As different tax treatment applies to resident and non-resident taxpayers, it is important to determine the residency status of a taxpayer.
Tax Residency for Individuals
The definition of "resident in Singapore" in relation to an individual in s2 of ITA implied that there are 2 mututally exclusive tests to be applied, namely Qualitative Test and Quantitative Test. Where the Qualitative test is not met, there are 2 exceptions or concessions to qualify a foreigner who is employed in Singapore to be a tax resident in Singapore.
QUALITATIVE TEST
In the year preceding the year of assessment (Basis Period), an individual is a resident in Singapore if he resides in Singapore except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Singapore.
"resides in Singapore" - means a degree of permanency in the individual's intent to make Singapore as his/her home. Generally, Singapore citizens are considered to "reside" in Singapore.
"temporary absences" - Factors to consider: * past history of residence, * present habits and way of life, * family and business ties, * house/a place of stay
QUANTITATIVE TEST
In the year preceding the year of assessment, an individual is a resident in Singapore if he is physically present or who exercises an employment (other than as a director of a company) in Singapore for 183 days or more.
"other than director" - where the directors are non-executive directors, only the physical presence test is applicable. However, where the directors are executive directors (i.e working), both the physical presence and the employment test can be applied.
Exception to the Quantitative Test:
Where a foreigner is physically present and exercising employment in Singapore and has failed to meet the quantitative test, the following exception/concessions may qualify him to be a tax resident in Singapore for the relevant years of assessment:
(1) 3-year Administrative Concession: Foreigners who are physically present or working in Singapore for 3 consecutive years can be a tax resident for all 3 years of assessment.
(2) 2- year Administrative Concession: This is applicable for foreign employees who enter Singapore from 1 Jan 2007 and has stayed or worked in Singapore for a continuous period of at least 183 days which straddle over 2 calender years. Such foreign employees can qualify to be tax residents for both relevant years of assessment. Note that the foreign employee can opt not to enjoy the concession BUT he cannot opt to be a resident for 1 year and a non-resident for the other year.
Tax Residency for Companies
According to s2 of the Income Tax Act (ITA), the residency status of a company or a body of person is where the control and management of whose business is exercised.
As the control and management of a company is vested with the board of directors, the place where the board meets is the place where management and control is exercised and not the place where the day-to-day running of the business or the place of incorporation is.
Tax treatment: Resident vs Non-resident Company
Generally, the basis of taxation for a resident company and non-resident company is the same. However, only resident companies can enjoy the following benefits:
- Entitlement to benefits conferred under the Avoidance of Double Taxation Agreements (DTA)
- Entitlement to claim of Double Tax Reliefs (DTR) and Unilateral Tax Reliefs (UTR)
- Tax exemption on foreign-sourced dividends, foreign branch profits and foreign-sourced service income under section 13(8) of the Income Tax Act.
- Tax exemption scheme for new start-up companies.
Tax Residency for Individuals
The definition of "resident in Singapore" in relation to an individual in s2 of ITA implied that there are 2 mututally exclusive tests to be applied, namely Qualitative Test and Quantitative Test. Where the Qualitative test is not met, there are 2 exceptions or concessions to qualify a foreigner who is employed in Singapore to be a tax resident in Singapore.
QUALITATIVE TEST
In the year preceding the year of assessment (Basis Period), an individual is a resident in Singapore if he resides in Singapore except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Singapore.
"resides in Singapore" - means a degree of permanency in the individual's intent to make Singapore as his/her home. Generally, Singapore citizens are considered to "reside" in Singapore.
"temporary absences" - Factors to consider: * past history of residence, * present habits and way of life, * family and business ties, * house/a place of stay
QUANTITATIVE TEST
In the year preceding the year of assessment, an individual is a resident in Singapore if he is physically present or who exercises an employment (other than as a director of a company) in Singapore for 183 days or more.
"other than director" - where the directors are non-executive directors, only the physical presence test is applicable. However, where the directors are executive directors (i.e working), both the physical presence and the employment test can be applied.
Exception to the Quantitative Test:
Where a foreigner is physically present and exercising employment in Singapore and has failed to meet the quantitative test, the following exception/concessions may qualify him to be a tax resident in Singapore for the relevant years of assessment:
(1) 3-year Administrative Concession: Foreigners who are physically present or working in Singapore for 3 consecutive years can be a tax resident for all 3 years of assessment.
(2) 2- year Administrative Concession: This is applicable for foreign employees who enter Singapore from 1 Jan 2007 and has stayed or worked in Singapore for a continuous period of at least 183 days which straddle over 2 calender years. Such foreign employees can qualify to be tax residents for both relevant years of assessment. Note that the foreign employee can opt not to enjoy the concession BUT he cannot opt to be a resident for 1 year and a non-resident for the other year.
Tax Residency for Companies
According to s2 of the Income Tax Act (ITA), the residency status of a company or a body of person is where the control and management of whose business is exercised.
As the control and management of a company is vested with the board of directors, the place where the board meets is the place where management and control is exercised and not the place where the day-to-day running of the business or the place of incorporation is.
Tax treatment: Resident vs Non-resident Company
Generally, the basis of taxation for a resident company and non-resident company is the same. However, only resident companies can enjoy the following benefits:
- Entitlement to benefits conferred under the Avoidance of Double Taxation Agreements (DTA)
- Entitlement to claim of Double Tax Reliefs (DTR) and Unilateral Tax Reliefs (UTR)
- Tax exemption on foreign-sourced dividends, foreign branch profits and foreign-sourced service income under section 13(8) of the Income Tax Act.
- Tax exemption scheme for new start-up companies.
