The Inland Revenue Authority of Singapore (IRAS) has updated its guidance on applying for a Certificate of Residence (COR), clarifying the conditions under which foreign-owned investment holding companies can demonstrate valid commercial reasons for establishing operations in Singapore and qualify for treaty benefits under Singapore's tax agreements.
The Inland Revenue Authority of Singapore (IRAS) has revised its guidance on Applying for a Certificate of Residence/ Tax Reclaim Form. The update provides clearer guidance on the conditions that foreign-owned investment holding companies must satisfy to demonstrate that they have valid reasons for establishing operations in Singapore. The updated section of the guidance states the following:
What is certificate of residence
The Certificate of Residence (COR) is a letter issued by IRAS to certify that the company is a tax resident of Singapore (i.e. the control and management of its business is exercised in Singapore) for the purpose of claiming tax benefits under the DTAs or Limited Treaties.
Generally, income derived by a Singapore tax resident company from foreign persons or companies may be subject to tax in that foreign jurisdiction.
Under the DTAs or Limited Treaties that Singapore has concluded with foreign jurisdictions (i.e. DTA partners), Singapore tax residents may enjoy tax benefits (e.g. tax exemptions or lower withholding tax rates) on income derived from the foreign jurisdictions. Non-residents do not enjoy these benefits.
To enjoy such tax benefits, the COR is required by and must be submitted to the tax authority of the DTA partners to prove that the company is a Singapore tax resident generally when claiming such tax benefits. In this regard, Singapore tax resident companies should submit their COR application to IRAS prior to claiming treaty benefits or at the latest, within 2 calendar years from the actual or expected date of receipt of income if they wish to avail themselves of treaty benefits.
Who is eligible for a certificate of residence
To obtain a Certificate of Residence (COR), a company must be a tax resident of Singapore. Generally, foreign-owned investment holding companies, nominee companies and non-Singapore incorporated companies are not eligible for a COR.
Foreign-owned investment holding companies
Foreign-owned investment holding companies with purely passive sources of income and/or receiving only foreign-sourced income, are generally not considered tax residents of Singapore because these companies usually act on the instructions of its foreign companies/shareholders, and therefore are not eligible for a COR. A foreign-owned company is a company where 50% or more of its shares are held by:
- Foreign companies that are incorporated outside Singapore; or
- Individual shareholders who are not citizens of Singapore.
The ownership is applied at the ultimate holding company level.
However, IRAS may still issue a COR if these companies can show that:
- The control and management of the company’s business is exercised in Singapore; and
- The company has valid reasons for setting up an office in Singapore.
This includes demonstrating that decisions on strategic matters are made in Singapore (e.g. by showing IRAS that their Board of Directors’ meetings are held in Singapore). In addition, to substantiate that the company has a genuine commercial reason for setting up operations in Singapore, the company must also:
- Have at least 1 director based in Singapore who holds an executive position and is not a nominee director;
- Have at least 1 key employee (e.g. CEO, CFO, COO) based in Singapore; or
- Be managed by a related company based in Singapore (e.g. the related company makes the decisions relating to the operations of the foreign-owned investment holding company or reviews the performance of the investments of the company).
Nominee companies
Nominee companies are not eligible for a COR as they are not the beneficial owner of the income derived from the DTA partner. A nominee company is a company that acts as a custodian of shares on behalf of the beneficial owners.
Non-Singapore incorporated companies
Non-Singapore incorporated companies are generally not eligible for a COR as these companies are not controlled or managed in Singapore. This also applies to Singapore branches of foreign companies, as they are controlled and managed by their overseas parent company.
However, in exceptional situations, IRAS may still issue a COR if these companies can show that:
- The control and management of the company’s business is exercised in Singapore (i.e. the Singapore branch is exercising the full control and management of the company); and
- The company has valid reasons for not incorporating in Singapore.
IRAS may request for additional information on the company.
Variable Capital Companies (VCC)
For tax purposes, a VCC incorporated under the Variable Capital Companies Act 2018 is treated as a company.
To obtain a COR, a VCC must be a tax resident of Singapore. The tax residence of a VCC’s sub-funds is determined at the umbrella level of the VCC. To obtain a COR for its sub-fund, the VCC, and not the sub-fund, has to apply for the COR. The COR will show the details (tax reference number and name) of the VCC and sub-fund.
