• Austria vs Singapore: Offshore Financial Centre Comparison

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    Austria and Singapore are two of the world’s leading offshore financial centres. When choosing to incorporate offshore, it’s important to consider the following:

    • Ease of doing business
    • Setting up a business
    • Corporate compliance
    • Trained workforce

    We're going to take a look at the main differences between incorporating in Austria versus Singapore so that you can make an informed decision on which country to choose for incorporation.

    Ease of Doing Business in Austria and Singapore

    Austria was previously ranked higher in the World Bank’s ranking of ease of doing business, but the country has fallen to 26 out of 190 economies.

    Singapore, on the other hand, ranks 2nd out of 190 economies.

    Factors that have been considered in the rankings include:

    • Starting a business
    • Construction permits
    • Electricity availability
    • Registering property
    • Obtaining credit
    • Protection for investors
    • Paying taxes
    • Cross-border trading
    • Contract enforcement
    • Resolving insolvency
    • Regulations in the labor market

    In pure terms of doing business, Singapore offers a much easier business environment than most of the world’s economies except New Zealand, which overtook Singapore in the rankings three years ago.

    Setting Up a Company in Comparison

    How does setting up a business in Austria compare to setting up a business in Singapore? Austria’s procedures have a little more “red tape,” and the costs are more than in Singapore. The steps that a company has to take to incorporate in the country are:

    • Prove that the business is a new enterprise. This is done at no charge and requires conformation from the Economic Chamber. The form is available on the Austrian Ministry of Finance’s website.
    • Notarize the articles of association and statutes. A one-day procedure, the cost depends on the authorized share capital and are often around €2,000.
    • Minimum capital requirement most be deposited, and this will often be between €0 and €30.
    • Register the company at a cost of €34. The process will take six days to complete, and all of the above requirements must be met. A limited liability company may be formed (GmbH). Under laws enacted in January 2018, the business may have to disclose information about owners.
    • Once registered, the business will need to register with the Tax Office through a process that takes 12 days to complete.
    • The sixth step is to register trade with the trade authority, which can be done via mail, in person or online. There is no fee for the registration, and it takes one day to complete.
    • Companies that have employees will need to apply for an employer’s account number.
    • The final step is to register with the municipality. This is a one-day process and will be responsible for all taxes on the business.

    If a business plans to build factories or buildings, the process can take over half a year to complete or longer. It's a costly process that costs €10,000 or more to complete.

    Setting Up a Company in Singapore

    Singapore makes setting up a business quick and easy, but there are regulations and requirements that do need to be followed.

    • The Accounting and Corporate Regulatory Authority (ACRA) offers quick online registration of all businesses. The ACRA allows for all major registrations to be done online. This will include:
      • Company name search, which comes at a cost of SGD 15. Name applications can be approved in minutes. However, if the name does need approval, this can take 14 days to 2 months to complete. The name is reserved for 60 days.
      • Registration can be done in 15 minutes once all of the documents and information are submitted. The fee for registration is SGD 300.
    • Employee Compensation Insurance must be applied for at an insurance agency.

    Setting up a business in Singapore is very straightforward. There are a few additional steps and requirements that need to be met, including:

    • Appointing at least one resident director
    • Appointing a resident company secretary within six months of incorporation
    • Provide a Singapore address as a registered address

    There’s no need to apply for an Employment Pass or Entrepreneur Pass if you operate the business from overseas. A Singapore work visa is not required if you operate the business from overseas.

    But all foreigners that are opening a business in Singapore will need to use a professional firm to register their business.

    Singapore’s partnership with Bizfile has made incorporating a business one of the easiest in the world. It's a fast, cheap process that has far fewer steps than Austria. In terms of purely starting a business, the process is much easier in Singapore.

    Corporate Compliance Comparison

    Corporate compliance in Austria requires businesses to do the following:

    • Register employees with the regional medical insurance company.
    • GmbH companies are a joint stock company that must have a minimum share capital of €5,000.
    • Operating licenses must be maintained.
    • Managing directors must be appointed.
    • Pay all value-added tax of 20% of income (exempt for partnerships or sole proprietors with less than €30,000 in income).
    • Quarterly income tax of 25% of income.
    • GmbHs pay a minimum corporate tax of €1,750 annually; €3,500 for AGs.
    • One managing director or more must be maintained.
    • Annual financial statements must be submitted.
    • Consolidated statements must be submitted.
    • All financial statements and consolida6ted statements must be audited by a chartered accountant.
    • General shareholder meetings must be held at least once per year and within the first eight months of the year.

    Double taxation agreements are in place to avoid double taxation in Austria.

    Corporate Compliance in Singapore

    Singapore’s corporate compliance requires the following:

    • Appoint a company secretary within six months of incorporation
    • Maintain a physical address as a registered address for the company
    • Appoint a resident director
    • Appoint in auditor within 3 months, but exemptions are made if the business meets one of the following:
      • Fewer than 50 employees
      • Assets total less than S$10 million
      • Annual revenue is less than S$10 million
    • Register to pay Goods and Services Taxes if earnings are S$1 million or higher
    • Provide the following annual documents:
      • Financial statements
      • Filing of your annual tax return
      • Filing of chargeable income
      • ACRA filing of your annual return
      • Financial statement audit

    Business licenses may need to be obtained, and a hard copy or digital register of controllers must be available.

    Singapore maintains a corporate tax rate of 17%, but a tiered system is in place. Companies will pay the following:

    • 0% for taxable income of S$0 – S$75,000
    • 8.5% for taxable income of S$100,001 – S$200,000
    • 17% for taxable income of S$200,001 and above

    Singapore does have double taxation agreements with over 80 countries.

    Availability of a Trained Workforce

    Austria and Singapore both have excellent workforce that have standard workdays of eight hours. Austria workers have a maximum number of working days of 5.5, while Singapore has a maximum number of working days of 6.

    Austria’s workforce has 4.4 million workers, with 40% being female.

    The country’s labor laws are exceptional, and this motivates the workforce. Workers are granted protection from unfair work conditions. The country’s business environment allows for lawmakers, unions and employer representatives to work together to form rules and regulations.

    Average work hours in the country stand at 41.8.

    Skilled labor is not an issue in Austria, which has been an example of how vocational education can translate to a thriving workforce and business environment.

    Singapore is a leading financial centre for many reasons, but one reason is the country’s trained workforce. The workforce has been able to meet the quality demands of the world’s largest businesses.

    There's a strong link between employment and education, and workers are always encouraged to continue their education. The WSG and SSG are both in place to help with hiring and training needs, allowing businesses to seek out highly trained workers that are able to help the company excel.

    Singapore’s employment rate for people between 25 and 64 is 80.3%, with more women being a part of the labor force. Women account for 46% of the labor force, allowing for a diverse workforce.

    University enrollment in Singapore rose greatly from 2016 to 2017, as more youths are encouraged to pursue higher education. The country maintains a literacy rate of 97.2% and the country spent S$12.8 billion on education alone in 2018.

    Austria and Singapore both offer a robust workforce that is willing to help companies grow their revenue and compete on the global marketplace. When it comes to setting up a business, Singapore has a more fluid approach that can all be done online and without the need for long wait periods.

    Austria’s approach to opening a business is lengthy, which will scare away many potential business owners who don’t want to jump through several regulatory hoops to be able to open their business.

    The World Bank has ranked Singapore as the easier place to do business, and with Austria’s rankings deteriorating in the last few years, it seems like Singapore will remain the optimal choice as an offshore financial centre. From taxation to formation, Singapore makes it as easy as possible to attract the best businesses in the world.

  • Belize vs Singapore: Offshore Financial Centre Comparison

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    Belize and Singapore are both attractive countries for offshore and local business operations. When launching a business in any country, it’s important to consider the ease of doing business, the process of setting up a business, how to maintain corporate compliance and the quality of the workforce.

    We’re going to compare the processes of setting up a business in Belize and Singapore so that you may make an informed decision when choosing a country for incorporation.

    Ease of Doing Business in Belize and Singapore

    When it comes to ease of doing business, Belize ranks 125 out of 190 economies, according to the World Bank. For 2019, the World Bank gave the country a score of 57.13 out of 100 for ease of doing business.

    Part of the Latin America & Caribbean region, Belize falls under the “upper middle income” category and boasts a population of 374,681.

    Singapore ranks second out of 190 economies, according to the World Bank, and has an “ease of doing business score” of 85.24 out of 100.

    Part of the East Asia & Pacific region, Singapore falls under the “high income” category and has a population of 5.612 million.

    The World Bank’s rankings and score systems take several factors into consideration, including:

    • Starting a business
    • Registering property
    • Ease of obtaining construction permits
    • Connecting electricity
    • Securing credit
    • Trading across borders
    • Tax payments
    • Resolving insolvency
    • Enforcing contracts

    Overall, Singapore ranks very highly in all of these categories. Generally, entrepreneurs and multi-national corporations have a much easier time setting up and running their operations in Singapore compared to Belize.

    Setting Up a Company in Belize and Singapore

    Launching a company in Belize requires significantly more steps compared to Singapore (9 vs. 2). Setting up a limited liability company does not require a minimum capital investment, and the entire procedure of launching a company takes approximately 43 days. The cost (% of income per capita) is 34.7.

    The procedures involved in setting up a business include:

    Name Search (1 day)

    Entrepreneurs must travel to the capital city of Belmopan to visit the Companies’ Registry. The registry will provide a free computerized name search of all existing Belizean company names. Entrepreneurs can also request a name search via tax, telephone or email for a fee of BZD 50.

    Register Company Statutes, Memorandum and Articles of Assocation (2 days)

    All companies must register their statutes, memorandums, and articles of association at the Companies’ Registry.

    There are several fees that must be paid during this stage of the process:

    • BZD 500 for a certificate of compliance
    • BZD 12 (each) for registering the memorandum, the statute, and the articles of association
    • BZD 50 for registration
    • BZD 10 for filing
    • BZD 13 for registering the directors to act on behalf of the company

    The fees are all paid directly at the Companies’ Registry.

    Belize’s Companies Act only requires that each business have one director and one shareholder. If a company has one or more directors, each one must initially subscribe to at least one share. For practical purposes, each share will have a value of BZD 1. So, if a company has six directors, the minimum start-up capital will be BZD 6.

