Starting a business in Singapore (with commentary on implications for US persons) 07/03/2014

Starting a Business in Singapore

(With specific commentary for US Persons)

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Who are we?Derren Joseph

Derren Joseph, is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associatemember of the American Institute of CPAs (#7920958). He has a Masters in Economics from the University of Aberdeen (Scotland), aMasters in Development Studies from Middlesex University (London), a first degree in Business and holds a Certified Diploma from ACCA(Association of Chartered Certified Accountants in the UK).

Derren has done work for large, listed companies as well as Small and Medium-sized Enterprises (SMEs). He also has over 15 years’experience in financial and econometric modelling with British, American, & Caribbean companies. Derren’s experience includes Senior orDirector-level roles, at companies such as British Airways, Expedia, H T Joseph CPA and Caribbean Airlines.

Since 2007, Derren has been working with Americans in the Caribbean, the U.K., and Miami, FL. His specialty is working with expats withequity stakes in SMEs. Derren moved to Singapore in October 2013 to take up the role of General Manager at AETS and has had his viewspublished by the Singapore Business Review, the International Business Structuring Association, Compliance Alert, Caribbean 360, theGuardian, and the Jamaican Observer among [email protected]

Who are we?

Michael Seet, B.Bus (Acct), CA (Singapore), CA (Aust)

Michael Seet, Director and Shareholder of SYApac, a firm of Chartered Accountants, registered with ACRA. SYApac Provide services in Auditing, Taxation andTax Planning (Singapore), Accounting services, Business Consultancy, Due Diligence, Project Feasibility Studies, Corporate Secretarial Services, System studiesand implementation.

Michael Seet is a Practicing Member of the Institute of Singapore Chartered Accountants(ISCA) as well as a Member of the Institute of CharteredAccountants in Australia (ICAA), He has been in Public Practice since 1989, and has extensive experience in Auditing , Taxation, Business Consultancy, ProjectBrokering, Due Diligence, Share Valuation.

Michael Seet gained his Degree in Accounting in Australia, and after having worked with Touche Ross & Co (Now Deloittes) for about 5 years, and havingsuccessfully completed his Professional Year with ICAA, he was then admitted as a Chartered Accountant. In 1982, he returned to Singapore and joined aPublic Practice for about 4 year. He then joined a manufacturing company as their Chief Accountant/Company Secretary.

In 1989, He established an Accounting firm, Seet Yong & Associates and since then has been in Practice till Present. SYApac was established last year to takeover the practice of Seet Yong & Associates.

Over his over 30 years in Public Practice, Michael has been providing assistance to his clients in terms of Business Advisory, Taxation Planning, StrategicPlanning, and Consultancy in M & A.

[email protected]

Circular 230

This document or presentation is not intended or written to be used, and may not be used, for the purpose of avoiding penalties that may be

imposed on the taxpayer.

Treasury Department Cir. No. 230

Contents• Interesting Trends

• Population Growth• Non resident or foreign workforce• Too business friendly?

• Available structures• Comparison of the forms of Business Organizations• Government incentives

• Implications for US Persons• Definition of a US Person• Sole Trader / Sole Proprietor• Partnership• Limited liability company

Singapore population growth slowest in 9 years

Source: http://www.straitstimes.com/the-big-story/asia-report/singapore/story/singapore-population-growth-slowest-9-years-20130927-0

• SINGAPORE'S population grew to 5.4 millionas of June 2013, a 1.6 per cent annualincrease that is the slowest in nine years.

• One in 10 now 65 and above

• Main reason for the population slowdown isthe slower pace of growth in the foreignworkforce.

• The bulk of the growth came from theconstruction sector, where foreigners arehired for key infrastructure projects such ashousing and transport.

SG’s Foreign Workforce

Source: http://www.mom.gov.sg/statistics-publications/others/statistics/Pages/ForeignWorkforceNumbers.aspx

Too Business Friendly?

• Local Businessmen complain –• Low barriers to entry. Unlike other Asian countries, the widespread use of the

English language, the rule of law, and the open and transparent system level the playing field for all, give local companies no advantage over foreign ones.

