What the Singapore tax authority think about the territorial taxation principle

Singapore tax authorities (IRAS) have launched a review of Singapore companies for tax compliance. Under a radar of IRAS first came companies applied for liquidation or strike off which paid no tax at all in Singapore referring to s10(1) of Income Tax Act of Singapore which describes an application of the territorial taxation principle in Singapore.

What the Singapore tax authority think about the territorial taxation principle

The major question asked by the IRAS was: “why has the company not paid any tax in Singapore?” and the second one: “where is the company paying taxes if not in Singapore?”

Even in the past, we used to advise our clients to pay some taxes. However, in many cases, we have had a standard reply: “why do you think I am buying offshore companies?” Luckily for us, most of our clients followed our advice and fulfilled their tax obligations in Singapore, which was proven a right approach for tax planning.

Interestingly, application of the territorial taxation principle is not considered to constitute tax avoidance in Singapore. However, professional knowledge of ITA in Singapore, local and international tax cases are required for a proper application of the territorial taxation principle. It is too risky to try applying it blindly!