    Documentation for this stage of the process must include:

    • Company statutes
    • Identification for all representatives and directors, if applicable
    • Memorandum and articles of association

    Application for a Trade License (1 day)

    The next step is to apply for a trade license at the City Council. The application will prompt the City Council to send an inspector to the site of business. Typically, inspectors arrive the next day.

    The application for a trade license will require the following documentation:

    • Certificate of compliance provided by the Companies’ Registry
    • Proof of residency

    Receive Inspection from the City Council Inspector (20 days)

    The city council inspector will inspect the business premises and submit his or her findings to the trade license board. The board is required by law to meet every three months, but due to the high volume of trade license applications, they typically meet every two weeks.

    After deliberation, the entrepreneur will receive a determination and assessment notice, which is 25% of the inspector’s assessed annual rental income of the business premises.

    Licenses are typically hand-delivered within two days of the board’s decision and the entrepreneur’s payment.

    Pay for the Trade License (1 day)

    The assessment notice is taken to the City Council, where the entrepreneur will pay 25% of the annual rental value of the business’s premises.

    This step occurs simultaneously with the previous procedure.

    Create a Company Seal (2 days)

    The company must now create a company seal, which can be completed at a stationary store. Creating a seal can cost between BZD 50 and BZD 200, depending on whether the seal is embossed or rubber.

    Register the Company for Business Tax (10 days)

    The founders of the business must now register the company with the income tax authorities, which will require the certificate of compliance obtained earlier in the process. A fee of BZD 150 will be required.

    It takes 1-2 weeks for a company to receive its tax number.

    Operations can begin, but the company must withhold taxes. Failing to withhold payable taxes will result in interest and penalties.

    Register the Company for General Sales Tax (17 days)

    After registering for business tax, the next step is to register for general sales tax (GST) with the general services tax authorities. The certificate of compliance will be required for registration.

    It takes a few weeks for the final registration to be confirmed.

    Again, operations can begin, but all applicable taxes must be withheld in order to avoid interest and penalties. This step occurs simultaneously with the previous procedure.

    Register Employees with the Social Security Board (2 days)

    All employees must be registered with the social security authorities. Registration confirmation can take a few months. While operations can commence during this time, deductions must be taken.

    This step occurs simultaneously with the previous procedure.

    Setting Up a Company in Singapore

    Compared to Belize, setting up a business in Singapore requires fewer steps and far less time. The cost of setting up a business, according to the World Bank, is just 0.4% of income per capita.

    There are just two procedures that need to be completed, and it generally only takes 1.5 days to get a business up and running.

    Online Registration with ACRA

    Singapore makes it very easy to register a company, conduct a name search and obtain a tax number. The entire process takes place online and can be completed in less than one day. The cost to complete this first step is SGD 315 (SGD 15 for company name fee and SGD 300 for the registration fee).

    The Accounting and Corporate Regulatory Authority (ACRA) is the regulator of business, corporate service providers and public accountants. Incorporation is done through an electronic filing system called Bizfile+.

    Through the Bizfile+ platform, entrepreneurs can:

    • Register for goods and services tax (GST)
    • Reserve domain names
    • Apply for a corporate bank account
    • Activate a Customs Account

    The process begins with a company name application, which is also completed on the Bizfile+ platform. The application is sent online at bizfile.gov.sg and will require a fee of SGD 15 for each approved company name.

    If the name is available, the application can be approved within minutes of receiving payment. If the application needs to be referred to a separate agency for approval or review, the process can take between 14 days and 2 months.

    Once the name is approved, the name will be reserved for 60 days and the entrepreneur can move on to registering the business.

    It takes approximately 15 minutes to file the incorporation forms online, which will require a fee of SGD 300. The ACRA will issue a notice of incorporation through email to either the law firm or the firm hired to register the business. Newly incorporated businesses will receive a free copy of its Business Profile after successfully filing the incorporation forms and paying the incorporation fee.

    The Bizfile+ platform also allows the business to register with the Inland Revenue Authority of Singapore (IRAS) for GST when its annual turnover exceeds SGD 1 million.

    Sign Up for Employee Compensation Insurance

    The final step in the business registration process is to sign up for employee compensation insurance, which is required under Section 23(1) of the Work Injury Compensation Act (WICA), Chapter 354, of Singapore.

    Corporate Compliance Comparison

    Corporate compliance in Belize is rather lax compared to other countries.

    • There are no reporting requirements for local government.
    • Businesses may appoint a secretary, but this is not a mandatory requirement.
    • The company must appoint a licensed registered agent, and have a registered address and office in Belize.
    • There is no statutory requirement for formal member meetings, and meetings may be held anywhere in the world.
    • Accounting records should be maintained for five years. They may be kept anywhere in the world and in any currency.
    • No annual return or financial statement filings are required.

    Corporate Compliance in Singapore

    Corporate compliance is a bit more complex in Singapore. All businesses must:

    • Maintain a physical address as a registered address.
    • Appoint a company secretary within 6 months of incorporation.
    • Assign a resident director.
    • Register to pay GST if earnings exceed SGD 1 million.
    • Appoint an auditor within 3 months. There are exemptions for this requirement, which may apply if the company’s:
      • Total assets are less than SGD 10 million.
      • Workforce does not exceed 50 employees
      • Annual revenue is less than SGD 10 million.
    • Submit the following documents:
      • Annual tax return
      • Financial statements
      • Financial statement audit
      • Chargeable income
      • ACRA filing of your annual return

    All businesses must maintain all of the licenses they obtain as well as a hardcopy or digital register of controllers.

    Availability of a Trained Workforce in Belize and Singapore

    When launching a business in any country, one of the most important things to consider is the quality and availability of its workforce.

    According to the Statistical Institute of Belize (SIB), Belize’s population was 377,968 in 2016. Approximately 162,264 members of the population were in the labor force.

    Much of the labor force in Belize is unskilled. Nearly 52% of employed persons are engaged in either sales or other elementary work occupations.

    Singapore, on the other hand, has a highly skilled workforce that is able to meet the demands of some of the world’s largest businesses.

    The employment rate for people between ages 25 and 64 is 80.3%. Women account for 46% of the labor force, allowing for greater diversity.

    According to data from the World Bank, it’s easier to start a business in Singapore than Belize. However, Belize has more lax regulations for businesses that are already in operation. Few reporting and filing requirements makes the country a favorite for offshore operations.

  • DPA Framework for Money Laundering and Corruption in Singapore

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    Singapore has taken another step forward in the fight against money laundering and corruption. A landmark change to the country’s criminal justice system allows for Deferred Prosecution Agreements, better known as “DPAs” or voluntary alternatives to adjudication.

    The aim of the new DPA framework is to improve corporate accountability for acts of corruption, bribery and money laundering.

    How DPAs are Used as an Enforcement and Prevention Tools

    On the enforcement end, DPAs can be used by prosecutors to hold companies accountable for their crimes. At the same time, a DPA can also be a powerful preventative tool, discouraging companies from engaging in unlawful conduct.

    Essentially, a DPA is an agreement between a prosecutor and a corporate offender in which the corporate offender agrees to meet certain obligations in lieu of facing prosecution. These measures might include:

    • Continued cooperation with a government investigation
    • Monetary penalties
    • Instatement of a corporate monitor
    • Implementation of an improved compliance program

    A DPA provides incentive for compliance. If the corporate offender does not meet the obligations set forth in the agreement, the company faces the threat of future prosecution.

    Prosecutors are generally afforded wide discretion when creating these agreements, but a DPA may require judicial approval and oversight.

    Singapore Enacts its Own DPA Framework for Money Laundering and Corruption

    The Singaporean government announced that it would introduce its own DPA framework as part of the Criminal Justice Reform Act passed on March 19, 2018. The legislation enacted DPA provisions as part of the Criminal Procedure Code.

    Singapore’s DPA framework is modeled on the UK scheme:

    • Public Prosecutors may only enter into DPAs with respect to certain offenses, including money laundering- and corruption-related crimes.
    • The law only applies to legal entitles. A Public Prosecutor may not enter into a DPA with an individual.
    • DPAs will be subject to final approval by the Singaporean High Court, which must determine that the DPA’s terms are “fair, reasonable and proportionate,” and “in the interests of justice.”
    • A DPA may require: implementation of a compliance program, unlimited monetary penalty, compensation to victims, ongoing cooperation with the Public Prosecutor in the investigation, and instatement of a monitor.
    • The Singaporean High Court retains ongoing supervisory authority with regards to any changes to the DPA’s terms.
    • Once approved, DPAs must be published and made accessible to the public. However, the Court retains the right to redact or postpone publications of DPA public notices if the Court believes it is “in the interests of justice, public safety, public security or propriety, or for other sufficient reason.”

    Under the DPA framework, a company faces prosecution if it fails to adhere to the terms of the DPA.

    The DPA regime applies to corruption offenses as well as money laundering and the receipt of stolen property. There are no statutory limits under the DPA provisions.

    Under the DPA framework, companies may be compelled to pay financial penalties that are substantially higher than the maximum fine of S$100,000 under the Singapore’s Prevention of Corruption Act (PCA).

    Sections of 5 and 6 of the PCA provide a maximum penalty of imprisonment not exceeding five years and a fine of S$100,000. The imprisonment term is increased to seven years if the offense involves the bribing of a Member of Parliament or member of a public body.

    The Key Advantages of a DPA

    Although we cannot yet determine the effects of Singapore’s DPA framework, these agreements – in general – do offer advantages.

    DPAs allow law enforcement agencies to identify and prove corporate crimes through information gathered during the DPA process. This is, perhaps, one of the biggest advantages with DPAs, as corporate crimes can be difficult to establish or detect unless a whistle blower or someone “in the know” reports illegal activities to the authorities.

    DPAs also save government funds and resources by avoiding lengthy legal proceedings. They encourage companies to engage in self-reporting of wrongdoings in hopes of avoiding prosecution.

    Additionally, DPAs allow for the facilitation of compensation to victims of corporate crimes. Victims are generally able to receive their payouts more quickly and reliably.

    Singapore’s DPA framework may deliver many of these advantages.

    Implementing the DPA Framework

    Singaporean prosecutors typically have a difficult time holding corporates accountable for criminal liability.

