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The appearance of COVID-19 throws spotlight on corporate substance

15 April 2020

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

The appearance of COVID-19 throws spotlight on corporate substance

  • The ease of setting up and maintaining an investment holding company in Singapore makes the city-state a favoured destination for foreign investors and business founders. Amid its stable political environment, strategic geographic location and reliable judicial system, Singapore remains a global business epicentre and an attractive investment hub for international firms and a wide variety of investors.
  • Whilst the company incorporation process in Singapore is generally streamlined and efficient, there remain several more ‘practical’ aspects to operating a company that investors and founders need to be mindful of least they get inadvertently entangled in the weeds of corporate substance issues. One of the main factors of corporate substance is to attract (wherever applicable) double tax treaty recognition and (more) favourable local tax status. Failure to do so can have significant financial and legal ramifications.

Tax substance considerations – Singapore tax residency

  • In Singapore, as a general principle, a company’s tax residency status is determined by reference to the jurisdiction in which its business is “controlled and managed”. A company would be considered tax resident in Singapore if control and management of such company is exercised in Singapore (and conversely, such company would not be regarded as a Singapore tax resident if its control and management is exercised outside Singapore).
  • The term “control and management” refers generally to decision-making on strategic matters such as those on company policy and strategy. Where the control and management of a company is actually exercised is a question of fact. The location in which board meetings are held (where strategic decisions are made) is typically a key factor in determining “control and management”. A company’s place of incorporation may not always, however, necessarily coincide with its tax residency.
  • In many instances, companies need to apply to the Inland Revenue Authority of Singapore (“IRAS”) for a Certificate of Residence (“COR”), certifying that it is a tax resident of Singapore. A COR is typically required should the company wish to claim tax benefits under the relevant Avoidance of Double Taxation Agreements or related tax treaties that Singapore is a party to.
  • Foreign-owned investment holding companies with purely passive sources of income or receiving only foreign-sourced income may be regarded as non-tax residents given that these companies usually act based on its foreign shareholders’ instructions. Definition-wise, a “foreign-owned company” is a company where 50% or more of its shares or voting power are held or controlled by foreign companies/shareholders. Notwithstanding the foregoing, foreign-owned investment holding companies may still be treated as Singapore tax residents if certain conditions are met. IRAS may still issue a COR to a foreign-owned investment holding company if it can show that the control and management of its business is exercised in Singapore and that it has valid reasons for setting up an office in Singapore. Apart from holding board meetings in Singapore, such company could satisfy these conditions by showing that (a) it has related companies in Singapore that are tax residents of Singapore or have business activities in Singapore, (b) it receives support or administrative services from a related company in Singapore, (c) it has at least one (1) director based in Singapore who holds an executive position and is not a nominee director, or (d) it has at least one key employee (e.g. a chief executive officer or chief financial officer) based in Singapore.
  • In light of the COVID-19 pandemic which has restricted cross-border travel globally and required the introduction of local “circuit breaker” measures, several companies have faced or are facing practical difficulties in conducting physical board meetings in Singapore. In order to diffuse concerns, IRAS has made recent announcements to specifically address this. Where a company cannot hold its board meetings 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 if:
    • the company is/was a Singapore tax resident for YA 2020;
    • there are no other changes to the economic circumstances of the company; and
    • the directors of the company attend the board meeting held outside Singapore or the meeting is held via electronic means (e.g. via video-conferencing, tele-conferencing, etc.) due to the directors being temporarily restricted in their travel as a consequence of COVID-19.
  • Where a company is/was not a tax resident of Singapore for YA 2020, IRAS will continue to consider the company as a non-resident for YA 2021, if:
    • the company holds its board meetings in Singapore due to the travel restrictions relating to COVID-19; and
    • there are no other changes to the economic circumstances of the company.


  • It is important for companies (including those new to Singapore or looking to re-domicile to Singapore) to thoroughly understand the governance landscape and review their (intended) business activities to ensure that their business objectives can be met. For holding companies with a cross-border presence, it is also equally important to pay close attention to the tax substance considerations and any applicable avoidance of double taxation agreements or related treaties to ensure that transactions are structured efficiently and ultimately to maximize their shareholders returns.
  • It remains to be seen how long the ‘relaxation’ of the Singapore tax residency ‘control and management’ requirements by IRAS will last. This is likely dependent on the global COVID-19 pandemic and global travel situation. Companies should therefore continue to bear in mind any further updates in Singapore’s tax residency regime in these unusual times.

The above is intended as a general guide only and is not to be taken as legal advice or an exhaustive statement of the applicable laws. We hereby disclaim any and all liability for any reliance or use of the above information. If you require specific legal advice, please contact us directly.


Portrait ofSam Ng
Sam Ng
Of Counsel