Tackling Tax Evasion Worldwide

BEPS (Base Erosion and Profit Shifting) practices cost countries 100-240 billion USD in lost revenue annually, which is the equivalent to 4-10% of the global corporate income tax revenue.

Working together in the OECD/G20 BEPS Inclusive Framework, over 130 countries are implementing 15 Actions to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

Dual Residency Status

The residency rules for each country are unlikely to be identical, therefore a person normally resident in one country may also be resident in another country, thus potentially giving rise to dual residency.

Where a DTA (Double Tax Agreement) exists between the two countries, there will be tie-breaker rules to resolve this conflict such that the person will normally be deemed to be resident in only one of the two countries.

Extract of Model Tax Convention Article 4:
1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof.
This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
 a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
 b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
 c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
 d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. 

Tax Residency - Benefits of being a SG tax resident

According to section 2 of ITA (Income Tax Act), the residency status of a company is dependent on the location where the control and management of its business is exercised. As control and management of a company is vested with the board of directors, therefore the place where the board meets is the place where management and control is exercised. 

Question:

Is a Singapore branch of a foreign company a tax resident in Singapore?

Answer:

No.

Benefits of being a resident company:

1. It is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

2. It can enjoy tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of ITA.

3. It can enjoy tax exemption scheme for new start-up companies.