COVID-19: Tax Guidance for Companies - Tax Residence Status of a Company and Permanent Establishment

21/04/2020
Tax Residence Status of a Company

In view of the present COVID-19 situation, the Inland Revenue Authority of Singapore (IRAS) has published its guidance on tax issues relating to tax residence status of a company as well as permanent establishment on its website,

Tax Residence Status

Generally, the tax residency of a company is determined by the place in which the business is controlled and managed. Typically, the location of the company's Board of Directors meetings, during which strategic decisions are made, is a key factor in determining where the control and management is exercised.  For a company that is not able to hold its Board of Directors meeting (during which the strategic decisions of the company are made) in Singapore due to travel restrictions relating to COVID-19, IRAS is prepared to consider the company as a Singapore tax resident for the Year of Assessment (YA) 2021, if it meets all the following conditions:

  • The company is a Singapore tax resident for YA 2020;
  • There are no other changes to the economic circumstances1 of the company; and
  • The directors of the company have to attend the Board of Directors meeting held outside Singapore or if the meeting is held through electronic means (via video-conferencing, tele-conferencing, etc.) due to the directors being temporarily restricted from travelling as a consequence of the COVID-19 situation.

Conversely, where a company is not a tax resident of Singapore for YA 2020, IRAS will continue to regard the company as a non-resident for YA 2021, if it meets all the following conditions:

  • The company has to hold its Board of Directors meeting in Singapore due to travel restrictions relating to COVID-19; and
  • There are no other changes to the economic circumstances1 of the company.

To support the claim that the company should continue to be treated as a tax resident or non-resident of Singapore, the company should keep relevant documentations and records (e.g. board minutes stating why the directors were attending board meetings from their respective locations) and to provide the relevant information to IRAS upon request.

Permanent Establishment

Employees of a foreign company may have to remain in Singapore in view of the present travel restrictions relating to COVID-19. IRAS will consider such unplanned presence as not resulting in the creation of a permanent establishment in Singapore for the foreign company, provided it meets all of the following conditions:

  • The foreign company does not have a permanent establishment in Singapore for YA 2020;
  • There are no other changes to the economic circumstances1 of the company;
  • The unplanned presence of the employees in Singapore is due to travel restrictions relating to COVID-19 and their physical presence in Singapore is temporary (generally not more than 183 days in year 2020 from the date of first arrival in Singapore); and
  • The activities performed by the employees during this unplanned presence would not have been performed in Singapore if not for the travel restrictions.

To support the claim that there is no permanent establishment in Singapore, these foreign companies should keep relevant documentations and records and to provide the relevant information to the IRAS upon request.

Source: IRAS

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1These include:
a. The principal activities and business model of the company
b. The nature of the business and operations and the conduct of the business in Singapore and elsewhere; and
c. The usual locations in which the company operates.