    Under current corruption laws, prosecutors must prove that the employee is sufficiently senior to act as a “directing mind” of the company and ordered the alleged illegal activities. The new DPA framework would eliminate this need. Singaporean corporates will likely be facing increased regulatory scrutiny and enforcement.

    While the Singaporean DPA framework borrows many features of the UK and U.S. models, it does have one unique feature: Singapore is not likely to publish prosecutorial guidelines for DPAs. This was stated during the second reading of the bill in the Singapore Parliament. The reason for this feature is that the Singaporean government wants to avoid having the guidelines be used as a “tool” to manipulate “the criminal justice system and escape punishment.”

    With that said, it is believed that Singaporean prosecutors will apply some factors that are considered by anti-corruption enforcement agencies in other countries when determining whether a DPA is appropriate. This includes cooperation level, self-reporting, and remedial steps the company has taken to address breaches and compliance risks.

    It is still unclear how much weight, if any, the Singapore courts will place on these factors when the terms of a DPA are being considered for approval.

    The move by the Singaporean government to establish a DPA framework is part of a growing trend among many jurisdictions. It’s viewed as an effective alternative to resolving corporate criminal liability, particularly for economic-related crimes.

    The DPA regime also highlights the recognition by Singaporean authorities of the need for greater corporate accountability for bribery and corruption. The move is consistent and supportive of the country’s “zero-tolerance” approach to these pressing issues.

    The landmark change to Singapore’s criminal justice system comes after the country’s first major foreign corruption case involving Keppel Offshore & Marina Ltd. and its U.S. subsidiary. Keppel has agreed to pay a penalty of $422 million to resolve the corruption charges related to alleged bribes paid in Brazil. The terms of this penalty were laid out in a DPA with the U.S. Department of Justice.

  • Double Taxation Agreement Between the Republic of Singapore and the People’s Republic of China

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    Singapore and China have a double taxation agreement that has been effective since 1 January 2008. The governments saw the benefit in allowing persons who are residents of both or one of the Contracting States (Singapore or China) to avoid double taxation.

    The agreement covers specific taxes under specific circumstances.

    Starting with Article 2 of the agreement, titled Taxes Covered, the agreement states:

    • The following agreement will apply to taxes on all income, on elements of income or taxes on gains from immovable or movable property

    Existing taxes which the agreement applies fall under the name of:

    • Chinese Tax
      • Individual Income Tax
      • Enterprise Income Tax
    • Singapore Tax
      • Income Tax

    Both Contracting States must notify the other when significant changes to taxation laws have been made. Identical or similar taxes are covered under the agreement. It's important to know the general definitions under the agreement when reading through the law.

    Brief Definitions of the Agreement

    Several definitions are provided within the agreement to help the reader better understand the law. These definitions are used for clarification purposes, and they include the following:

    • China: Any area of the People’s Republic of China wherein taxation applies.
    • Singapore: Any area of the Republic of Singapore wherein taxation applies.

    Under these definitions, this would include areas where sovereign rights of exploration exist for China and areas, which under international law agrees, that Singapore encompasses.

    Additional definitions that are of importance include:

    • Person: A body of persons which may include a business or individual.
    • Company: An entity that is, for tax purposes, treated as a body corporate.
    • International Traffic: Any aircraft or ship operated by an enterprise of a Contracting State with the exception of an aircraft or ship operated only in places of the other Contracting State.
    • National: An individual that is a national of a Contracting State, or any legal person, association or partnership that has its status from the laws of either Contracting State.
    • Competent Authority: Authorized representatives of either Contracting State or the State Administration of Taxation (China) or Minister of Finance (Singapore).

    A resident of a Contracting State will be a person that is liable to tax within one of the Contracting States under one of the following reasons:

    • Domicile
    • Place of management
    • Residence
    • Head of office
    • Place of incorporation

    If, by definition, a person is a resident of both Contracting States, then the status of the resident will be determined based off of the following:

    • The State where the person has a permanent home
      • If a permanent home exists in both Contracting States, the person will be considered as resident of the state where his economic relations are closer.
    • In the event that a person’s economic relations, or vital interests cannot be determined, residency will be determined where the person has a “habitual abode.”
    • If the person has or doesn’t have a habitual abode in either of the Contracting States, the person will be considered a resident of the state where he is a national.
    • If residency still cannot be determined, the Competent Authorities will settle the question of residence together.

    If a person, under the previous definition (not an individual), is a resident of both Contracting States, the place where effective management is located will be the “person’s” residence. Competent Authorities will settle any disputes where effective management cannot be determined.

    What this means is that a “person,” which in this case would likely be a business, has operations in both Contracting States and could be considered a resident of either Contracting State, the State where effective management exists will be considered the resident State.

    It's not possible, for tax purposes, to be a resident of both states. It's also not beneficial to be a resident of both states because double taxation can occur in this case.

    The appropriate Competent Authority will work to determine if a person is a resident of a State to settle the dispute.

    Income Sources and Information Under Article 6 – 17

    Double taxation can occur on several forms of income. Article 6 of the agreement starts with income from immovable property. The income from immovable property in a Contracting State may include:

    • Income from forestry
    • Income from agriculture

    Immovable property income by a resident of a Contracting State may have the income taxed in the other State if the property is situated in the other State. The term “immovable property” also encompasses accessories for the property, which may include:

    • Livestock
    • Equipment

    Income from the property may be from:

    • Use of the property
    • Direct use of the property
    • Letting of the property

    Business profits are mentioned in Article 7, and the Article states that profits of an enterprise will be taxable only in the Contracting State where the business is carried out. Exceptions to this rule include business that is carried out in a permanent establishment in the State.

    For example, if a business has an entity in Singapore and opens a subsidiary in China, the profits derived from the subsidiary in China will be taxable in China. Only the profits attributed to the permanent establishment in China may be taxed in the State.

    Deductions are allowed, allowing the enterprise to deduct expenses which have been incurred for the purpose of the permanent establishment. Profits of an establishment cannot be from the purchase of goods or merchandise for the enterprise as a whole.

    The same method, year by year, will be used to attribute the income of a permanent establishment unless a reason to the contrary is found.

    Income from Shipping and Transport

    Shipping and transport income are clearly outlined, allowing for income derived in international waters to only be taxable by the enterprise’s Contracting State. Profits from a joint business or international operating agency will follow the same guidelines.

    Interest derived from the operation will be considered from the operation of ships and aircraft.

    Profits that will fall under this definition will also include:

    • Rental of the ships or aircraft
    • Profit from the rental of shipping containers or equipment used for transport

    Income from Dividends and Interest

    Dividends that are paid by a company of a Contracting State to another resident of the other Contracting State may be taxed in the other State. The dividends may also be taxed in the Contracting State where the company is a resident.

    But there is an exception for the owner of the dividends of the other State. In this case, the taxation cannot:

    • Exceed 5% of the dividend gross amount if the beneficial owner holds 25% of the company paying the dividends (companies other than partnerships apply).
    • In all other cases, the amount may not exceed 10% of the gross dividend amount.

    Interest that is paid to a resident of the other Contracting State may be taxed in the other State if it is arrived in a Contracting State. The income may also be taxed in the Contracting State where the interest is derived. If the beneficial owner is a resident of the other Contracting State, taxes cannot exceed:

    • 7% if received by a financial institution or bank
    • 10% of the gross amount in all other cases

    Exemptions do exist if the interest is derived from government bodies and agencies, including:

    • China’s Development Bank, Government of the People’s Republic of China, Export-Import Bank of China, Agricultural Development Bank of China, National Council for Social Security Fund, or any institution that is owned wholly by the Government of China.
    • Government of the Republic of Singapore, Monetary Authority of Singapore, Singapore statutory body, Government of Singapore Investment Corporation Pte Ltd., or any institution that is wholly owned by the Government of Singapore.

    Income from debt-claims of every kind will be considered interest.

    Income from Royalties, Capital Gains, Independent Personal Services, Director Fees, Artists, Sportsmen

    Royalties that arise in a Contracting State and are paid to a resident of the other Contracting State will be taxed in the other State. Royalties include payments received for the consideration of artistic work, scientific work or copyright of literary works.

    If the beneficial owner of the royalties is also a resident of the other Contracting state, taxes may not exceed:

    • 10% of the gross amount of royalties

    Royalties are derived from a Contracting State when the payer is a resident of the State.

    Capital gains fall under numerous rules, and these rules depend on how the capital gains are earned. The follow will apply:

    • Capital gains that are derived from immovable property may be taxed if it is situated in the other Contracting State.
    • Gains may be taxable in the other State when the gains are derived from the alienation of shares that include 50% or more of their value from immovable property in the other Contracting State.
    • Gains from the alienation of shares that represent a 25% participation in a company in which the owner is a resident of a Contracting State may be taxed in the resident’s Contracting State.

    Independent personal services will include income from personal service performance or other activity. “Professional services,” by definition, will include services that may fall under the following, but are not limited to these services:

    • Accountants
    • Architects
    • Dentists
    • Engineers
    • Lawyers
    • Physicians
    • Independent artistic, teaching, scientific and educational activities

    Taxation for independent personal services for a resident of a Contracting State will be taxable in the Contracting State unless the resident has a fixed base in the other Contracting State for performing professional services, or if the resident is present in the other Contracting State for a period of 183 days in a calendar year.

    Income will be taxable in the other Contracting State in the example above, yet only the amount that is attributable to the fixed base will be taxable.

    Director fees that are derived from a resident of a Contracting State, as a member of the board of directors for a company of the other Contracting State, will be taxable only in the enterprise's Contracting State.

    Athletes and artists where income is derived by a resident of a Contracting State may have their income taxed in the other Contracting State where the resident’s activities are exercised in the other Contracting State. This would include, but may not be limited to:

    • Television actors
    • Radio personalities
    • Motion picture performers
    • Theatre persons
    • Entertainers
    • Musicians
    • Athletes

    When public funds of the Government of either Contracting State or local authority are used to support activities, either wholly or substantially, of an entertainer or athlete, the income derived by a resident of a Contracting State in the other Contracting State shall be exempt from taxes in the other Contracting State.

    As such, if Singapore was funding a performance for entertainers in China, the income from the event will be taxable in Singapore and not China.

    Income from dependent personal services, which includes wages and salaries, derived from a resident of a Contracting State for employment will be taxable only in that Contracting State. If the employment occurs from activities in the other Contracting State, income from such activities may be taxed in the other State.

