Tax Write-Up: Singapore—Tax Challenges Arising from Covid-19

By: Vanessa, Xiao Jing, Geraldine (Research and Training Department)

In this month’s publication, we refer to an article by Bloomberg on how the Covid-19 pandemic has severely disrupted Singapore businesses. The pandemic has created a whole new slew of corporate tax issues, but these are often overshadowed by the financial and operational dimensions of the pandemic. We will be sharing 3 scenarios from the article that illustrate the common tax issues faced by taxpayers amidst the pandemic.

Firstly, IRAS has yet to fully address the effects of the pandemic on the tax liabilities of cross-country construction projects. Their policy has now been completely upended as many short-term construction projects have been dragged for an indefinite period due to the circuit breaker and closure of borders. Malaysian companies are also typically not obligated to pay Singapore’s Goods and Services Tax (GST) since it is only payable to individuals who conduct businesses in Singapore from a fixed establishment, which is a location possessing human or technical resources for more than 183 days in any 12 month period. These loopholes in policy which have now been exposed by an unprecedented global crisis, call for more urgent and stringent action by IRAS.

Next, the current pandemic has also affected the tax residency statuses of individuals who were temporarily posted to work outside of Singapore. Due to the travel restrictions, employees were repatriated back to Singapore earlier and worked remotely to connect with their customers overseas through conference calls and emails. The employee is considered a tax resident if his period of stay in Singapore is 183 days or more. According to IRAS, the time in which a Singaporean was sent back prematurely till the end of his work contract are not considered his formal employment days. This means that the employee will not be considered a tax resident if he does not fulfil the 183 days of residence in Singapore, and hence the income for his extended stay in Singapore will not be taxable.

In Singapore, corporate tax residency is based on the location in which control and management of business is exercised. A company would thus be a tax resident of Singapore if its place of control and management were here. Tax residency is crucial for businesses, as only resident companies are entitled to unilateral tax and treaty relief. Should a company shift from holding a physical board meeting to one that is online to comply with travel restrictions, it would still be considered a tax resident of Singapore should it satisfy certain conditions. One such condition is that the company must have been a tax resident in the preceding year.

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