As an Expat running a business in Singapore, you may be considering the idea of setting up an offshore parent company in an offshore jurisdiction to hold your Singapore entity.
The Structure
This structure has certain advantages, as Singapore has Double-Taxation Agreements (“DTA”) with over 100 countries which provide benefits such as reduced withholding tax on cross-border payments (e.g., dividends, interest, royalties).
However, these benefits come with certain conditions.
Important Considerations and Risks
Tax Resident Status: For the Singapore entity to access the benefits under a DTA, the company must be a Singapore tax resident. Residence is not automatic upon incorporation, and is determined by whether the company’s “control and management” is exercised in Singapore. This refers to where the key strategic decisions (e.g. budget decisions, contracts, investment plans) are made, and administrative or operational activities are not enough to establish tax residency.
Therefore, when setting up an offshore parent company, you need to ensure that the “control and management” of the Singapore entity remains in Singapore. This generally means the company should also have directors and key staff based locally, along with visible operations like an office and bank accounts run from Singapore.
Certificate of Residence (“COR”) Rules: A Certificate of Residence (COR) is the official IRAS document that proves your company is a Singapore tax resident for treaty purposes. Since 2025, the rules for obtaining a COR for a foreign-owned investment holding company have become considerably stricter. A foreign-owned investment holding company is a Singapore entity where at least half of its shares are held by foreign entities.
To qualify, your company must now demonstrate genuine economic substance in Singapore by satisfying at least one of the following:
- A non-nominee director based in Singapore with real decision-making power;
- A key employee like a CEO or CFO based locally; or
- Be managed by a related Singapore company.
The “Gains from Foreign Assets” Rule: Section 10L of the Income Tax Act may tax gains from selling foreign assets if they are received in Singapore, sold by a corporate entity (not an individual), and that entity lacks adequate economic substance in Singapore.
Therefore, if your Singapore company sells foreign assets (such as shares in the parent company) and brings those gains into Singapore, those gains may be taxable if the Singapore entity lacks adequate economic substance.
For gains involving foreign intellectual property, this rule applies regardless of economic substance. A Singapore holding company with no real presence here could now face an unexpected tax bill on gains it previously assumed were tax-free.
You may refer to our article Are gains from selling overseas assets taxable in Singapore for Expatriates? to determine whether your structure has adequate economic substance and to assess any potential exposure under Section 10L.
Conclusion
Setting up an offshore parent company for your Singapore business can offer tax benefits, but only if your Singapore subsidiary has genuine economic substance and is managed and controlled in Singapore.
If you are considering this structure, seek professional advice before setting it up. Ensure your Singapore entity has substance and gain an understanding of the costs, compliance obligations, and potential tax risks.
Disclaimer: This article provides general information and does not constitute legal advice. Please seek professional advice for your specific situation.
Do reach out to us at Legal Expat if you require professional advice. We have a team of qualified lawyers that can assist you. Email us at: info@legalexpat.sg or drop us a WhatsApp at: +65 8093 4393 if you require assistance.