    Income from activities carried out in the other State will only be taxable in the resident’s State under the following conditions:

    • The recipient is present in the other Contracting State for no more than 183 days in a calendar year.
    • Remuneration is paid by an employer that is not a resident of the other State.
    • Income is not derived from a permanent or fixed based in the other Contracting State owned by the employer.

    Income from Government Service

    When income is from a government service, it will include wages, salaries or other similar remuneration. Income must be paid by the local authority or Contracting State for services rendered in that State and is only taxable in that State. This does not include pension.

    Exemptions to the rule are when wages or salaries are rendered in the other State and the individual is a resident of the State who:

    • Is a national
    • Did not become a resident with the only purpose to render services

    Other Income

    Forms of income that have not been covered and fall under other income will be taxed in the Contracting State where the money was derived.

  • Double Taxation Agreement Between Singapore and Indonesia

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    The Republic of Singapore and the Republic of Indonesia have a double taxation agreement, which came into effect from 1 January 1992. The agreement applies to all persons that are residents of one or both of the Contracting States.

    A Contracting State will be either:

    • The Republic of Singapore, often referred to as just Singapore
    • The Republic of Indonesia, often referred to as just Indonesia

    The agreement is such that it covers taxes on income from each Contracting State. Taxes on income can come from:

    • Total wage amounts
    • Salaries
    • Gains from the alienation of immovable property
    • Gains from the alienation of movable property
    • Elements of income

    Taxes which apply under the agreement are as follows:

    • Singapore – Income tax, is also called “Singapore tax”
    • Indonesia – Income tax, company tax, tax on dividends and royalties, also called “Indonesia tax”

    Under the scope of the agreement, identical or similar taxes will have the same rules applied. When significant tax changes are made, the authorities of the Contracting State will have to notify the other Contracting State of the changes imposed.

    Fiscal Domicile Under Article 4

    Fiscal domicile under the agreement is often referred to as “a resident of a Contracting State.” Therefore a resident of either Singapore or Indonesia. The term does not include a permanent establishment of a foreign enterprise.

    If an individual can be considered a resident of both Contracting States, then the agreement outlines the person’s status as:

    • The individual will be a resident where he has a permanent home available to him. If a permanent home exists in both Contracting States, residency will be determined by the home where the center of vital interests exist.
    • In cases where the center of vital interests cannot be determined, he will be considered a resident of the Contracting State where a habitual abode exists.
    • Competent authorities will determine, under mutual agreement, which Contracting State the person’s fiscal domicile resides in for all other cases.

    Income Sources and Information Under Article 6 – 15

    Articles 6 through 15 encompasses income from numerous sources, starting with the income from immovable property. An Immovable property Income that is derived by immovable property in the Other Contracting State, or the state in which the person is not a resident, may be taxed in that State.

    Immovable property, under the definition of the agreement, will also include property accessory to the immovable property, such as:

    • Livestock
    • Equipment

    The agreement includes income from immovable property’s direct use, such as letting or any other form of use of the property. The agreement also includes income from immovable property when it is used for the performance of professional services or the land is the property of an enterprise.

    Business Profits

    An enterprise of a Contracting State will be taxed in that State unless the enterprise conducts business in the other State through a permanent establishment. In this case, only the profits which can be attributed to the other State’s permanent establishment may be taxed in that State.

    Deductions can be considered when determining the profits of a permanent establishment and may include:

    • General administrative expenses
    • Executive expenses

    The establishment will be, by law, to deduct expenses as if the business were an independent enterprise.

    When the information provided to the competent authority is deemed inadequate to attribute to the permanent establishment of an enterprise, the law of that State in the determination of tax liability or by the discretion of the competent authority shall be applied.

    The same methods used to attribute profits shall be used each year by year unless there are sufficient reasons to change the method. If income is dealt with separately within the agreement, provisions within those articles shall not be affected under the definition of business profits.

    Income from Shipping and Transport

    Income from shipping and transport which is derived from the operation of aircraft in international traffic will only be taxable in the enterprise’s Contracting State. The same rules do not apply to shipping.

    Income from shipping operations in international waters may be taxed in the other Contracting State, but only of an amount equal to 50% of the income.

    The same provisions apply to operations consisting of:

    • A pool
    • A joint business
    • International operating agency

    Income of Associated Enterprises

    Associated income of associated enterprises may be taxed as an enterprise of a Contracting State wherein the enterprise directly or indirectly participates in the following of an enterprise of the Other Contracting State:

    • Control
    • Capital
    • Management

    If the same individual participates in the management, control or capital of an enterprise in either state, certain rules apply to ensure that taxation is carried out fairly.

    In either case wherein the two enterprises have commercial and financial relations which would be different from relations between two independent enterprises, taxation will be carried out as if profits were earned by two independent enterprises and taxed properly.

    Essentially, the two enterprises may not, for the purpose of dodging taxes, maintain relationships for the sole purpose of not paying appropriate taxes.

    Income from Dividends

    Income from dividends are very complex, but the taxation agreement covers the income from dividends in-depth. When dividends are paid by a resident of one Contracting State to a resident of the other Contracting State, the dividends may be taxed in the other State.

    The dividends may be taxed in the Contracting State wherein the company is a resident, but if the recipient is the beneficial owner of the dividends, the following will apply:

    • Taxation may not exceed 10% of the gross amount of dividends if the beneficial owner owns 25% or more capital in the company paying the dividends.
    • Taxation may not exceed 15% of the gross dividend amount in all other circumstances.

    As long as Singapore is not taxing dividends in addition to taxes on profits or income of a company, the dividends paid by a resident company of Singapore to a resident of Indonesia are exempt from any dividend-related tax in Singapore.

    If the dividends are subject to taxation in addition to the taxes chargeable on the company’s profits or income, the rates outlined in earlier provisions in the section shall apply.

    Dividends shall arise in:

    • Singapore if paid by a company resident in Singapore
    • Indonesia if paid by a company resident in Indonesia

    Income from Interest

    Interest paid from a Contracting State to a resident of the other Contracting State may be taxed in the other State where it arises in the Contracting State. If the recipient of the interest is the beneficial owner of the interest, the interest may be taxed on the Contracting State but shall not exceed 10% of the gross amount.

    Interest, which is not covered previously in the section, may be taxable only in the other Contracting State if it is paid from:

    • Bond
    • Debenture
    • Obligation of the Contracting State
    • Loan, guarantee or credit from the Monetary Authority of Singapore or the Bank Indonesia.

    Competent authorities of the Contracting States may agree on a mutual settlement for matters not covered elsewhere under Article 11 of the agreement.

    The Government of a Contracting State shall be exempt from taxes on interest derived in the Other State.

    Interest will be considered income which arises from all debt-claims. Business income rules will apply if the interest is paid to a beneficial owner of the interest which carries on business in both States, through a permanent establishment, and the debt-claim is tied to that establishment.

    If the payer and beneficial owner of the interest have a special relationship, the amount of interest paid will be taxable as if the absence of such a relationship existed. In this case, the remaining will be taxable according to the law of each Contracting State.

    That is to say that if interest is a standard 10% but due to the special relationship, interest paid is just 2%, the excess 8% will be taxed as if a special relationship did not exist.

    Income from Royalties

    Royalties that arise in a Contracting State and are paid to a resident of the other Contracting State may be taxed in the other State. If the recipient of the royalties is the beneficial owner, the Contracting State where the royalties arise may tax the owner in an amount that does not exceed 15% of the gross royalty amount.

    Limitations on this amount must be settled by the competent authorities of both Contracting States.

    Business income rules will apply when the recipient has a permanent establishment in the other Contracting State and a connection between the royalties exists.

    Provisions will also apply for any proceeds that arise from the alienation of:

    • Patent
    • Trademark
    • Design
    • Model
    • Plan
    • Secret formula
    • Copyright of scientific works

    Income from Independent Personal Services

    Income derived from activity in a Contracting State in which the individual is a resident will be taxed only in that State unless the resident is present for a period of 90 days out of a 12-month period in the other State.

    Income that falls within this scope is taxable only to the amount that is derived in the respective state. For example, if S$10,000 was earned in Singapore over a 3-month stay by an Indonesian resident, the resident will only have to pay taxes on the S$10,000 earned in Singapore.

    Income from Dependent Personal Services

    Dependent personal service income which will include renumeration, wages or salaries of a resident of a Contracting State, in respect to the employment in that State, is taxable only in the state where the income is derived.

    If employment is exercised in the other State, the portion of the income derived in the other State may be taxed in that state.

    A resident of a Contracting State that earns income from activities in the other Contracting State will have income taxed only in the resident State if:

    • The recipient does not spend a period of 183 aggregate days within the other State in a calendar year.
    • The income is paid by or on behalf of a resident employer of the first-mentioned Contracting State.
    • Income is not deemed to arise from a permanent establishment of the employer in the other State.

    Income from Director’s Fees

    Income from director’s fees, or similar payments, that are derived by a resident of a Contracting State for their capacity of work, such as a member of a board for a company of the other Contracting State, may be taxed in the other State.

    Elimination of Double Taxation

    Article 23 of the agreement covers the elimination of double taxation, and subject to the provisions of the laws of either Contracting State, in respect to the allowance of credit against each State’s respective tax, will be allowed to be a credit against the opposite State’s tax.

    Exchange of Information Between Contracting States

    Contracting States may share information as necessary to carry out the provisions of the double taxation agreement. The competent authorities of either state may share information to:

    • Avoid double taxation
    • Prevent tax evasion

    Information that is exchanged will be “secret,” and the information can only be shared with parties, including a Court or reviewing authority, that is to enforce, assess or determine matters of taxation that are under this agreement.

    The provisions found within the scope of the Exchange of Information section will not be construed to impose on a Contracting State the following obligations:

    • Supply information which is not obtainable under normal circumstances and laws.
    • Supply trade, business, commercial, industrial or other professional or trade secret information.
    • To carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State.

    Singapore and Indonesia both agree that the agreement will remain in force until terminated by either Contracting State. Termination of the agreement must be done through diplomatic channels and must be given in written notice on or before 13 June of a calendar year by the fifth year in which the agreement is in effect.

    The double taxation agreement allows for residents of either Contracting States, whether an individual or company, to enjoy less taxes as a whole. Accountants understanding both country’s laws are optimal choices when dealing within the scope of the taxation agreement.