• Singapore is too small, with no domestic market for its local companies tolean on.

• Economy dominated by government-linked companies (GLCs) and foreigncompanies, both of which have the resources and wherewithal to competeagainst the best.

Source: Article published in The Sunday Times Think Section Page 39 on March 30, 2014.http://www.singapolitics.sg/views/singapore-too-business-friendly-local-firms





COMPARISON OF THE FORMS OF BUSINESS ORGANISATIONS

Definition of Business Organisations in Singapore

Sole-Proprietorship Partnership Limited Partnership

(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

A business owned by

one person

An association of two

or more persons

carrying on business in

common with a view to

profit

A partnership consisting

of two or more persons,

with at least one general

partner and one limited

partner

A partnership where

the individual partner’s

own liability is

generally limited

A business form which is

a legal entity separate

and distinct from its

shareholders and

directors


Owned by


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

One person Generally between 2 and

20 partners. A

partnership of more than

20 partners must

incorporate as a company

under the Companies

Act, Chapter 50 (except

for professional

partnerships)

At least 2 partners; one

general partner and one

limited partner. No

maximum limit.

At least 2 partners, no

maximum limit.

Exempt Private

Company –20 members

or less and no

corporation holds

beneficial interest in the

company’s shares

Private Company – 50

members or less

Public Company – can

have more than 50

members


Legal Status


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

Not a separate legal entity

Owner has unlimited liability

Not a separate legal entity

Partners have unlimited liability

Not a separate legal entity A separate legal entity from its

partners

A separate legal entity from its

members and directors

Can sue or be sued in

individual’s own name

Can sue or be sued in firm’s

name

General partner has unlimited

liability

Partners have limited liability Members have limited liability

Can also be sued in business

name

Cannot own property in firm’s

name

Limited partner has limited

liability

Can sue or be sued in LLP’s

name

Can sue or be sued in

company’s name

Can own property in

individual’s name

Partners personally liable for

partnership’s debts and losses

incurred by other partners

Can probably sue or be sued in

firm’s name

Can own property in LLP’s

name

Can own property in company’s

name

Owner personally liable for

debts and losses of business

Cannot own property in firm’s

name

Partners personally liable for

debts and losses resulting from

their own wrongful actions

Members not personally liable

for debts and losses of company

General partner personally liable

for debts and losses of the LP

Partners not personally liable

for debts and losses of LLP

incurred by other partners

Limited partner not personally

liable for the debts or obligations

of LP beyond amount of his

agreed contribution


Registration Requirements


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

Age 18 years or above.

Singapore citizen/ Singapore

permanent resident/

Employment Pass/ Dependent

Pass holder.

Age 18 years or above.

Singapore citizen/ Singapore

permanent resident/

Employment Pass/ Dependent

Pass holder.

At least one general partner and

limited partner. Both can be

individuals (at least 18 years

old) or body corporate

(company or LLP).

At least two partners, who can

be individuals (at least 18 years

old) or body corporate

(company or LLP)

At least one shareholder

If owner not resident in

Singapore, he must appoint a

local manager who is ordinarily

resident in Singapore

If owners not resident in

Singapore, they must appoint a



If all general partners are

ordinarily resident outside

Singapore, they must appoint a



At least one manager ordinarily

resident in Singapore and at

least 18 years old

At least one director ordinarily

resident in Singapore, at least

18 years old

Self-employed persons must top

up their Medisave account with

the CPF Board before they

register a new business name,

become a registrant of an

existing business name, or

renew their business name

registration




register a new business name,

become a registrant of an

existing business name, or

renew their business name

registration




register as a partner of a new

LP, become a registered partner

of an existing LP, or renew their

LP registration

Undischarged bankrupts cannot

manage business without court

or Official Assignee’s approval

If a foreigner wishes to act as a

local director of the company,

he can apply for an EntrePass

from the Ministry of Manpower











be a director and cannot manage

a company without court or

Official Assignee’s approval


Set-up Costs, Formalities and Statutory Expenses


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

$65 ($15 name application

fee and $50 registration fee)





$165 ($15 name application fee

and $150 registration fee)

