Singapore Fact-File Part 4:
Individual Business Tax-Efficient Structures

4.3 Singapore Individual Business Use Of Offshore

Tax-efficient structures involving offshore jurisdictions

Due to the territorial nature of Singapore’s tax regime, there are not really any tax efficient structures involving offshore jurisdictions that are likely to be of benefit to small business owners in Singapore; there is no distinction for corporate tax purposes between offshore and Singapore-based companies, and if a company incorporated offshore is judged to be doing business in Singapore then it will be taxed on income related to that activity, if it is doing business elsewhere then the income in question will not be taxable in Singapore.

Using offshore jurisdictions

In terms of tax efficiency, Singapore is pretty hard to beat. However, Hong Kong is another regional leading light, and may be worth considering for the small businessperson in Singapore looking to go ‘offshore’ for purposes other than tax efficiency.

Although Hong Kong’s trust law, the Trustee Ordinance, has traditionally been viewed as a bit outdated, therefore often ruling the jurisdiction out as an attractive location for an asset protection trust, changes have been proposed to modernise the trust regime, and attract more settlors, both domestic and international.

Among the changes being made to the Trustee Ordinance and the Perpetuities and Accumulations Ordinance are:

• The introduction of a statutory duty of care for trustees;
• The granting of powers to trustees to appoint agents, nominees and custodians, subject to certain safeguards, and in the absence of any indication to the contrary in the trust documents;
• The granting of powers to trustees to insure against loss or damage of trust assets (again, subject to any indications to the contrary), and to pay the premium out of the trust fund;
• The introduction of a statutory charging clause allowing professional trustees to receive remuneration;
• A provision that the reservation of certain powers by the settlor with regard to investment and asset management will not invalidate the trust, and that the trustee will not be liable for acting in accordance with said reserved powers.
• The updating of the list of authorised investments contained in the second schedule to bring it into line with market trends, and to make it less prescriptive;
• The amendment of the Perpetuities and Accumulations Ordinance by repealing the rules against perpetuity with regard to new trusts, and additionally the repeal of the rules against excessive accumulation of income, also with regard to new trusts.

The proposals are going before the Legislative Council in the 2010/11 legislative year.

In terms of incorporating in Hong Kong, there are no specifically ‘offshore’ vehicles, but the territorial tax system also in place in the SAR makes the establishment of an ordinary incorporated entity a fairly attractive prospect for the independent business person.

Limited companies are liable to profits tax of 16.5% on profits arising in Hong Kong. The tax year runs from 1 April to 31 March. A tax assessment based on the previous year’s profit is payable in two instalments, the first being 75% (due by the third quarter of the year) and three months later, the final 25%.

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