  • Dubai vs Singapore: Offshore Financial Centre Comparison

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    Dubai and Singapore are two popular offshore financial centres. Both offer business-friendly environments with minimal “red tape” for entrepreneurs who want to incorporate and run their businesses from these countries.

    When choosing a country for offshore incorporation, it’s important to consider the process of registering a company, ease of doing business, corporate compliance and the availability of a trained workforce.

    Let’s take a closer look at how Dubai and Singapore compare in these respective categories.

    Ease of Doing Business in Dubai and Singapore

    Dubai, which is part of the United Arab Emirates (UAE), ranks 11 out of 190 economies and has received a score of 81.28 out of 100 for ease of doing business, according to the World Bank.

    Singapore ranks 2nd out of 190 economies and has received a score of 85.24 out of 100 for ease of doing business.

    The World Bank takes several things into consideration when assigning an “ease of doing business” score, such as:

    • Registering a business
    • Trading across borders
    • Getting electricity
    • Paying taxes
    • Resolving insolvency
    • Securing credit
    • Enforcing contracts
    • Registering property
    • Obtaining construction permits
    • Protecting minority investors

    Both Dubai (the UAE) and Singapore receive high rankings in all of these categories.

    Dubai outranks Singapore in a few categories, including: dealing with construction permits, getting electricity, registering property and paying taxes.

    Setting Up a Company in Dubai and Singapore

    It's relatively easy for entrepreneurs to incorporate a business in either Singapore or Dubai.

    In the UAE, there are just two steps in the procedure process for men and three steps for women. It takes 3.5 days for men to incorporate a business, while it takes women 4.5 days. The cost of setting up a business is the same for both genders: 22.8% of income per capita.

    The UAE does not have a paid-in minimum capital requirement for establishing a limited liability company.

    The procedure for setting up a business in UAE (including Dubai) is as follows:

    WOMEN ONLY: Obtain Husband’s Approval to Leave the Marital Home

    Under the Personal Status law, articles 71 and 72, a wife must seek her husband’s approval to leave the marital home. Wives risk losing their maintenance if they refuse to move to the marital home, leave the marital home, prevent the husband from entering the marital home, or refuse to travel with the husband without a legitimate excuse.

    Under these laws, wives are also required to be obedient to their husbands, maintain the home and breastfeed the children unless there is an impediment.

    Women may be considered disobedient if they decide to engage in activities without first getting consent from their husbands.

    Reserve a Company Name, Apply for Registration at the DED, and Notarize MoA

    In order to register an LLC and obtain a general trade license, the entrepreneur must complete an online application using the Instant License service. The application is made available by the Dubai Department of Economic Development.

    Once the online application is complete, the entrepreneur will receive an establishment card reference number from the Ministry of Human Resources and Emiratisation. Additionally, the entrepreneur will automatically be registered for membership at the Dubai Chamber of Commerce and Industry.

    The Instant License application will require the following steps:

    • Choosing a legal form.
    • Choosing business activities.
    • Adding partners and identifying:
      • Distribution of profits and losses among partners
      • Partners’ shares in the Capital
    • Reserve a trade name by either:
      • Reserving a new name
      • Choosing an automatically generated name consisting of the trade name reservation number
    • Enter the value of the capital in the company’s commercial register data.
    • Optional: Issue an electronic memorandum of association.
    • A payment voucher will be issued.
    • Payment of all associated fees.

    The Instant License application requires the following fees:

    Department of Economic Development

    • AED 15,000 for the general trading license issuing fee
    • AED 2,000 for the foreign name containing numbers fee
    • AED 600 for the commercial license fee
    • AED 600 for the trade name reservation fee
    • AED 350 for the trade name advertisement fee
    • AED 100 for the preliminary approval fee
    • AED 50 for the administrative service fee
    • AED 30 for the Innovation Dirham fee
    • AED 30 for the government cultural fee

    Dubai Municipality

    • AED 10,000 for the market fee
    • AED 1,000 for the public waste-related service fee
    • AED 80 for the service improvement fees

    Dubai Chamber of Commerce

    • AED 1,200

    Ministry of Economy

    • AED 3,000

    Local Trade License

    • AED 100

    Commercial License – Tejari

    • AED 200

    In total, entrepreneurs will have to pay AED 34,340 to register their business through the Instant License application platform.

    The Instant License service allows entrepreneurs to sign an electronic memorandum of association (MoA) right along with the application. Entrepreneurs may skip this step, but they must provide a notarized MoA when renewing their licenses the following year.

    Entrepreneurs are not required to have a company location or lease during their first year of operation. However, entrepreneurs must submit documentation proving that they have a lease contract and a location when renewing their licenses the following year.

    Register Native Workers

    The final step in the process is to register native workers with the Ministry of Human Resources and Emiratisation as well as the General Authority for Pension and Social Security.

    As per the Ministerial decree No 1215/2005, native workers must be registered with these two agencies. The following documents will be required for this step:

    • Copy of the employer’s passport
    • Copy of the trading license
    • 3 copies of the employment contract
    • Proof that the worker is a citizen of the UAE

    Setting Up a Company in Singapore

    Singapore has a similar process for incorporating a business.

    The cost to incorporate, according to the World Bank, is just 0.4% of income per capita. Setting up a business takes just two steps regardless of your gender. It can take as little as 1.5 days to get a business up and running.

    Online Registration with ACRA

    In Singapore, the Accounting and Corporate Regulatory Authority (ACRA) regulates businesses, public accountants, and corporate service providers.

    Most of the steps involved in registering a business can be done online through Singapore’s Bizfile+ platform.

    The steps involved in registering a business include:

    • Company name application, which is sent online at bizfile.gov.sg (fee of SGD 15 is applied).
    • If the name is available, the application may be approved within minutes. Otherwise, it may take 14 days to 2 months to have the application reviewed and/or approved by a separate agency.
    • Once a name is approved, it will be reserved for 60 days.
    • The application for incorporation process takes approximately 15 minutes to complete online, and will require a fee of GSD 300.
    • The ACRA will issue a notice of incorporation through email.

    Businesses will receive a free copy of their Business Profile through the mail after successfully filing the appropriate incorporation forms and paying the applicable fees.

    The platform allows entrepreneurs to run a name check, register a business, obtain a tax number and apply for goods and services tax (GST). The entire incorporation process can be done online and in less than a day.

    Through the Bizfile+ platform, businesses may also register with the Inland Revenue Authority of Singapore (IRAS) for GST if its annual turnover exceeds SGD 1 million.

    Obtain Employee Compensation Insurance

    Under Section 23(1) of the Work Injury Compensation Act (WICA), Chapter 354 of Singapore, all businesses must maintain an approved insurance policy against all liabilities that the company may incur in respect to any employee employed by the business.

    Corporate Compliance in Dubai and Singapore

    The legal framework in the UAE is a dual-acting system comprised mainly of Islamic shariah and some aspects of conventional law.

    Companies in Dubai must:

    • Appoint a manager through the memorandum of association, or through a separate management contract. Unless stated otherwise in the MoA, the manager will enjoy full powers of the administration, and his acts will be binding to the company.
    • The MoA, which is a contract between the company’s shareholders, includes the registered office address, company activities, profit distribution within the company, shareholder and director details, and share capital.
    • LLCs registered in Dubai must renew their business license and registration with local authorities.
    • All companies must lodge an annual return that includes the address of the principal place of business; the names and addresses of all directors; and the details of shareholders and their shares.
    • All companies must submit financial statements annually, and they must be prepared on the basis of IFRS/IAS. Financial statements should be filed with the Ministry of Commerce if the business is located outside of a free trade zone.
    • Deregistering a company will take at least 6 months.

    Corporate Compliance in Singapore

    Maintaining corporate compliance in Singapore will require the following:

    • The appointment of a resident director.
    • Securing a physical address as a registered address.
    • Registering to pay GST if the business earns more than SGD 1 million.
    • The appointment of a company secretary within 6 months of registering the business.
    • The appointment of an auditor within 3 months of incorporation unless the company has fewer than 50 employees, total assets are less than SGD 10 million or annual revenue is less than SGD 10 million.
    • The filing of certain documents:
      • Financial statement audit
      • Annual tax return
      • Financial statements
      • ACRA filing of the company's annual return
      • Chargeable income

    Businesses are also required to maintain a hardcopy or digital register of controllers.

    Availability of a Trained Workforce in Dubai and Singapore  

    According to an annual survey by the Dubai Statistics Centre, Dubai has 2.7 million workers. Employment for 2017 hit 2,778,000, with 53.6% of the workforce being female.

    The UAE government has made education a top priority as part of its effort to promote economic growth outside of the hydrocarbons sector. Through its investments, the government has improved educational attainment rates and established a high-quality education system.

    Singapore also makes education a priority, which ensures a highly skilled and trained workforce. Every Singaporean over the age of 25 receives SGD 500 for skills training of their choosing through the SkillsFuture program.

    Singapore's unemployment rate is among the lowest in the world at about 2%, and the per-person gross domestic product is over 300% of the global average.

    In the PISA, children in Singapore regularly score among the top students in the world. An educated youth leads to an educated, highly-skilled workforce in the future. Both Singapore and Dubai offer business-friendly environments that make it relatively easy to launch and run a business. It’s important to weigh the pros and cons of each destination before making a final decision on where to incorporate.

  • Variable Capital Companies – New Legislation in Singapore

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    Singapore's Funds Industry is changing thanks to the Variable Capital Companies Bill that was passed by the parliament on October 1, 2018. Variable Capital Companies (VCC) is a corporate identity of sorts, but it’s not founded under the Companies Act.

    Rather, a VCC is founded under the VCC Act, so different laws will apply.

    When a VCC is formed, it’s possible to form the entity as a:

    • Standalone fund
    • Umbrella fund

    Standalone funds are funds that can only have one fund, but an umbrella fund can be a subset of funds, with each having its own assets.

    Under the formation of a VCC, the entity will be allowed to have:

    • Shareholders
    • Fund managers regulated by the MAS
    • Custodian of assets (required in some circumstances)
    • Board

    A VCC’s board is essentially a board of directors. The board will have fiduciary duties, and it’s the responsibility of the board to act in the best interests of the company.

