singapore a tax haven?
    The high concentration of millionaires and a continuous influx of high-net-worth individuals are indicative of the lure of Singapore to the rich and wealthy. Singapore, being a key business hub, also attracts global multinational corporations to the island and in doing so, has unwittingly found itself at the centre of some tax sheltering controversies. Apple, for instance, was reported by Reuters last year to have revenues in its Singapore subsidiary in excess of the $10.7bn that it recorded in the rest of the Asia-Pacific region. Post-tax profits of $186m with an effective tax rate of 6% drew scrutiny from a US Senate report detailing how global companies structured their operations to book the majority of their foreign profits in low tax jurisdictions. However Singapore’s central position in the wealth management and private banking sectors and its associated banking secrecy rules has potentially contributed most to Singapore’s reputation as a tax haven.
     
    However, there are counter-arguments against the notion that Singapore is a tax haven. Singapore is a small and open economy that is heavily reliant on foreign capital. Its headline tax rate of 17% is low, but not excessively so by international standards. Its tax incentive regime has been crafted judiciously and is targeted specifically at companies in industries that Singapore wants to attract. It is a key business hub requiring extensive treasury, cash management and other financial services which in turn require robust banking rules and regulations. 

    A collaborative approach
    Singapore has signed an extensive network of double taxation treaties. Since 2008 it has also voluntarily signed a number of information exchange agreements with various tax authorities, such as Japan and Britain. And while it is not a member of the OECD, Singapore has demonstrated in no uncertain terms its support for the Base Erosion and Profit Shifting Report published in July 2013. To cap things off, Singapore has also concluded discussions on an Inter-Governmental Agreement with the US to better enable financial institutions in Singapore to comply with the Foreign Account Tax Compliance Act (FATCA). These measures collectively counteract any argument that Singapore is a tax haven. But as the tax competition heats up, Singapore can ill afford to sit on its laurels with global policymakers casting an ever watchful eye internationally.

    For more information, contact:
    Lam Fong Kiew
    Nexia TS, Singapore
    T +65 6534 5700
    E lamfongkiew@nexiats.com.sg
    www.nexiats.com.sg
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