Types of Singapore Business Structures and Taxation

A partner is defined as any person who has been admitted as a partner in the LLP in accordance with the LLP agreement. Every LLP shall have at least two partners.

The partner in an LLP can be an individual, a local company, a foreign company or another LLP.

A manager is defined as any person who is concerned in or takes part in the management of the LLP. Every LLP must have at least one manager who is an ordinary resident in Singapore (i.e. a Singaporean citizen or Singapore PR), a natural person of full age (i.e. at least 18 years old with effect from 1 March 2009) and of capacity.

Non Singaporean citizens can be a manager of a LLP if the person can provide a local residential address and prove that he or she can legally remain in Singapore for a long period of time (i.e. holds an Employment Pass, Approval-InPrinciple Employment Pass).

Under Section 24(1) of the LLP Act, the manager of every LLP is required to lodge a declaration stating whether the LLP is solvent or insolvent (i.e. able to pay off its debts or not).

Under Section 24(2), the first annual declaration must be lodged within 15 months from the date of the registration of the LLP. Subsequent declarations must be lodged once every calendar year and not more than 15 months after the lodgement of the last declaration.

Under Section 25(1) of the LLP Act, the LLP is required to keep accounting and other records which explain its transactions and financial position. The LLP is also required to prepare profit and loss accounts and balance sheets. However these documents need not be lodged with ACRA.

Under Section 25(2), the LLP shall retain the accounting records for five years.

In the event the LLP does not do this, the LLP and every partner shall be prosecuted and the penalty may be a fine or imprisonment, or both.

Income from an LLP will not be chargeable with tax at entity level. Where a partner is an individual, his share of income from an LLP will be taxed based on his personal income tax rate. Where a partner is a corporate, its share of income from the LLP will be taxed based on the prevailing rate for companies.

Each partner's share of capital allowance and industrial building allowance in excess of his income from the LLP, trade loss from LLP and donation will be available for offset against his income from other sources, but subject to relevant deductions.

For partnerships with business turnover of less than S$500,000, the LLP need not submit financial statements when filing their income tax return.

For partnerships with business turnover of S$500,000 or more, the LLP need to submit to the Comptroller of Tax certified true and correct financial statements by the LLP manager.

You can convert your existing partnership to an LLP if the partners of the existing partnership will be the partners of the new LLP. Similarly, you can convert an existing company to an LLP if all its shareholders are going to be the partners of the new LLP and the existing company has no outstanding debts at the time of application for conversion.

The current rate of corporation tax is 17% with effect from Year of Assessment (YA) 2010.

Under the scheme, qualifying new companies are given full exemption on the first $100,000 normal chargeable income* and a further 50% exemption on the next $200,000 of normal chargeable income* for the first three consecutive YAs. The maximum exemption is therefore $200,000 (100% x $100,000 + 50% x $200,000).

*Normal chargeable income refers to income to be taxed at the prevailing corporate tax rate.

The eligibility conditions include:

1. no more than 20 individual shareholders
2. one individual must hold at least 10% of the issued shares (in the case of corporate shareholders)
3. Property and investment holding companies are not eligible

Though SUTE has been extended to include companies by guarantee since 2010, the tax exemption scheme for new startup companies is not extended to investment holding companies and companies engaged in property development activities that are incorporated after February 2013.

This scheme is opened to all companies which do not qualify for SUTE. With effect from YA 2008, a partial tax exemption is given to companies on normal chargeable income (excluding franked Singapore dividends) of up to S$300,000. For the first $10,000 of normal chargeable income, 75% ie $7,500 is exempt from tax. For the next $290,000, 50% is exempt from tax ie $145,000. In other words, for the first $300,000 of normal chargeable income excluding franked Singapore dividends, $152,500 is exempt from tax.