    Why VCC’s Are Needed, and The Advantages They Offer

    Traditional incorporation is limited when a fund is setup, and a main issue is the place of domicile. Restrictions on funds have led to many would-be funds to be incorporated in other jurisdictions, even when the fund is managed in Singapore.

    This is a lot of extra “red tape” for a fund, but it has become a necessity under the Companies Act.

    VCC funds allow for a new fund structure in Singapore, which allows for funds to be created without all of the “red tape” and limitations. This allows for the country to offer funds that are similar to other jurisdictions where funds tend to migrate to despite management remaining in Singapore.

    Investors will have more choices, and funds will be able to stay in Singapore thanks to the VCC.

    From an advantage standpoint, these funds also allow for:

    • Re-domiciliation
    • Cost efficiency
    • Greater flexibility

    Flexibility is what many funds have been lacking under the Companies Act. But under the VCC, there is far more flexibility keeping these funds within Singapore. Funds can now be open-ended or closed-end. What does this mean?

    • Investors can redeem their investment in the fund (open-ended)
    • Investors are restricted when trying to redeem their funds (closed-ended)

    Investors will be able to invest in either fund type, and this is advantageous. When speaking of a closed-ended fund, this is a fund, such as a venture capital or private equity fund, where there are fixed shares and the ability to redeem investments has restrictions.

    Shareholder approval to redeem shares is not required, depending on the issuance, so it’s possible for investors to enter and exit a fund whenever they see fit. VCCs will also be able to pay shareholders differently.

    Dividends will be able to be paid out of the company’s capital rather than out of profits only.

    Capital reduction restrictions are not in place with a VCC as they are with a traditional company. Fund managers will have further flexibility when dispersing dividends as a result of the capital reduction lift that VCCs offer.

    Accounting Standards of a VCC

    VCCs have options when it comes to accounting, so it’s possible to choose among different accounting standards. What does this mean for a fund? A few things.

    • Singapore standards can be used
    • International Financial Reporting Standards can be used
    • US Generally Accepted Accounting Principles can be used

    Recognized international accounting standards can be employed. This is of the utmost importance because it allows the fund’s accountants to use standards that they have the most experience with using.

    The needs of the investor are better served as a result, too.

    Fund managers will be able to view and choose an accounting standard that is best for investors or jurisdictions where assets are located. When a fund is trying to lure investors from another country into the fund, different accounting standards may offer additional benefits.

    When using a VCC, it’s possible to have an advantageous accounting standard that is not possible under the Companies Act.

    There are also scale and cost efficiencies that can be met thanks to the new structure.

    Cost Efficiencies Realized

    Cost efficiencies and savings can also be realized under a VCC that is not possible under the Companies Act. A few of the cost benefits that may be realized are:

    • Sub-funds, or those that are created under an umbrella fund, can have the same:
      • Custodian
      • Fund manager
      • Board
      • Auditor
    • Safeguards for all sub-fund assets from other fund liabilities
    • Sub-fund wound up must be done separately

    Sub-funds are safeguarded under the new Act, and this is one of the biggest potentials of a VCC. When a sub-fund goes insolvent, only the assets of the fund will be impacted. This means that other sub-funds under the umbrella cannot be used to discharge liabilities of another fund.

    Safeguards protect each fund, which must be wound up separately.

    Transfer of Foreign-Domiciled Funds

    Foreign-domiciled funds are now able to be re-domiciled to Singapore. These funds can be put into a VCC, but there must be a regulatory framework within the jurisdiction that allows for a similar type of fund or vehicle to be created.

    Under the Companies Act, funds that were of the CA-type could be re-domiciled, but no other fund had this option.

    Restrictions on transferring of funds kept many funds from re-domiciling into Singapore, an option that may have been cost beneficial for the fund. Restrictions under the Companies Act also dictated the size of the fund, which would have to be “larger than a small company.” The main issue is that most funds are small in size, so this stopped a lot of foreign funds from choosing to be transferred.

    The small company requirement no longer needs to be met.

    The potential for the number of funds that can be transferred to Singapore has now increased as a result. It's important to realize that the new Bill will allow for similarly structured funds that are similar to a VCC will have a much easier time transferring to Singapore under the new Act.

    It's also possible that a fund restructures before re-domicile so that they can enter Singapore as a VCC.

    Singapore has also made provisions for assets and liabilities of a fund be transferred to a new VCC. This will allow a fund that is not structured like a VCC to transfer all of their assets and liabilities without structural issues holding the process up.

    Fast and efficient, the transfer can be done through a simple registration process.

    When a re-domiciliation does occur, it does allow for the fund to:

    • Retain its identity
    • Retain its fund history

    Funds that were created outside of Singapore and that have chosen to utilize Singapore’s experienced fund managers may have more of a benefit to re-domicile the fund.

    The Variable Capital Companies Act is not yet enforced, and the Act will be in force in 2019. What is beneficial about the VCC framework is that it allows for many of the same features that the Companies Act offers while catering to the needs of investment funds.

    This means that:

    • The MAS will be in charge of meeting the anti-laundering and countering obligations.
    • The Act will be administered by the Accounting and Corporate Regulatory Authority.
    • A register of shareholders will need to be kept, and the register will need to be furnished upon request. However, the register does not need to be made public unless a request is made.

    Singapore’s fund ecosystem is expected to grow as a result of the VCC. The VCC helps bridge the gap that has caused many investment funds to incorporate in other jurisdictions because the framework has not been beneficial for funds.

    Now, the VCC allows for a new framework where funds can be set up in Singapore.

    Re-domiciliation of foreign funds is also expected to help boost the ecosystem, creating a more robust fund environment.

    Several professionals that familiarize themselves with the Bill and the new VCC structure will benefit, too. These professionals include:

    • Accountants
    • Lawyers
    • Tax professionals

    Accounting professionals will have increased responsibilities for their clients. These professionals will need to help their clients choose the best accounting standard as well as support their clients with their financial statements using numerous accounting standards.

    Administrative burdens of fund managers in Singapore will also be alleviated.

    The VCC framework is going to change the way that funds are created and re-domiciled in Singapore, and it’s important that all servicing professionals understand the benefits of the VCC and how it will change investment funds.

    VCC introduction to Singapore will be a “game changer” for the fund management industry, and it will complement and expand fund structures currently available. Safeguards for investors are in place, thanks to the Monetary Authority of Singapore regulating fund managers. Gall funds will be subject to anti-money laundering and terrorist financing requirements, too.

    The change is expected to boost the country’s economy, creating up to 1,000 new jobs in the next two years.

    Singapore-based companies will also be able to benefit financially from the new corporate structure, so it’s a win-win for the economy, fund professionals and investment funds in Singapore.

  • Taiwan vs Singapore a Comparison - Sandhurst

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    Taiwan and Singapore are two popular, optimal choices for an offshore financial centre.  The two countries have their own benefits and drawbacks, but they remain two of the top destinations for offshore financial centres.

    Taiwan as an Offshore Financial Centre

    Taiwan is often considered an “unnoticed Asian tax haven,” and the country is very “modern.” A natural person or a foreign investor can setup a company in the country. You'll be able to choose among the following business entity types:

    • Limited Liability Company
    • Branch Office
    • Representative Office
    • Subsidiary Company
    • Company Limited by Shares

    When setting up a company, you’ll have to provide 3 – 5 company names, which will all undergo a preliminary check by the government to ensure that no conflicts exist. All of the names will need to be provided in Chinese.

    If a name is already in use, you may be able to add additional words to it to make it unique.

    Import/export registration is available as well, and this would allow for a formal English name to be used for the company.

    Opening a business in the country takes just seven steps, and it’s easiest to use a professional firm to help you with the process. These steps include:

    • Preparing all of your legal documentation
    • Picking your business address
    • Picking your business items
    • Choosing and reserving a company name
    • Preparing your company seal
    • Remitting capital and opening your first company bank account
    • Picking a responsible person

    For the purpose of this article, we’ll assume a company is being formed, and this will require:

    • Key people to be assigned
    • An application for approval of foreign investors submitted to the Investment Commission of the MOEA
    • CPA certification that the capital invested is adequate
    • Application sent to the MOEA to examine and certify foreign equity investment
    • Register as a tax-paying entity
    • Apply for any required licensing
    • Apply for any required health or labor insurance

    Annual documents are required, depending on the entity chosen, which may include:

    • Business report
    • Balance sheet
    • Profit and losses statement
    • Changes in shareholders’ equity
    • Statement of cash flows
    • Allocation of net income and retained earnings proposal

    Non-resident companies are only taxed on income derived from Taiwan sources, but resident companies are taxed on worldwide income.

    Corporate tax rates in Taiwan were a flat 17% for a long time, but as of January 1, 2018, this rate was raised to as much as 20%. Taxable income up to TWD 120,000 is exempt, but afterward, a 20% rate is applied.

    Tax rates are adjusted to 18% (2018) or 19% (2019) if taxable income is less than TWD 500,000. Non-resident companies are only taxed on income derived from Taiwan and would follow the same tax structure as mentioned above.

    Double taxation treaties also exist with 28 other countries, including Singapore, UK and Germany.

    Tax compliance is ranked the 30th easiest in the world, so Taiwan is a great option for doing business.

    Taiwan’s workforce is highly skilled, and there are labor rights and safeguards aimed at protecting employees. The Labor Standards Act sets labor conditions in the country, and the minimum wage in 2018 is NTD 22,000 per month.

    Social security and pensions are available, and there are also fringe benefits that all companies must provide to their employees. Workers’ compensation is also required.

    Taiwan's population has swelled to over 23 million people, and it exists as a thriving democracy with a highly attractive export market. Taiwan is a centre of excellence, and it has high standards for IT, technology and science.

    Literacy stands at over 80% in the country, and 95% of students continue their education past the age of 15 when compulsory schooling ends. Around two-thirds of students taking the national university entrance exams will be accepted into a higher education program.

    A concern in the country is that the population decline will continue, and by 2023, it’s projected that the number of higher education enrollments will drop by a third. This will have a major impact on the availability of a skilled workforce.

    As it stands today, Taiwan offers a vibrant economy and ample labor force that can help fill the ranks of an offshore financial centre. The decline in population will remain a real concern, with the possibility that workforce scarcity may drive up salaries and cause immense competition in the workforce.

