Section 2(1) of the Singapore Income Tax Act (SITA) defines a PE to mean a fixed place where a business is wholly or partly carried out including a place of management, a branch, an office, a factory, a warehouse, a workshop, a farm or plantation, a mine, oil well, quarry or other place of extraction of natural resources, a building or work site or a construction, installation or assembly project.
The section goes on to say that a person shall be deemed to have a PE in Singapore if that person carries out supervisory activities in connection with a building or work site or a construction, installation or assembly project or has another person acting on that person’s behalf in Singapore who:
(i) Has and habitually exercises an authority to conclude contracts.
(ii) Maintains a stock of goods or merchandise for the purpose of delivery on behalf of that person; or
(iii) Habitually secures orders wholly or almost wholly for that person or for such other enterprises as are controlled by that person.
Where a person has a PE in Singapore then so much of the profit that is attributable to the PE’s activities in Singapore shall be subject to tax in Singapore.
It has however been clarified that ‘the mere storage of goods in a warehouse by a person who does not carry out business in Singapore will not give rise to any tax liability’ (Ministry of Finance Press Statement, 20th December 1977). In addition see below on DTAs.
Double Tax Agreements (DTAs): exclusions from the meaning of PE
DTAs normally exclude certain acts from constituting a PE.
Examples of such exclusions include:
(a) The use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise.
(b) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery.
(c) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise.
(d) The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise.
(e) The maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.
(f) The maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
In addition an enterprise shall not be deemed to have a PE merely because it carries out business in Singapore through a broker, general commission agent or any other agent of an independent status, provided such persons are acting in the ordinary course of their business.
If a DTA exists between the foreign company and Singapore the terms of the DTA must be examined to ascertain whether a PE exists or is specifically excluded.
PE & Branches
A branch is required to be registered with ACRA and is an extension of the foreign company. As the control and management of the foreign company is usually not in Singapore the branch is considered to be non-resident in Singapore. The branch by virtue of its presence and activities in Singapore would constitute a PE in Singapore.
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