Concessionary tax rates (eg at 5% or 10% or such other concessionary rates) are also available to income of certain approved companies derived by them from qualifying transactions. In certain cases, the income may be fully exempt from tax eg exemption of income of an approved venture company derived by it from making approved investments (S13H). Such concessionary tax rates or tax exemption may or may not have a prescribed qualifying period depending on the specific Act.

Singapore adopted a one-tier corporate tax system with effect from 1 Jan 2003. Under the one-tier corporate tax system, tax paid by a company on its chargeable income is a final tax. All dividends paid by a company are exempt from tax in the hands of the shareholders.

In Singapore, the tax residence status of a company depends on where the control and management of its business is exercised. A company is tax resident in Singapore if the control and management of its business is exercised in Singapore.

Generally, a Singapore branch of a foreign company is not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same. However, there are some benefits that a resident company can enjoy that a non-resident would not. These include:

• It is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.
• It can enjoy tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
• It can enjoy the tax exemption scheme for new start-up companies.

A company is liable to pay tax on income accrued in or derived from Singapore or income received in Singapore from outside Singapore in respect of:

• Gains or profits from any trade or business
• Income from investment such as dividends, interest and rental
• Royalties, premiums and any other profits from property
• Other gains of an income nature

However, a tax exemption is granted to a Singapore tax resident company on foreign sourced dividends, foreign branch profits and foreign sourced service income received in Singapore if certain conditions are met.

In addition to carrying forward of unutilised trade losses and capital allowances to offset future incomes of future YAs and transferring these to related companies (ie group relief), companies can "carry back" current year untilised trade losses and unutilised capital allowances of an aggregate amount up to $100,000. The CAs and losses can be carried back for one YA immediately preceding that YA in which the CAs and/or the trade losses were incurred (with effect from YA2006) to offset assessed tax provided conditions are met.

Singapore has negotiated 81 double tax treaty agreements with many countries around the world. In order for the company to gain the benefit of the double taxation treaties signed by Singapore, the company would have to be resident in Singapore in the relevant basis year, tax has been paid or is payable on the same income in the foreign country in accordance with the provisions of the DTA and the income is subject to tax in Singapore.

In general, Singapore companies must prepare full audited accounts and must keep a copy of such accounts at the registered office address, unless they are exempted from audit requirements. Dormant companies and "small companies" are not mandated by law to audit their accounts but they must continue to maintain proper accounting records and prepare 'true and fair' financial statements that comply with the Financial Reporting Standards.

To reduce the regulatory burden on small companies and move further towards a risk-based approach, a new "small company" concept has been introduced on June 2015 for exemption of statutory audit. To be exempted, it must be a private company that meets at least 2 of 3 criteria for the immediate past two financial years:

• Total turnover not more than S$10M
• Total assets not more than S$10M
• Number of employees not more than 50 The accounting records must be kept 5 years.

A company also has to furnish Estimated Chargeable Income (ECI) within three months after the end of its financial year end, even if the company estimates its chargeable income as zero, it still has to file a "Nil" ECI return.

ECI is an appraisement of a company's chargeable income for Year of Assessment [YA], which is unique of every company.

A company is exempted to file ECI for a financial year ends in or after Jul 2017 if:

• Your annual revenue is not more than $5 million for the financial year; and
• Your ECI is nil. Cessation of Companies Striking Off

A company may apply to ACRA (Accounting and Corporate Regulatory Authority) to strike its name off the Register pursuant to Section 344 of the Companies Act. Provided the company does not have any debts and the directors file statutory declarations to that effect, ACRA may approve the application if it has reasonable cause to believe that the company is not carrying on business.

A company may decide to wind up its affairs voluntarily if the directors are of the opinion that the company will be able to pay its debts in full within 12 months after the commencement of the winding up. The company will appoint a liquidator or provisional liquidator to wind up its affairs and file the necessary notifications required under the Companies Act.

A company may be wound-up by the company's creditors if the company is unable to pay its debts. The court will appoint a liquidator or provisional liquidator to wind up its affairs and file the necessary notifications required under the Companies Act.