Even if the Singapore taxation system is one of the most favorable among Southeast Asian states, there are several important aspects to consider when operating here as a group of companies. Singapore is also known for the tax benefits it offers to holding companies, which is why setting up a business under this form is quite appealing.
Among the aspects that need to be considered, one of the most important refers to the Singapore transfer pricing guidelines. Below, our specialists in company formation in Singapore explain these rules.
Transfer pricing (TP) in Singapore
In Singapore, transfer pricing or TP rules apply in cross-border transactions. In most cases, holding companies established here or Singapore subsidiaries of foreign holding companies are targeted by these regulations, as they are highly to engage in cross-border activities.
In order to prevent abuse and/or fraud, the Singapore government has created specific transfer pricing guidelines.
The Singapore TP guidelines provides for the following:
- – the prices of goods;
- – the prices of services;
- – the funds associated with the sale of goods;
- – the prices related to the transfer of assets from one country to another.
All Singapore transfer pricing guidelines can be explained by our local agents. You can also rely on us if you want to open a company in Singapore.
Transfer pricing guidelines in Singapore and their principles
Most of Singapore transfer pricing guidelines rely on the arm’s length principle which is widely spread across the world. This principle implies that companies linked to one another through management, control or capital should use similar terms and conditions when it comes to transactions completed among them just as they would with unrelated business. This would ensure equality and fairness in treatment, or better said it would avoid favorizing businesses from the same group.
The principle can also be found in the Singapore tax legislation, namely:
- – Section 34D in the Income Tax Law;
- – the Business Profits Article;
- – the Associated Enterprises Article;
- – Singapore’s double tax treaties.
The Singapore TP guidelines are applied based on a 3-step analysis.
Our Singapore company formation advisors can offer detailed information on the taxation of companies in the city-state and various applications of double tax treaty provisions.
Singapore transfer pricing guidelines based on the 3-step analysis
According to the transfer pricing guidelines Singapore, there is a 3-step analysis that can be completed in order to determine if companies respect the regulations for cross-border transactions as approved by the Inland Revenue Authority in the city-state. These are:
- the comparative analysis between uncontrolled and controlled prices or margins;
- the identification of the safest transfer pricing method;
- the verification of the arm’s length principle results.
When it comes to the methods a taxpayer can employ to determine whether they meet the Singapore TP guidelines, the following are available:
- – the comparable uncontrolled price;
- – the resale price;
- – the cost plus procedure;
- – the profit split procedure;
- – the transactional net margin procedure.
If you need support in understanding how Singapore transfer pricing guidelines apply under the aforementioned methods, our accountants in the city-state are at your service.
Transfer pricing thresholds for Singapore companies
A Singapore entity is required to prepare the paperwork for a specific financial year in accordance with Section 34F if either of the following circumstances occurs:
- – a gross revenue greater than SGD10 million for the Singaporean business; or
- – if in the prior financial year, the Singapore entity was required to prepare Transfer Pricing Documentation.
A penalty of up to SGD 10,000 may be imposed on taxpayers who fail to prepare the documentation in line with section 34F of the Income Tax Act.
If you are interested in setting up a company in Singapore, feel free to address our local specialists.
Information to be provided in order to meet transfer pricing rules
Taxpayers engaged in cross-border activities seeking to meet all Singapore transfer pricing guidelines must present the following documents for a thorough examination:
- – detailed information on the group of companies;
- – information on the company (-ies) operating in Singapore;
- – a presentation of all the transactions between the Singapore company and the other businesses in the group;
- – the transfer pricing calculation.
Our company registration consultants can help you create a holding company in Singapore, so that you can take advantage of the tax benefits such a business offers.
The Arm’s Length Principle in Singapore
The arm’s length principle, which is also used by the Inland Revenue Authority of Singapore (IRAS), is a widely recognized norm implemented for the purpose of pricing transactions between related parties. According to the idea, entities that are associated by management, control, or capital should negotiate the same terms and conditions for equivalent uncontrolled transactions as would have been agreed upon between unrelated entities. The conditions of the specific transaction are said to be “at arm’s length” if this concept is respected.
Section 34D of the Singapore Income Tax Act sets down the legal requirements for the arm’s length principle. The regulation can be found in the Business Profits Article and the Associated Enterprises Article of each of Singapore’s double taxation agreements.
When the IRAS observes a transaction involving a related party and concludes that the price of the transaction is not fair and resulting in a lower profit and tax avoidance for a Singapore taxpayer, the authority may increase the profit of that Singapore corporation for tax reasons. The Singapore entity may effectively increase its income or decrease its claim for a deduction (or loss) based on the adjustment to reflect “arm’s length” results.
If you decide to set up a company in Singapore and need guidance on the requirements to respect, you can rely on our consultants. They can also act as registered agents for a quick incorporation process.
Transfer pricing audits in Singapore
In August 2021, the IRAS released the 6th Edition of the Transfer Pricing Guidelines that contain:
- – the prerequisites for receiving a surcharge waiver;
- – guidelines on related party financial transactions;
- – shareholder activities;
- – low value-adding intragroup services;
- – cost contribution arrangements.
A 5% surcharge was added to IRAS’s transfer pricing changes. If certain requirements are met, the revised regulations offer a partial or total waiver of the surcharge. However, only taxpayers who cooperate during the transfer pricing audit or review and have a strong compliance history will be given consideration for remission of the fee.
For a taxpayer to be granted a remission of the surcharge in a TPA scenario, the following prerequisites must be satisfied:
- the taxpayer has maintained proper transfer pricing documentation in accordance with Section 34F of the SITA and the transfer pricing documentation rules;
- the enterprise has cooperated and provided required responses and documentation within the timeframe established by IRAS;
- the company has a good compliance record with respect to the submission of its tax returns and the payment of tax by the due dates for the past 3 Years of Assessment (YA);
- the adjustment is made within two years of the deadline for submitting a tax return;
- the taxpayer hasn’t received any questions from IRAS regarding related party transactions for the relevant YA or word that an audit or probe is about to get underway.
Taxation of holding companies in Singapore
Apart from the Singapore transfer pricing guidelines, there are also other aspects to consider when it comes to holding companies in the city-state. Among these, from a taxation point of view:
- – the corporate tax applicable to them is the standard one of 17%;
- – a holding company can also benefit from a lower rate of 5.67% of the corporate tax if it meets certain requirements;
- – transfer pricing rules apply to holding companies with a gross revenue of more than 10 million USD.
For more information on the applicable transfer pricing rules in Singapore, please contact our local agents.