    Singapore as an Offshore Financial Centre

    Singapore is slated to overtake the United Kingdom as the second-largest offshore financial centre in the world. Estimates suggest that $1.7 trillion in offshore money will be kept in the country by 2020.

    Switzerland still remains the leader in offshore financial centres.

    The Singapore government has done a lot to make it easy to incorporate a business in the country and remain compliant.

    Comprehensive double taxation avoidance agreements are also in place, with over 50 agreements to date. There are a multitude of free trade agreements, and strict enforcement of intellectual property makes it a great choice for startups.

    When registering a business, the entity’s name must be approved before incorporation. This is the same premises in Taiwan, and the idea is simple: a business name needs to be approved so that no confusion over the name exists. This is a safeguard that the government offers in an effort to ensure that businesses don’t infringe on the trademarks of another entity.

    Once approved, you’ll also need to do the following before registering your company:

    • Appoint at least one resident director
    • Create or appoint a physical Singapore registered address
    • Paid-up capital of a minimum of S$1 must be provided to register the company

    When a non-Singapore resident would like to incorporate in Singapore, by law, it is required that the registration of the business be conducted by a professional firm. The professional firm will guide all business owners through the process and explain any future steps that need to be taken for the business to remain compliant.

    If an owner plans to move to the country, additional requirements must be met. This will include obtaining one of the following:

    • Entrepreneur Pass
    • Employment Pass

    Name approval can take a few days or weeks, and this is the longest part of the registration process. The base registration process may be completed in as little as a few hours in some circumstances.

    Annual filings are required in Singapore, and all licenses must be kept current. The annual filings will include:

    • Financial statements
    • Chargeable income filing
    • IRAs filing of your annual tax return
    • ACRA filing of your annual return
    • Annual general meeting
    • Financial statement audit

    The financial statement audit depends on how many employees the business maintains as well as the amount of annual income earned. Not all entitles will need to undergo a financial audit.

    Within six months of incorporation, you’ll need to appoint a qualified company secretary.

    Once incorporation is complete, you can open a bank account at any major bank in Singapore. Business licenses will need to be obtained for most business activities, but the professional firm assisting with registration will be able to assist you in this matter.

    Companies that expect to have revenue of S$1 million or more will need to register to pay Goods and Services Tax. This tax, which stands at 7%, will be charged to the client as a tax for the goods or services provided.

    This tax is the same as a VAT or sales tax in other countries.

    Taxes are very friendly and straightforward. The first S$300,000 in annual profits will pay less than 9%. Annual profits after the S$300,000 mark will be subject to a flat tax percentage of 17%.

    Singapore’s workforce is considerably small with just 5.7 million people.

    While the workforce may be small, this doesn’t mean that it’s not a vibrant workforce. The smaller workforce has a great education system that focuses on high achievement. Often considered “go-getters,” the workforce focuses on being lean and:

    • Adopting new technology rapidly
    • Innovating at a faster pace
    • Keeping productivity at high levels

    Labor force participation is over 67% in the country, and females are increasingly entering the workforce. More than half, or 54.6% of people in Singapore has a diploma or hold a degree of some sort.

    Singapore has one of the lowest tax rates in the world, and that is what has helped the country move up as one of the top financial centres in the world.

    There are ample reasons to start an offshore financial centre in both Taiwan and Singapore. Taiwan has a larger workforce, although there are fears that the workforce is shrinking. This shrinking workforce needs to be offset to allow the country to remain a reliable choice for an offshore centre.

    While the workforce is substantially smaller than Taiwan, Singapore continues to impress with a very high level of the workforce holding a degree of some sort. There is also the key benefit that the workforce has been adopting new technology at a fast pace, and productivity has remained a key point in the country’s work environment.

    Both countries are a great choice for an offshore financial centre, but Singapore may offer an easier business setup and maintenance.

  • Puerto Rico vs Singapore a Business Comparison

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    Puerto Rico, a tax haven for the wealthy, and Singapore, ranked among the most prominent offshore financial centres in the world. Both regions provide benefits to new businesses and those looking to expand operations overseas.

    Puerto Rico as an Offshore Financial Centre

    Puerto Rico has developed a reputation as being a haven for the ultra-wealthy, but there’s a reason why so many entrepreneurs and businesses are moving to the island: it offers tremendous tax benefits.

    The United States is one of the only remaining countries that taxes its citizens no matter where in the world they live – unless they denounce their citizenship. Puerto Rico, an unincorporated U.S. territory, is the only place where U.S. citizens can avoid federal taxes without giving up their U.S. citizenship.

    But Puerto Rico also offers other benefits for businesses and has long been considered an offshore financial centre.

    Along with a streamlined registration process, taxes are favorable and the workforce is skilled. Intellectual property is protected by U.S. law, and all goods manufactured in Puerto Rico receive a “Made in the USA” sticker.

    Setting Up a Business in Puerto Rico

    Puerto Rico recognizes several entity types, including:

    • Sole proprietorship
    • Partnership
    • Limited liability company (LLC)
    • Limited liability partnership (LLP)
    • Corporation

    Choosing an entity type is the first step in launching a business in Puerto Rico. Additionally, it must be decided whether the business will be taxed as an individual, a corporation or apply for decrees.

    Once an entity type is chosen, the business must register with the Puerto Rico Department of State and with the Internal Revenue Service (IRS) to obtain an Employer identification Number.

    Next, the business must register with Hacienda as a taxpayer. The business may also register online for the Sales & Use Tax (IVU) to receive its Merchant Registry instantly.

    After finding a location to do business, the company must register with the Municipalities to obtain a Use Permit. Additionally, the business must register with the Municipality for the Volume of Business tax as well as the Municipal Sales & Use Tax (IVU Municipal).

    If hiring employees, the company will need to register with the Department of Labor and Human Resources and/or the State Insurance Fund.

    Yearly Corporate Compliance

    • All businesses operating in Puerto Rico must register with the Compulsory Business Registry by July 15th each year.
    • Accounting and financial records must comply with the General Accepted Accounting Principles.
    • Businesses in Puerto Rico that bring in revenue of more than $300,000 must retain the services of a licensed CPA (chartered public accountant) to file their business returns, financial statements, property tax and income tax.
    • Businesses, with the help of their CPA, must file an annual balance sheet and corporate report.
    • Businesses must subscribe to a workmen’s insurance policy.

    Taxes

    Doing business in Puerto Rico offers tax advantages thanks to the passage of Act 20 and Act 22, including:

    • 4% income tax rate
    • 100% tax exemption on distributions from profits and earnings
    • 90% exemption from personal property taxes for certain business types
    • 100% exemption from income tax on interest, dividends and capital gains for residents
    • 100% property tax exemption for the first 5 years for some startups
    • 60-90% municipal tax exemption for qualified businesses
    • 50% tax credit on research and development expenditures

    Companies that manufacture plant or taxable resale items can fill out a Certificate of Exemption to avoid sales and use tax. The document is valid for three years.

    Ease of Doing Business

    According to the World Bank, Puerto Rico ranks 60 among 190 economies when it comes to ease of doing business.

    Getting credit is relatively easy in Puerto Rico compared to other countries.

    Trained Workforce

    Puerto Rico offers a skilled and trained workforce at a lower cost. The average wage in the country is $28,740 per year compared to $49,630 in mainland U.S.A.

    Puerto Rico produces 22,000 STEM graduates each year, according to the Puerto Rico Science, Technology and Research Trust.

    Singapore as an Offshore Financial Centre

    Singapore’s close proximity to Indonesia, China and other large markets has helped make the country one of the fastest-growing offshore financial centres in the world – ranking only behind Switzerland.

    Singapore’s business-friendly environment has made it a haven for foreign entities and entrepreneurs.

    Setting Up a Business in Singapore

    Singapore has taken great strides to make incorporation as easy as possible.

    First and foremost, a business name must be approved before proceeding with formal incorporation. The name approval process can take up to a few weeks and is the longest part of the registration process. Once the name is approved, the business must:

    • Ensure that it has a physical, registered address in Singapore
    • Appoint at least one director, who must be a resident of Singapore
    • Have paid-up capital of at least S$1

    Foreigners who wish to register a business in Singapore must do so, by law, through a professional firm. The firm will guide the business owners through the process of incorporation and explain the steps the company must take to remain compliant.

    Additionally, the owner may need to obtain either an employment pass or an entrepreneur pass if the goal is to move to the country.

    Yearly Corporate Compliance

    Singapore requires all businesses to submit annual filings, which must include:

    • IRAs filing of your annual tax return
    • Financial statements
    • Financial statement audit
    • ACRA filing of your annual return
    • Chargeable income filing
    • Annual general meeting

    The financial statement audit will be dependent on how many employees the business has and the amount of annual income generated by the business. Some businesses may be exempt from financial audits.

    Other compliance rules include:

    • All businesses must appoint a company secretary within six months of incorporation.
    • Most business activities require specialized business licenses.
    • Companies that generate excess of S$1 million will need to register to pay Goods and Services Tax (GST), which is 7%. GST is similar to VAT or sales tax.

    Taxes

    Singapore maintains double taxation agreements with more than 50 countries and free trade agreements with several other countries.

    Resident Singapore companies are eligible for a partial tax exemption, which translates to:

    • 8.5% tax rate on taxable income up to S$300,000 per year.
    • 17% tax rate on taxable income over S$300,000 per year.

    Singapore also offers several tax schemes that help businesses enjoy lower tax rates.

    Start-up Tax Exemption (SUTE) Scheme

    • $100,000 in taxable income: 0% tax rate
    • $200,000 in taxable income: 2.55% tax rate
    • $300,000 in taxable income: 3.4% tax rate
    • $400,000 in taxable income: 5.10% tax rate
    • $500,000 in taxable income: 7.2% tax rate
    • $1,000,000 in taxable income: 12.10% tax rate
    • $2,000,000 in taxable income: 14.55% tax rate
    • $3,000,000 in taxable income: 15.37% tax rate
    • $5,000,000 in taxable income: 16.02% tax rate
    • $10,000,000 in taxable income: 16.51% tax rate

    To be eligible, the company:

    • Must have no more than 20 individual shareholders
    • May not have an individual hold at least 10% of the issued shares (for corporate shareholders)

    Property and investment holding businesses are not eligible for this scheme.