$315 ($15 name application fee

and $300 incorporation fee)

Quick and easy to set up Quick and easy to set up Quick and easy to set up Quick and easy to set up More costly to set up and

maintain

Easy to administer and

manage


manage


manage

Fewer formalities and

procedures to comply with than

a company

More formalities and

procedures to comply with

Registration cost is minimal Registration cost is minimal Registration cost is minimal Registration cost is relatively

minimal and fewer regulatory

duties to adhere to than a

company

Must appoint a company

secretary within 6 months of

incorporation

Less administrative duties to

adhere to

Less administrative duties

to adhere to

Less administrative duties

to adhere to

No statutory requirement for

general meetings, directors,

company secretary, share

allotments, etc.

Must appoint an auditor within

3 months after incorporation

unless the company is exempt

from audit requirements

Must renew registration

annually


annually


annually

Only an annual declaration of

solvency must be lodged by

one of the managers stating

whether the LLP is able or not

able to pay its debts during the

normal course of business

Annual Returns must be filed

Statutory requirements for

general meetings, directors,

company secretary, share

allotments, etc.

One time registration Professional fee incur annually


Continuity in Law

Sole-Proprietorship Partnership Limited Partnership (LP) Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

Exists as long as the

owner is alive and

desires to continue the

business

Exists subject to

partnership agreement

Exists subject to partnership

agreement

The LLP has perpetual

succession until wound

up or struck off

A company has perpetual

succession until wound

up or struck off

If there is no limited partner,

the LP registration will be

suspended and general partners

are deemed registered under

the Business Registration Act .

Once a new limited partner is

appointed, the registration of

the LP will be restored to

“live” and general partners’

registration under the Business

Registration Act ceases


Closing of the Business


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

By Owner – Cessation

of business

By the partners –

Cessation of business or

dissolution of

partnership

By general partner –

cessation of business or

dissolution of LP

Winding Up –

Voluntarily by members

or creditors,

compulsorily by the

High Court

Winding Up –

Voluntarily by members

or creditors,

compulsorily by the

High Court

or or or or or

Registrar can cancel

registration if not

renewed or where

Registrar is satisfied

business is defunct


registration if not

renewed or where

Registrar is satisfied

business is defunct


registration if not

renewed or where

Registrar is satisfied LP

is defunct

Striking off Striking off


Taxation


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

Profits taxed at owner’s

personal income tax rates

Profits taxed at partners’


Profits taxed at partners'


(if individual)/ corporate

tax rate (if partner is

corporation)

Profits taxed at partners’


(if individual)/ corporate

tax rate (if partner is

corporation)

Profits taxed at corporate

tax rates

• Corporate tax rate currently @ 17% flat

• Personal tax rate for Singapore Tax Resident refer Appendix 1.


Estimated Tax Payable for the Net Profit of


(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

First $80,000 $3,350

For Example - 2 partners @

50%/50%


50%/50%


50%/50%

A newly incorporated

company that meets the

qualifying conditions can

claim for full tax exemption

on the first $100,000 of

normal chargeable income for

each of its first 3 consecutive

year of assessments.

Tax payable = NIL

Dividend declared out from

the profits to the shareholders

are tax exempt

Next $20,000 @

11.5% $2,300

Each partner shared $50,000

profit


profit


profit

Tax Payable $5,650

First $40,000 $550 First $40,000 $550 First $40,000 $550

Next $10,000 @

7%

$700 Next $10,000 @

7%

$700 Next $10,000 @

7%

$700

Tax payable each

partner$1,250

Tax payable each

partner$1,250

Tax payable each

partner$1,250




(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

First $200,000$20,750


50%/50%


50%/50%


50%/50%

First $100,000 tax exempted

Next $ -Each partner shared $100,000

profit


profit


profit

Next $100,000 @ 50% Tax

exempted

Tax Payable$20,750

First $80,000 $3,350 First $80,000 $3,350 First $80,000 $3,350 Net $50,000 @

17% =$8,500

Next $20,000 @

11.5%$2,300

Next $20,000 @

11.5%$2,300

Next $20,000 @

11.5%$2,300

Tax payable each

partner$5,650

Tax payable each

partner$5,650

Tax payable each

partner$5,650



are tax exempt




(LP)

