Tax Residence Status of a Company and Permanent Establishment

Tax Residence Status of a Company*  

Where a company is not able to hold its Board of Directors meeting1 in Singapore due to the travel restrictions relating to COVID-19, IRAS is prepared to consider the company as a Singapore tax resident for Year of Assessment (YA) 2021 and/or YA 20222, provided it meets all the following conditions:

a. the company is a Singapore tax resident for the immediate preceding YA;

b. there are no other changes to the economic circumstances3 of the company; and

c. the directors of the company have to attend the Board of Directors meeting held outside Singapore or if the meeting is held via electronic means (e.g. via video-conferencing, teleconferencing, etc.) due to the directors being temporarily restricted in their travel as a consequence of COVID-19.

Conversely, IRAS will consider a company as a non-resident for YA 2021 and/or YA 20222, provided it meets all the following conditions:

a. the company is not a Singapore tax resident for the immediate preceding YA;

b. there are no other changes to the economic circumstances3 of the company; and  

c. the company has to hold its Board of Directors meeting in Singapore due to the travel restrictions relating to COVID-19.
   
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.

*For information on how tax residence status of a company is determined, refer to Tax Residence Status of a Company.


Permanent Establishment under Singapore Income Tax Act 

Employees of a foreign company may have to remain in Singapore due to travel restrictions relating to COVID-19. IRAS will consider that such presence does not result in the creation of a permanent establishment in Singapore for the foreign company for YA 2021 and/or YA 20222, provided it meets all the following conditions: 

a. the foreign company does not have a permanent establishment in Singapore for the immediate preceding YA;

b. there are no other changes to the economic circumstances3 of the company; 

c. the presence of the employees in Singapore is due to travel restrictions relating to COVID-19 and their physical presence in Singapore up to 30 June 2021^ is temporary; 

d. the activities performed by the employees during the presence would not have been performed in Singapore if not for the travel restrictions relating to COVID-19; and

e. these employees will leave Singapore as soon as they are able to do so, following the relaxation of travel restrictions relating to COVID-19.

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

1. During which the strategic decisions of the company are made.
2. Companies that have applied the conditions to determine its tax residency or permanent establishment status for YA 2021 are also allowed to apply the conditions to determine its status for YA 2022. 
3. These include:
a. The principal activities and business model of the company;
b. The nature of the business operations and the conduct of the business in Singapore and elsewhere; and
c. The usual locations in which the company operates. 
This date is subject to review as the COVID-19 situation evolves.

Interpretation of the provisions of Singapore’s Avoidance of Double Taxation Agreements (DTAs)

As a guide to the interpretation of the provisions of Singapore’s DTAs taking into account the COVID-19 pandemic, references may be made to the OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis published by the OECD on 3 April 2020 and the Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic published by the OECD on 21 January 2021.


Determining whether the PE threshold for building sites, construction, installation and assembly projects has been satisfied

In the OECD’s updated guidance, it is clarified that while a construction site PE would not be regarded as ceasing to exist when work is temporarily interrupted, “jurisdictions may consider 'stopping the clock' for determining whether the PE threshold has been satisfied during certain periods where operations are suspended as a public health measure to prevent the spread of the COVID-19 virus”. Paragraph 5 of the OECD’s updated guidance also clarified that the updated position “seeks to avoid instances of double taxation but cannot be relied on to create instances of double non-taxation”.

In this regard, for the purpose of determining whether the PE threshold has been satisfied when applying the building sites, construction, installation or assembly projects PE provisions in Singapore’s DTAs, IRAS will not count the universal Extension of Time (EOT) of 122 days from 7 April 2020 to 6 August 2020, provided that the non-resident enterprise meets all the following conditions:

  1. The non-resident enterprise must have carried out construction works (within the meaning given in section 3(1) of the Building and Construction Industry Security of Payment Act (Cap. 30B). Please click here) in relation to a construction contract, in Singapore.
  2. The building site, construction, assembly or installation project must be in connection with qualifying construction contract(s). Qualifying construction contract refers to a contract which meets the criteria set out in Section 39A(1)(a) to (c) of the COVID‑19 (Temporary Measures) Act 2020, as follows:

    "The construction contract (including one to which the Government is a party) refers to one -
    1. that was entered into before 25 March 2020, but not if the construction contract was renewed (other than automatically) on or after that date;
    2. that remains in force on 2 November 2020; and
    3. where, as at 7 April 2020, any construction works to be performed under the construction contract have not been certified in accordance with the construction contract as completed."
  3. No construction work was performed at any time between 20 April 2020 and 30 June 2020.
  4. The non-resident enterprise must be subject to tax in the jurisdiction of residence on the total profits derived from the activities carried out in Singapore if the non-resident enterprise does not have a PE in Singapore as a result of the application of the universal EOT.

The non-resident enterprise should keep all relevant documentations and records to substantiate that all the above conditions are met, and to provide the information to IRAS upon request.