    Partial Tax Exemptions

    Companies that do not qualify for the SUTE scheme will be eligible for the partial tax exemption, which is as follows:

    • $100,000 in taxable income: 4.85% tax rate
    • $200,000 in taxable income: 4.97% tax rate
    • $300,000 in taxable income: 5.02% tax rate
    • $400,000 in taxable income: 6.77% tax rate
    • $500,000 in taxable income: 8.82% tax rate
    • $1,000,000 in taxable income: 12.91% tax rate
    • $2,000,000 in taxable income: 14.95% tax rate
    • $3,000,000 in taxable income: 15.64% tax rate
    • $5,000,000 in taxable income: 16.18% tax rate
    • $10,000,000 in taxable income: 16.59% tax rate

    Avoiding Double Taxation

    The Inland Revenue Authority of Singapore (IRAS) provides a foreign tax credit (FTC) scheme which allows the business to claim a tax credit for taxes paid to a foreign country against the Singapore tax that is payable on the same income.

    Two types of tax credits are available:

    • DTR (double tax relief): Singapore participates in more than 20 free trade agreements, and 74 comprehensive and 8 limited Avoidance of Double Tax Agreements.
    • UTC (unilateral tax credit): Applies to foreign tax paid by Singapore tax residents in countries where there are no double tax agreements.

    UTC may only be used when repatriated income is generated by:

    • Dividends income.
    • Royalty income not borne by a resident or permanent establishment in Singapore, or is not deductible against income derived or accruing in Singapore.
    • Employment income.
    • Income from consultancy, professional and other services.
    • Branch profits.

    Ease of Doing Business

    Singapore ranks number 2 among 190 economies in ease of doing business, according to the World Bank’s ratings. Singapore is second to New Zealand and just ahead of Denmark on the list. By comparison, Puerto Rico ranks 60.

    Trained Workforce

    Although Singapore’s workforce is small – just 5.7 million people – workers are educated and skilled. With an education system that focuses on high-achievement, Singapore is quick to adopt new technologies and strives for innovation.

    More than 67% of Singapore’s population is working, and more than half have completed higher education.

    Puerto Rico and Singapore both offer advantages for businesses. Singapore’s business-centered environment may be favorable for start-ups and expansion. But Puerto Rico offers tax benefits that are hard to beat, particularly for American businesses.

  • Mauritius vs Singapore As An Offshore Financial Centre

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    Mauritius offers a free market, attractive tax regime and is one of the most developed countries in Africa. The country is reportedly trying to become the “new Singapore,” and this being done through an easy business formation process.

    Low tax rates are also in effect, offering an attractive alternative as an offshore financial centre.

    Let’s see how Mauritius compares to Singapore.

    Mauritius as an Offshore Financial Centre

    Mauritius wants to be a trade and investment hub, and it’s looking to guide African investors to its shores. The plan will be to cater to the elite in Africa, with tax treaties and benefits that are too advantageous to overlook.

    Setting Up a Business in Mauritius

    Often ranked as the easiest country in the region to do business, there are numerous benefits of a financial centre in Mauritius:

    • English and French are widely spoken
    • The island is politically stable
    • User-friendly legislation exists

    Multiple business types exist:

    • Domestic Company
    • Authorized Company
    • Company holding a Category 1 Global Business Licence (GBC1)
    • Company holding a Category 2 Global Business Licence (GBC2)

    Companies may be limited by:

    • Shares
    • Guarantee
    • Shares and guarantee

    There are public and private companies as well as a limited life company and an unlimited company. A one-person company may also be formed, but within a six-month period, a secretary must be appointed in the event that the sole shareholder dies.

    Companies wanting to reduce global earning taxation will often opt to create a GBC2 company, but a GBC1 entity may be a good option in certain situations.

    When creating a GBC1, the fees and requirements are more stringent, but there are benefits.

    Mauritius allows double taxation avoidance treaties as well as options for financial services, which are tax-beneficial.

    Forming a GBC2

    GBC2 companies can be setup as an offshore entity with:

    • US$1 in capital
    • One director
    • One shareholder
    • Resident registered agent

    GBC2 are set to become abolished in 2019, but the entity does allow for legal exemption of the following in Mauritius:

    • Corporate tax
    • Capital gains tax
    • Withholding tax

    Forming a GBC1

    The GBC1 entity is a great option for holding activities, and this would include financial services. This entity type requires:

    • US$1 in capital
    • One shareholder
    • Two resident directors
    • Corporate bank account

    The GBC1 entity can trade with locals, while the GBC2 cannot. Taxation is very low for this entity, much lower than in most countries.

    Authorized Company

    An authorized company is not considered a resident company, so there are no corporate taxes assessed on net profits. The business can be created with just:

    • US$1 in capital
    • One director
    • One shareholder
    • Resident registered agent

    Limited Liability Company

    A limited liability company, LLC, is a great option for some, and this will require:

    • One shareholder
    • US$1 in capital
    • One resident director

    LLC companies are restricted in the tourism industry, and this entity is often optimal when businesses are going to operate a local business with staff that is local and trade is with residents. Otherwise, GBC1 will be the optimal choice.

    Yearly Corporate Compliance

    Yearly compliance requires a resident registered agent in the country, and requirements change depending on the type of business formed. A GBC2 entity does not require:

    • Annual financial statements
    • Corporate tax
    • Capital gains tax
    • Withholding tax

    But the GBC2 entity must provide a financial summary every year to the Mauritius Financial Services Commission.

    Authorized companies will need to file an income return with the Mauritius Revenue Authority and also maintain a resident registered agent.

    LLCs will have to file annual statements and will have to pay Mauritius corporate tax.

    Taxes               

    Taxes will vary greatly by entity, and they are as follows:

    GBC2

    • Exemption from corporate, capital gains and withholding tax

    GBC1

    • 3% taxation on global earnings

    Authorized Company

    • Does not pay corporate tax on net profits

    LLC

    • 15% flat tax rate

    Resident companies, as well as an LLC, will pay the traditional corporate tax rate of 15%.

    Ease of Doing Business

    Starting and doing business can take just hours after registering, and annual requirements are minimal. The island is very open to making it easy for companies to operate, and they have made legal reforms that allow small and medium-sized entities grow faster.

    Lack of capital gains tax and low tax rates, along with online filing options make doing business easy in Mauritius, especially when compared to mainland Africa.

    Trained Workforce

    Mauritius is a very welcoming country, and nearly a million tourists visit the country annually. Finance and business outsourcing are becoming a large source of GDP, and it’s a cultural melting pot.

    The multilingual workforce makes the country a great choice for a financial centre, with French and English widely spoken. Financial and legal personnel are in abundance. Men account for around 66% of the workforce, and female employment is on the rise.

    Unemployment was 7.3% in 2016, and youth and women have the highest unemployment rate.

    There is a shortage of middle management and technical employees, but a National Program was enacted to help fill the gap.

    Singapore as an Offshore Financial Centre

    Singapore is known for offering a business-friendly environment, and the government has worked to make the country one of the top offshore financial centres in the world.

    Setting Up a Business in Singapore

    Singapore makes it easy to start a business, and the process is straightforward. The country’s double taxation avoidance agreements and free trade agreements make business affordable in the country.

    All entities need to have:

    • Entity names approved before incorporation
    • One resident director
    • Registered Singapore address
    • S$1 in paid-up capital
    • Professional firm formation (required for non-residents)

    All non-residents must have a professional firm in Singapore form their business. This step, while it may add to the cost of incorporation, allows for a fast, law-abiding means of starting a business in Singapore.

    Owners that move to the country will need to obtain an Entrepreneur or Employment Pass

    Licenses may be required, depending on the business being conducted.

    Yearly Corporate Compliance

    Corporate compliance is also very easy, and this will include the following:

    • Chargeable income filing
    • Annual tax return filed with the IRA
    • Annual return filed with the ACRA
    • Annual general meeting
    • Financial statements
    • Financial statement audits
    • Qualified company secretary appointed within six months of incorporation

    Companies may also need to register for Goods and Services Tax (GST) if the turnover exceeds the one-million mark. Depending on the business activity, the business may be required to obtain and maintain certain licenses.

    Taxes

    Taxation is low in Singapore, and the first S$300,000 will have a tax rate of less than 9%. When profits exceed this amount, a flat rate of 17% is assessed. GST tax rates are 7%, and this would be what other countries pay as VAT or sales tax.

    The low tax rate is still higher than Mauritius in many cases, especially when net profit is over S$300,000.

    Ease of Doing Business

    Singapore has a very well-developed government, and the country's business environment is very robust. It's easy to do business in the country, and this is due to the country establishing three main agencies for business:

    • Legal Services Regulatory Authority
    • Monetary Authority of Singapore
    • Enterprise Singapore

    Yearly compliance requirements are minimal, and the flat tax rate is a key reason for many companies starting an offshore financial centre in Singapore. The robust business environment in the country is one of the key reasons that Singapore has grown into one of the top places of incorporation for an offshore financial centre.

    Trained Workforce

    Businesses that will keep a physical presence in Singapore and leverage the workforce will benefit from one of the best education systems in the world. Singapore is known for being on the top of the world’s education rankings, and this is due to strict education requirements for all youths.

    Math, reading and science remain the three subjects that the country excels in.

    A population of 5.79 million makes Singapore’s available workforce much higher than Mauritius, and this allows for a higher number of potential employees. The country has what many consider a vibrant workforce, and this is a workforce that is known to:

    • Innovate quickly
    • Change and add new technology
    • Focus on productivity

    Over 50% of the country’s population has a diploma or degree, and there is more than 67% of people in the workforce. This is advantageous to businesses that will be looking to hire locals to fill their ranks.

    Low tax rates and a well-educated population means that the country’s workforce can fill most positions with ease.

    Mauritius and Singapore both have their advantages. While the different types of business entities are beneficial in Mauritius, this also leads to confusion when not using a professional firm for incorporation.

    Singapore’s straightforward incorporation is very beneficial, but the incorporation process, while fast, is still not as quick as it is in Mauritius.

    Workforce-wise, Singapore has the advantage, but Mauritius has the lower overall tax structure even at the highest corporate tax rate of 15% versus Singapore’s 17% top tax rate. The optimal location to incorporate an offshore financial centre will depend on a variety of factors, including double taxation avoidance agreements with an owner’s resident country.

Copyright 2018