Puerto Rico vs Singapore a Business Comparison
- Posted by admin
- 20 December 2018
- Articles, Company Secretarial
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
- Limited liability company (LLC)
- Limited liability partnership (LLP)
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.
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.
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.
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.
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.