The standard corporate tax rate in Singapore is 17%, based on net annual results. There are also several tax schemes for certain industries and businesses where Singapore offers concessionary rates which can be lower than the ordinary rate. For some industries, such as shipping and related maritime industries, this can be as low as 0%.
Singapore has attracted Norwegian companies and investors not only due to its strategic location, but also for advantageous tax treatment. Many of them have set up local Singaporean Pte. Ltd. companies which can be partly or wholly owned by an Norwegian affiliate or even parent company. Typically it has been the Norwegian maritime cluster in the wider sense of the word that has established such operations in Singapore, but also other Norwegian industries have found Singapore to be an attractive location. When Renewable Energy Corporation (REC) decided to build their new NOK 10 billion solar production facility in Singapore in 2008, the management had reviewed more than 30 different countries. One of the key factors when choosing Singapore was the low local tax rate in combination with the favorable brilliant double tax treaty between Singapore and Norway.
Singapore imposes “single tier” corporate taxation, meaning that only the net annual result for the company is subject to taxation, whilst dividends distributed to shareholders are tax exempt. The double tax treaty between Norway and Singapore states, in Article 10, that dividends distributed by a Singaporean company to a Norwegian shareholder can be taxed in Norway. However, Article 24 provides that if such dividends are distributed to a Norwegian corporate shareholder, who owns or controls a minimum of 25% of the share capital in the Singaporean company, then such dividends shall be tax exempt also in Norway. This means for instance that Singapore companies which are subject either to the normal 17% Singapore corporate tax rate or even a lower concessionary rate (e.g. qualifying shipping companies), can distribute their earnings through dividends to a Norwegian parent company without any further tax implications on dividend payments either in Singapore or in Norway.
Investors should however be aware that the Norwegian tax authorities have taken the view that although Norway has a double tax treaty with Singapore, the Norwegian tax authorities can, under certain terms and conditions, still regard a Singapore company controlled by Norwegian shareholders to be subject to Norwegian tax. This is based on the so called Norwegian Controlled Foreign Company Rules (CFC-rules). A condition for this to occur is that the Singapore tax level is less than 2/3 of the comparable tax level in Norway for the relevant company/industry and that the element of ”Norwegian control” is at least 50% of the votes, shares or capital in the Singapore entity. In addition, due to the fact that we have the double tax treaty, there is a further requirement that the Singapore set up has no “real/genuine substance”. “Substance” in this connection can involve factors such as; employees, offices, independent management, independent decision taking or control, independent contracts, genuine economic business activities etc. Also in this regard it is important to note that Norway - apart from the CFC-rules - can on a strictly national legislative basis (and without the limitations on tax level and ownership as per the CFC-rules) still regard a Singaporean company to be Norwegian resident or domiciled for tax purposes and levy Norwegian corporate taxation on the Singaporean entity. This is if the Singaporean company’s decision making “at board level” is in fact taken place from Norway, e.g. that the majority of the board of directors are residing in Norway and/or board meetings are taking place in Norway on a regular basis. Both the latter method of interpretation of legislation and the CFC-rules are very complex and in this newsletter we just touch briefly upon this. Readers that would like to receive specific advice or learn more about the implications of these rules to their particular venture, or investment opportunity should contact us for further information.
Another interesting aspect from a Norwegian perspective is also that capital gains derived on disposals of Singaporean shares under certain conditions can also be tax exempt. From a practical point of view this requires that (i) the shares are held by a Norwegian company; (ii) the shareholding in the Singaporean company is 10% or more; and (iii) such shareholding has been maintained for a minimum period of 2 years.
Investing in Singapore and setting up Singaporean subsidiaries can be very beneficial from a Norwegian fiscal point of view. It is no surprises hundreds of Norwegian companies have chosen Singapore as their “hub” in the South-East Asia region. Norway does not have the same beneficial tax treaty with any other country in the Asia-Pacific region, making Singapore the natural place for Norwegians to establish themselves and their businesses. The Singaporean and the Norwegian tax rules in combination with the double tax treaty between the two countries can prove to be extremely beneficial but, given that the Norwegian rules are very complex in this field, one should never be complacent on this topic, but always closely examine the rules, regulations and apply them to the business/company in question in order to avoid any mishaps.
We at Vogt & Wiig are here to guide you!