When choosing where to set up and run a business many important factors should be taken into consideration. Some of the questions to be answered in order to make the best decision are related to the stability of the regulatory and political environment, the labor market, the infrastructure and communications network, the level of productivity, etc.
Regardless of the depth of the analysis, two items are always to the foreground:
-How long does it take and how easy it is to set up a company in a certain country;
-How the tax system is organized and what the tax rates are in a certain country.
The procedure to set up a company in UK might be carried out in a day. This is the case when the mandatory documents (Memorandum of association and Articles of association) to be adopted are standard. The organization that administers the process is the Companies House (Registry). No separate rules are provided for foreign persons.
In Singapore the Accounting and Corporate Regulatory Authority is the body to register all companies and partnerships. Just as it is in UK, when the necessary papers are prepared, the registration could be done in a day. Foreign persons are allowed to set up their business in Singapore.
UK resident companies are assessed to corporation tax on their income and chargeable gains wherever they arise. Profits from an overseas branch are normally taxed as UK trading profits. The dividends received from an overseas company are included in the UK parent company`s tax computation. The corporation tax return must be submitted within 12 months after the end of the accounting period.
Singapore resident companies are chargeable to corporation tax on their profits arising from Singapore and on their profits arising from foreign countries when remitted to Singapore. The income earned and retained outside the country is not taxable. Additionally the dividends, the branch profits and the service income are exempt from assessment even when remitted to Singapore when they have been charged in a foreign state in which the certain tax rate is at least 15%. This rule is temporary changed for the year 2009 for that year it is not necessary to fulfill any conditions in order to be able to apply the exemption. The corporation tax return must be submitted till the 31st of October of the year following the year in which the end of the company`s financial period falls.
UK corporation tax rates 2009/2010 are as follows:
-For small companies with profits of 300 000 GBP or less 21%;
-Marginal relief for companies with profits between 300,001 and 1,500,000 GBP;
-Main rate for companies with profits over 1,500,000 GBP 28 %.
In Singapore, the maximum corporation tax rate of 17% is flat. However first 300,000 SGD in annual profits are taxed only at 8.5%.
The Singapore tax legislation provides for another scheme of full exemption but only for new companies and only if they meet the following conditions: to be incorporated in Singapore; to be tax residents in Singapore and to have no more than 20 shareholders. In that case the qualifying company is given a full exemption up to 100 000 SGD of its chargeable income for its first three consecutive years of assessment.
The UK tax rates for individuals for the year 2009/10 are as follows: 10% for dividend income at or below 37,400 GBP and 32.5% for dividend income above 37,400 GBP.
Since the year 2002 the one tier system is adopted in Singapore. The corporate income is assessed on corporate level and this is final assessment. The dividends are tax exempt and there is no withholding tax with this respect.
Both countries network of treaties and agreements for avoidance of double taxation. Some of them provide for reduced rates for withholding taxes. At present UK has concluded over 100 tax treaties, whereas Singapore has concluded nearly 70.
The principles of indirect taxation are very similar all over the world. But the basic issues to be carefully researched in respect of setting up a company are: what is the registration threshold, what are the applicable rates, are there reduced or zero rates, which supplies of goods and services are chargeable and which are exempt, is the import of goods chargeable, are there situations where the acquisition of goods and services is chargeable.
In UK a company must register for the purposes of the Value added tax (VAT) act when its taxable turnover for a year is above or expected to be above 68,000 GBP. The standard rate is 15%. There is a reduced rate of 5 % for supplies of fuel and power used in the home and by charities. A zero rate applies in some cases, e.g. for supplies of books. There are also exempt supplies such as insurance. UK is part of the European Union VAT system and specific rules are applied when trading in the zone.
In Singapore a company is obligated to register for the purposes of Goods and services tax (GST) act when the annual turnover is above or expected to be above 1 million SGD. The GST rate is 7%. The export of goods and services is zero rated. There are exempt supplies, e.g. financial services, sale and lease of residential properties.
The National Insurance Contribution due by an UK employer on the earnings of each individual employee for 2009/2010 is 12.8% and there is no upper limit.
In Singapore the employers` contributions to the Central Provident Fund depend on the amount of the wages paid. The rates are between 0% and 14.5%.
Besides these fundamental topics, other important points to be examined in details are the systems of withholding taxes, the property taxes due, the specific rules for a certain business activity, including the necessary licenses and permits. And when exploring the details, the global picture and the global economic and political factors should always be in mind.
Relevant Exchange Rates
1 EUR = 0.872 GBP
1 EUR = 2.0517 SGD
1 USD = 0.61 GBP
1 USD = 1.44 SGD