Limited Liability

Partnership (LLP)

Private Limited

Company (Pte Ltd)

First $200,000 $20,750 For Example - 2 partners @

50%/50%


50%/50%


50%/50%

First $100,000 tax exempted

Next $100,000 @

18%$18,000


profit


profit


profit

Next $200,000 @ 50% Tax

exempted

Tax Payable $38,750

First $120,000 $7,950 First $120,000 $7,950 First $120,000 $7,950 Net $100,000 @

17% =$17,000

Next $30,000 @

15%$4,500

Next $30,000 @

15%$4,500

Next $30,000 @

15%$4,500

Tax payable each

partner$12,450

Tax payable each

partner$12,450

Tax payable each

partner$12,450



are tax exempt

Government Incentives include -

• Resident companies enjoy additional benefits including protection from double taxation, taxexemption on foreign-sourced income and tax exemption for new start-up companies.

• Business Angel Scheme (BAS) - If the start-up is able to obtain investment interest and commitment from anyof the business angel investors, SPRING SEEDS Capital could potentially match the intended amount (dollar-for-dollar) of up to a maximum of S$1.5 million. Both SPRING SEEDS Capital and the business angel investors will takeequity stakes in the company in proportion to their investments.

• Sector Specific Accelerator (SSA) Programme - As part of the Research, Innovation and Enterprise (RIE) 2015 plan,the government has approved the establishment of Sector Specific Accelerators (SSA) to identify, invest and growstart-ups in strategic but nascent sectors, such as medical and clean technology.

• Technology Enterprise Commercialisation Scheme (TECS) - aims to catalyse the formation and growth of suchstart-ups based on strong technology Intellectual Property and a scalable business model.

• Angel Investors Tax Deduction Scheme is a tax incentive which aims to stimulate business angel investments intoSingapore-based start-ups and encourage more angel investors to add value to these start-ups

• The $30 million Incubator Development Programme (IDP) provides Incubators and Venture Accelerators a grant toenhance capability development programmes for innovative startups.

Wealth of Information on MOM website



Wealth of Information on MOM website – but you can seek professional advice!





US Persons

• Passport holders

• Permanent residents

• Substantial presence

• Accidental Americans

• NRA spouses who make a Sec 6013g election

Implications for US Persons

Structure Compliance Tax considerations

Sole Prop Schedule C Approx 13% SE Tax

Partnership Form 8865 Extra compliance costs

LLC Form 5471 Extra compliance costs

Subpart F income

Dividends vs Salary

PFICs

Thank you for your attention

• This document was not intended or written to be used, and it cannot be used,for the purpose of avoiding tax penalties that may be imposed on the taxpayer.Treasury Department Cir. No. 230

• This document is provided for general guidance only, and is not to be construedas legal advice, accounting services, investment advice, or professionalconsultation of any kind. The information provided herein should not be used asa substitute for consultation with professional tax, accounting, legal, or othercompetent advisers. Before making any decisions or taking any action, youshould consult a professional advisor who has been provided with all pertinentfacts relevant to your particular situation. The information is provided ‘as is,’ withno assurance or guarantee of completeness, accuracy, or timeliness of theinformation, and without warranty of any kind, express or implied, including butnot limited to warranties of performance, merchantability, and fitness for aparticular purpose.

Q&A

Appendix 1 - Tax rates for resident individuals

Chargeable Income Rate (%) Gross Tax Payable ($)

First $20,000 0 0

Next $10,000 2 200

First $30,000 - 200

Next $10,000 3.5 350

First $40,000 - 550

Next $40,000 7 2 800

First $80,000 - 3 350

Next $40,000 11.5 4 600

First $120,000 - 7 950

Next $ 40,000 15 6 000

First $160,000 - 13 950

Next $ 40,000 17 6 800

First $200,000 - 20 750

Next $120,000 18 21 600

First $320,000 - 42 350

Above $320,000 20

Economy & Finance

Starting a business in Singapore (with commentary on implications for US persons) 07/03/2014