Covid-19: Tax Challenges in Singapore

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The pandemic has shook the world and its economy and has affected some areas more than others. Businesses are facing their worst fears by having to shut down, with people being restricted and with supply chain disruptions. There are pressing issues that all companies have to deal with and the tax implications of covid can be easily overlooked amidst the other issues. However, it is important to look at tax issues such as with regard to virtual board meetings.

For this, we ask the question what is the implication on corporate tax residency.

The IRAS has clarified that it is prepared to consider a company as tax resident in Singapore even if it is unable to hold its physical board meetings in Singapore due to travel restrictions. This is provided that certain conditions are met, including that the company was a Singapore tax resident for the previous year.

Despite this, the board composition and sustainability of such arrangement need to be further reviewed, especially if the majority of the board members are currently nonresidents of Singapore. With anti-treaty abuse provisions, the ability of the Singapore company claiming treaty benefits will be put into question where it does not have physical substance and there is no commercial reason for setting up the company in Singapore.

For taxpayers who also operate outside of Singapore, it is worth noting that tax authorities in several countries (e.g. Australia, Ireland and the U.K.) have also provided guidance or are engaging in discussions with taxpayers to mitigate potential controversy in these areas. Generally, tax authorities have demonstrated some willingness to provide flexibility to minimize the potential tax burdens of taxpayers during this crisis. This is greatly welcomed as it provides some assurance to taxpayers that they may not be penalized on the tax front due to global matters beyond their control.

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