If you are an expat running a business through a company or partnership registered in another country, Singapore may classify your entity differently from how it is classified at home. This can change how you are taxed.
The Inland Revenue Authority of Singapore (IRAS) applies the “Resemblance Approach” to determine the tax treatment of your foreign entity. Under this approach, IRAS compares your foreign entity to a Singapore company and a Singapore partnership to decide which it most closely resembles.
What is the Resemblance Approach?
Some factors which IRAS may consider are:
| Factors Persuasive of a Company | Factors Persuasive of a Partnership |
| The entity is registered as a company in its home jurisdiction. | The entity is registered as a partnership in its home jurisdiction. |
| It is legally separate from its members and managers | The entity has at least two members. |
| The entity maintains share capital. | The entity does not have share capital. |
| The entity has at least one member and is run by a board of directors or managers. | The members are entitled to share in the entity’s profits as the profits arise. |
| It has ongoing existence until formally wound up. | The entity does not have a legal personality separate from its members (excluding limited liability partnership). |
| Members only get profits when the entity declares a dividend. |
If the entity resembles both a company and a partnership, or neither, IRAS will consider the facts and decide each case individually.
If your structure changes significantly, inform IRAS promptly as it can trigger a reclassification.
How does this affect Expats?
If your entity is treated as a company, the company itself pays tax on its income. You are only taxed when the company distributes profits to you as dividends.
If your entity is treated as a partnership, the partnership does not pay tax. Instead, each partner is personally responsible for paying tax on their share of the partnership’s income.
Conclusion
If you are setting up a new foreign entity with Singapore operations, check how IRAS will classify it before you start. If your entity type is not on the IRAS reference list, you should seek professional advice and consider applying for a legal opinion.
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.
