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.
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:
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.
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:
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.
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:
When it comes to the methods a taxpayer can employ to determine whether they meet the Singapore TP guidelines, the following are available:
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.
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 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.
Taxpayers engaged in cross-border activities seeking to meet all Singapore transfer pricing guidelines must present the following documents for a thorough examination:
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, 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.
In August 2021, the IRAS released the 6th Edition of the Transfer Pricing Guidelines that contain:
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:
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:
For more information on the applicable transfer pricing rules in Singapore, please contact our local agents.