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Is Singapore a Tax Haven?

In recent months, Singapore has been called an “offshore tax haven” in some of the media coverage. This has concerned those who may be considering a move to Singapore – especially Americans who are worried that the US government may give unwarranted attention to their finances if they transact business in a country that is labeled as an “offshore tax haven”.
As this article demonstrates, there is little factual basis to back up this assertion about Singapore.

The media coverage of Singapore’s tax haven status has been fueled by a few specific events that have occurred over the last year; let us review them briefly.

In May, 2012 India’s Ministry of Finance in May 2012, released a paper entitled “White Paper on Black Money”. This report asserted that Singapore accounted for US $11.9 billion in foreign direct investments in India during the period from April 2000 to March 2011. As a result, Singapore ranked as the second largest source of foreign investment in India, right behind Mauritius.

The paper postulated that such a large investment could not have possibly originated in such small economies as Singapore and Mauritius. It then concluded that these investments were merely being routed through Singapore to avoid taxes or conceal information. The report further speculated that with a large number of Indians of Indian origin living in Singapore, it was likely that Indian businessmen were investing in their own companies back in India through Singapore, and thereby bypassing the relevant investment related regulations and taxes in India.

Another event that has resulted in extensive international media coverage of Singapore is the recent exodus of several high-profile billionaires from various parts of the world to Singapore. The most recent example was Eduardo Saverin, the Facebook co-founder who decided to renounce his American citizenship after having already lived in Singapore for the past few years. At around the same time, Australian coal magnate Nathan Tinkler also decided to relocate to Singapore with his family. In late July, Tinkler’s fellow Australian Gina Rinehart, a billionaire with a fortune amassed from mining, set new property records in Singapore after purchasing two luxury condominium units for around S$57 million.

This sudden influx of wealthy individuals from all over the world has prompted analysts to point to Singapore’s low taxes as the main reason for this interest in the country. Singapore has a relatively low maximum personal income tax rate of 20% (compared to 45% in Australia, for example) and corporate tax rate of 17%. Meanwhile, it also has no capital gains tax, no dividend tax and no inheritance tax. Critics also claim that investors can also easily conceal their identities and circumvent the laws in their home countries through Singapore’s business formation and banking systems.

However, potential immigrants looking to relocate to Singapore for work or to set up a business need not worry. No country, including the US, has ever formally accused Singapore of being a tax haven. In fact, given (a) Singapore’s deep economic and political integration with the western economies, (b) its adherence to various international transparency regulations and (c) its strict internal control mechanisms that regulate its business infrastructure, it is very unlikely that it will ever be labeled as such.

In fact, it is the stable and corruption-free business infrastructure that attracts many of the world’s entrepreneurs to Singapore in the first place. Similarly, investors choose to relocate here to manage their wealth and form businesses in Singapore because of the political and economic stability of the country. Furthermore, the country has a very business-friendly environment, and is strategically located close to the two biggest emerging markets in the world – India and China.

Singapore is a major global financial hub. World-class financial centers, where billions in cash and financial instruments trade hands daily, need to be tightly regulated in order to maintain order and stability. Singapore’s banking and financial system is open and transparent, and rules are rigorously enforced.  While these regulations allow bank customers the right to confidentiality of information, they have never been an impediment when it comes to assisting domestic or foreign authorities investigating potential criminal activities. These characteristics of Singapore’s banking system are exactly the opposite of those of a tax haven.

To thwart tax evaders while also providing a fair and efficient system through greater tax cooperation, Singapore has entered into various Double Taxation Avoidance Agreements (DTAA) with other countries worldwide. According to the Inland Revenue Authority of Singapore website, Singapore has DTAAs with a total of 69 countries, along with limited tax treaties with others. This comprehensive cooperation has landed it on the “white list” of the Organisation for Economic Co-operation and Development (OECD) – the well-known international body that has been setup to achieve economic growth in member countries, to contribute to economic expansion, and to increase the expansion of world trade.

Furthermore, the Singapore tax system is not ideal for those indulging in shady deals. A tax haven typically has a tax structure designed to attract enterprises and individuals keen to avoid tax and not requiring substantial local presence by such enterprises and individuals. This is not the case with Singapore where every local business must have at least one local director.
Finally, tax havens typically have no or minimal taxes whereas Singapore taxes both personal and corporate income.

According to the Singapore government, “Singapore’s tax system aims to attract substantial economic activities by keeping the tax burden on enterprises and individuals competitive – businesses are taxed at 17% and the highest individual income tax bracket is 20%.  The tax system underpins a diversified, knowledge-based economy, spanning a wide range of economic sectors.”

Singapore has an extremely efficient and well functioning regulatory system that carefully monitors all aspects of the economy. Singapore’s Prime Minister Lee Hsien Loong, during his most recent state visit to India, added a stern warning that essentially summed it up: “I think shady money would rather go somewhere else rather than risk being scrutinized by our regulators.”

This article is a courtesy of Janus Corporate Solutions, a leading Singapore-based firm that provides comprehensive range of Singapore company formation and Singapore immigration services to business professionals and entrepreneurs worldwide. For more information, visit their website at www.GuideMeSingapore.com.

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