SINGAPORE LAW AND PRACTICE Contributed by: Jeffrey Lim, Daniel Lim, Frederick Tay, Genevi Lim, Lakshmanan Anbarazan, Sarah Lai, Stephanie Goh and Tobias Andreas Satria, Joyce A. Tan & Partners LLC
Interest Interest paid to foreign investors on FDI is subject to WHT if the interest payments are deemed as Singa - pore-sourced income – ie, the interest payments are, unless exceptions apply: • borne directly or indirectly by a Singapore tax resi - dent or Singapore permanent establishment (but not in respect of any business carried on outside Singapore through a permanent establishment out - side Singapore or any immovable property situated outside Singapore); or • deductible against any Singapore-sourced income. WHT Rates WHT rates for the following payments to non-Singa - pore tax residents are summarised below: • interest, rent for moveable property – 15%; and • management fees, technical assistance fees – pre - vailing CIT rate (ie, 17%). Treaty Benefits and Conditions Exemptions and reductions on WHT rates can be attained under double-tax treaties (DTTs). Generally, such treaty benefits are subject to “treaty shopping” or similar limitations, for example: Under DTTs: • anti-abuse clauses typically dictate that no treaty benefit may be granted if obtaining such benefit was a principal purpose of the arrangement; • conditions require that the tax payee is a “benefi - cial owner” of payments made; and • conditions require a Certificate of Residence to be submitted to the contracting state’s tax authority before a benefit is granted. Legislation Under the General Anti-Avoidance Rule (GAAR) set • dividends – 0%; • royalties – 10%; out in the Income Tax Act 1947 at s 33, 33A: • the Comptroller of Tax must disregard or adjust arrangements that have any direct or indirect purpose or effect of tax avoidance, unless the
arrangement is carried out for bona fide commer - cial reasons and avoidance or reduction of tax was not one of its main purposes; and • a surcharge of 50% is imposed on any tax or addi - tional tax imposed or adjusted pursuant to s 33,
unless remitted for good cause. 9.3 Tax Mitigation Strategies
As a starting point, companies must ensure that tax strategies comply with Singapore’s overarching anti- avoidance rules like the GAAR, arm’s length princi - ples (s 34D to 34F of ITA) (“arm’s length principle”) and stamp duty anti-avoidance rules (s 33A to 33C of Stamp Duties Act 1929) (SAAR). Common tax mitigation strategies include, inter alia: • structuring business acquisitions as asset pur - chases instead of share purchases – this creates a “step up” in the purchaser’s tax base through the assets acquired, allowing for higher capital or writing-down allowances on plant, machinery or intellectual property (IP); • “earnings stripping” with intercompany financing, where a company borrows from its affiliate – this creates room for interest expenses incurred wholly and exclusively in the production of income to be deductible under s 14 (1)(a) of the ITA; • cross-licensing of IP, where IP owned by a Singa - pore company is licensed for use by its subsidiar - ies and/or affiliates, who in turn pay royalties to it – this allows the Singapore company to qualify for deductibles arising from research and develop - ment or pioneering industry tax incentives, and tax exemptions or reductions under DTTs; • using losses to offset future taxable income through various means, inter alia: (a) carrying forward unutilised losses under s 37 (3)(a) and 37 (6) of the ITA; (b) carrying back capital allowances and losses under s 37D of the ITA; and (c) obtaining group relief under s 37B of the ITA; • obtaining tax incentives and/or exemptions: (a) incentives are available for partnerships, development and expansion, family offices and companies entering pioneer industries, among others; and
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