SINGAPORE Law and Practice Contributed by: Yang Shi Yong, Drew & Napier LLC
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Corporate Structures and Tax Treatment Business vehicles are chosen based on commercial needs. The types of vehicles include sole proprietor - ships, partnerships, companies and variable capital companies. Key Features of Sole Proprietorship In a sole proprietorship, the business is owned by an individual. The sole proprietorship is not a separate legal entity, and the owner has unlimited liability. For income tax purposes, income derived from the sole proprietorship will be taxed in the hands of the owner. Key Features of Partnerships There are three types of partnerships: general partner - ship, limited liability partnership and limited partner - ship. A general partnership requires between two and twenty partners. A limited liability partnership requires at least two partners, with no upper limit on the num - ber of partners. A limited partnership requires at least one general partner and one limited partner, with no upper limit on the number of partners. A general partnership and limited partnership are not separate legal entities from their partners while a limited liability partnership is. Partners in a general partnership and general partners in a limited partner - ship have unlimited liability. In contrast, partners in a limited liability partnership and limited partners in a limited partnership have limited liability. For income tax purposes, partnerships are tax trans - parent. Income derived from partnerships is taxed in the hands of the partners. Key Features of Companies A company is a separate legal entity. There are three types of companies: private company, exempt private company and public company. A private company has a maximum of 50 shareholders and has a constitution restricting the right to trans - fer its shares. An exempt private company is a pri - vate company which has a maximum of 20 individual
shareholders and no corporate shareholders. A public company is a company that is not a private company and can have more than 50 shareholders. For income tax purposes, these three types of com - panies are taxed as separate legal entities. Key Features of Variable Capital Companies A variable capital company (VCC) is a new corporate entity tailored for investment funds. With this, Sin - gapore fund managers can domicile funds locally to enjoy cost economies and reduced compliance hur - dles. A VCC can be either a standalone fund or an umbrella fund with many sub-funds. The latter cre - ates cost savings because the sub-funds can share a common board of directors and engage the same service providers. Unlike companies, VCCs can vary their share capital without investors’ approval. This gives investors the flexibility to exit their investments in the funds when they wish to do so. Additionally, unlike companies which must pay dividends out of profits, VCCs can pay dividends out of capital. This allows investment funds to fulfil their dividend payment schedules. For income tax purposes, a VCC is treated as a com - pany incorporated or registered under any law in force in Singapore or elsewhere. For goods and services tax (GST) purposes, each sub-fund of an umbrella VCC is treated as a separate person that is required to assess its GST registration lability based on the value of its taxable supplies. Taxable supplies made by the first- mentioned sub-fund to another sub-fund of the same VCC is taken to be a supply made by one person to another person. For stamp duty purposes, each sub- fund of an umbrella VCC is also treated as a separate legal entity. 1.2 Use and Taxation of Transparent Business Structures Limited partnerships and limited liability partnerships are commonly used by professional services firms and in fund structures. For example, private equity funds may use partnerships as part of a master-feeder fund structure to qualify for a tax incentive under Section 13U of the Income Tax Act 1947 (the “Act”).
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