Corporate tax, consumption tax, and cross-border tax considerations for market entrants.
Under Singapore law, the loss of tax benefits may arise from changes in the shareholding structure (eg: number of shareholders and ownership percentage) which may change due to funding, rather than the increase of capital of the Singapore subsidiary.
Why1. Under the Start-up Tax Exemption Scheme ("STES"), all new start-up companies are eligible for the tax exemption scheme except companies whose principal activity is that of investment holding, or companies that undertake property development for sale, investment or both. 2. The STES provides relief for a qualifying company's first three years of assessment being 75% exemption on the first S$100,000 of chargeable income and 50% exemption on the next S$100,000. 3. The Singapore subsidiary must be a "qualifying company" under the Income Tax Act 1947 of Singapore requiring it to be incorporated and tax resident in Singapore for that year of assessment, and satisfy specific shareholding conditions of no more than 20 shareholders where: all the shareholders are individuals; or at least 1 shareholder is an individual holding at least 10% of the issued ordinary shares of the company. 4. If the Singapore subsidiary has been benefitting from this scheme and the funding round results in it no longer being a "qualifying company", the STES may no longer apply.
What To DoBefore undertaking the next funding round, consider if it will alter the Singapore subsidiary's shareholding structure or other conditions as a "qualifying company", which makes it no longer applicable for the STES. 1. Check whether the subsidiary falls within the excluded companies under the STES: companies whose principal activity is that of investment holding, or companies that undertake property development for sale, investment or both. 2. Confirm that the Singapore subsidiary will still be incorporated and tax resident in Singapore for that year of assessment. 3. Check how many shareholders the subsidiary will have after the round, and confirm that it still satisfies the condition of no more than 20 shareholders. 4. Confirm whether all the shareholders are individuals; or at least 1 shareholder is an individual holding at least 10% of the issued ordinary shares of the company. 5. If the Singapore subsidiary has been benefitting from this scheme, consider whether the funding round results in it no longer being a "qualifying company", in which case the STES may no longer apply.
Singapore does not currently impose any withholding tax on dividends.
Why1. Singapore prescribes a one-tier corporate tax system, where corporate tax is imposed once at the company level at a flat rate of 17% on chargeable income. Dividends paid by the company are tax-exempt in the hands of its shareholders. 2. Singapore imposes no withholding tax on dividends, whether paid during the life of the company or on a winding up, regardless of the shareholder's residence. 3. Singapore's withholding tax provisions cover specific payment types to non-residents (eg: interest, royalties and management fees, non-resident directors' remuneration, and certain unit trust distributions).
What To Do1. You may wish to consider Taiwanese tax treatments and applicable tax rules when this dividend is received. 2. If your Taiwanese parent company also receives royalties, management fees or interest from the subsidiary, check Singapore withholding tax on those payments separately: unlike dividends, they fall within the withholding tax provisions.
This depends on the nature of the funds returned to the Taiwanese parent company. Gains which are income in nature are taxable, while gains which are capital in nature are not taxable.
Why1. Generally, Singapore does not impose a capital gains tax. If the liquidation results in a distribution of proceeds from the realisation of capital assets (eg: sale of equipment or investments) resulting in a surplus, the surplus is not taxable as long as the gain is capital in nature. 2. Singapore's withholding tax provisions cover specific payment types to non-residents (eg: interest, royalties and management fees, non-resident directors' remuneration, and certain unit trust distributions). There is no withholding tax provision that applies to ordinary liquidation distributions to non-resident shareholders. 3. Singapore imposes no withholding tax on dividends, whether paid during the life of the company or on a winding up, regardless of the shareholder's residence. 4. To the extent the liquidator distributes the subsidiary's accumulated profits (i.e., retained earnings) as part of the liquidation, those distributions are in the nature of dividends and are tax-exempt.
What To Do1. The Singapore subsidiary should ensure that it settles all of its own Singapore tax liabilities before completing the liquidation. 2. The subsidiary should file final tax returns and pay any outstanding corporate income tax at 17% on any chargeable income up to the date of cessation of business. 3. If the subsidiary realises assets during the liquidation at a gain that is income in nature, that gain is taxable at the corporate level before distribution. 4. You may also wish to consider Taiwanese tax treatments and applicable tax rules when the remaining funds are received.