Question

Question 2
E Inc (“EI”) is a company incorporated and tax resident in the US and recently the Board of Directors of EI (“the Board”) are looking to expand their business operations to Asia. Singapore is being considered one of the desirable locations for setting up the new Asian Headquarter (“HQ”).

Required: (a) From an international tax perspective, comment and appraise the use of Singapore as the Asian HQ. In other words, why should EI choose Singapore as its Asian HQ?

(b) Based on some online tax research, EI’s Board have identified a number of potential tax incentives the Singapore HQ may potentially qualify. For the purpose of this part, illustrate the benefits for EI to obtain Pioneer Service Incentive and Development & Expansion Incentive under the Economic Expansion Incentives (Relief from Income Tax Act) (“EEIA”).

(c) For the purpose of this part, illustrate the benefits for EI to obtain the investment allowance incentive under the EEIA and indicate under what circumstances EI should consider applying for this incentive.

Answer 1

(a) The main reason for choosing Singapore as an Asian HQ considering the international tax perspective is the liberalized of the Singapore government towards ease of living and its favorable policies for doing business in Singapore. Singapore has been considered as the epicenter of international trade. The low tax rates and several additional benefits for international investors make Singapore a tax haven and easy for operating business. The corporate income tax is as low as 17% in Singapore, however this could further be lowered by a few additional incentives as inducted by the revenue department of Singapore. Capital gains are not taxed in Singapore. Foreign start-up companies can avail the exemption on tax for income up to $125,000 on the first income of the start-up of $200,000 for the first three consecutive years of business. Several other benefits like Qualifying offshore funds are exempt from tax, international trading firms can avail the concessionary tax rates of 5% to 10% for 3-5 years on qualifying the trader's program organized by the Singapore government. These are the few considerable points that make the companies a gateway to expand their business in Asian countries and establish a hub for international trade and commerce.

(b) The benefits for company E to obtain Pioneer Service Incentive and Development & Expansion Incentive under the Economic Expansion Incentives (Relief from Income Tax Act) (“EEIA”) are:
(i) The Qualifying companies for Pioneer Industries and Pioneer service companies under the Economic Expansion Incentives are exempt from Income tax for 5 to 15 years.
(ii) The Companies engaged in Qualifying activities are eligible to apply for Development and Expansion company to the concerned minister, the Qualifying companies shall be taxed at the rate of as low as 5% on the income generated by performing Qualifying activities for not more than 10 years.
(iii) The other tax benefit for the approved companies that the interest on the foreign loan can be paid with no tax or at a lower tax rate than the normal 15% tax.

(c)  The benefits for EI to obtain the investment allowance incentive under the EEIA is that an allowance of 100% of capital expenditure shall be given to the qualifying companies for the approved project on which the expenditure has been incurred. Where it can only be set-off against the income generated from the project. An additional allowance shall be given in addition to the capital allowance on the plant and machinery used abroad with their business in Singapore.