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In today’s global economy, more entrepreneurs are looking to expand their business operations or begin a new business venture than ever. One of the most attractive markets is Singapore due to its business-friendly climate, low corporate tax rates, and skilled workforce. We are going to give an overview of things that you need to consider from a tax standpoint so that you can make the best decision when starting a business in Singapore as a foreigner.
US persons are subject to tax on worldwide income and have additional information reporting requirements when they have an ownership interest in a foreign enterprise. The US tax code previously allowed tax-deferred treatment to international corporations that earned income primarily within the borders of the foreign country they incorporated.
This deferral treatment ended as a part of the tax reform bill, commonly referred to as the TCJA (Tax Cuts and Jobs Act). Profits from international corporations are now subject to US tax using the same tax rate that would apply to the owners. Since Singapore has a lower tax rate than the US, this is an essential consideration for foreigners starting a business in Singapore.
Before starting a business in Singapore, consider how your entity structure will impact your US taxes. Foreign corporations and limited liability companies will need to prepare the complex Form 5471 to report the activities of the company and figure the amount to carry to the US tax return. If your business in Singapore makes significant investments in assets such as building and equipment, you might be able to avoid taxation. Companies that are structured as sole proprietorships, partnerships, electing limited liability company profit or loss are picked on the owner’s income tax return.
Companies with a single owner will need to file Form 8858 to show the activity of the company. A partnership will be required to file Form 8865 depending on the actives and or ownership interest. While these forms aren’t as complicated as Form 5471, their preparation is far from simple. A concern for LLCs is determining how the company should be taxed from a US standpoint, and this requires a deep understanding of one of the US tax code and the company operations to make the right determination.
The first thing you must do is determine that you are eligible to apply before starting a business in Singapore. In Singapore, a person that has filed for bankruptcy or been involved in certain ligation isn’t allowed to be an owner of a company. Your business needs to have a written business plan that will be sent to the government. You will also need to determine how the business will be run and by who. If you intend to run the business yourself, then you are going to need to apply for an Entrepass. To apply for the pass, you submit a ten-page business plan to the Singapore government for official approval, hold at least 30% share of the company, and make a minimum investment of 50,000 Singapore dollars.
You will be restricted from certain business structures and can only form the company as a Private Limited Company. For current Entrepass owners, you can run the business as a permanent resident if they have worked in Singapore for a minimum of six months under the PTS scheme. Those without the Entrepass can obtain permanent residency status by investing 2.5 million Singapore dollars into a new venture GIP scheme. If you don’t manage the company yourself from Singapore, then you must appoint permitted Singaporean, permanent resident, employment pass holder, or dependent pass holder over the age of 18 as the manager of the company.
You will need to determine the legal entity that you will operate as. The standard options are sole proprietorship, partnership, and limited liability. Once you have made this determination, the next step is to register with the Accounting and Corporate Regulatory Authority. The fee for registering ranges from 50 to 600 Singapore dollars depending on the company type. You will need to disclose company officers, company address, a full description of the business activity and constitution.
In closing, it can be a fantastic opportunity to begin a company in Singapore. You must first have a business plan in order, determine how it will be managed, secure funding, apply for required passes, and assemble organization structure and know your US tax and filing obligation. This process will require hours researching and a sizable influx of cash.
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When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.