What is a Certificate of Residence (COR) and does my business need it?
12 minute read
Every individual that earns foreign income is required to pay taxes in a foreign country. And if you are a Singapore tax resident, you should definitely take a better look at the Certificate of Residence (COR).
Singapore is constantly working on making the business environment in the country more attractive. Its wide network of tax treaties plays an important role for most foreign entrepreneurs that come to the country to do business.
In Singapore, COR gives some relief to those who earn income. Take a look below to learn why COR is important and how your business can benefit from it.
Singapore's business environment
Singapore’s location in the Asia-Pacific region is of huge strategic importance in the world of business. Some would say that the country connects two business worlds and a number of lucrative markets.
The government of this country aims to make Singapore the ideal launchpad for businesses that want to grow and do business in the local market.
Singapore has already made substantial efforts to establish strong diplomatic ties with its neighbors and other growing financial hubs. In turn, that made it easy for locally incorporated companies to broaden their market reach and tap into the regional markets.
One important diplomatic victory is the establishment of double taxation agreements. And to make use of these agreements, one has to acquire COR first.
More than 70 countries all over the world have signed this agreement with Singapore, so make sure to check if your country is on that list too.
What is a Certificate of Residence?
The Certificate of Residence COR is an official document that is issued to a business in Singapore. This document proves that the respective legal entity is a tax resident. An entrepreneur has to apply for a COR in Singapore in order to claim the certain tax benefits that are available under a double tax treaty.
A certificate of residence comes as a letter certifying that an entity is a tax resident in Singapore for the purpose of claiming benefits under the Avoidance of Double Tax Agreements (DTAs).
- A DTA covers the taxing rights between Singapore and its treaty partner regarding the various income types arising from their mutual cross-border economic activities.
- The agreement also deals with reduction or exemption of tax on certain types of income.
- The benefits of a DTA can be enjoyed only by Singapore tax residents and tax residents of the treaty partner.
The Avoidance of Double Taxation Agreement (DTA) is an agreement signed between Singapore and another country designed to relieve double taxation of income earned in one country by a resident of the other country. A treaty country is one that has signed a DTA with Singapore.
Finally, keep in mind that the responsible authority for CORs is the Inland Revenue Authority of Singapore (IRAS), and it distributes CORs.
What are the requirements?
First of all, keep in mind that for a business to be able to acquire a COR, it has to be a tax resident of Singapore.
Below are additional rules.
Nominee companies cannot apply for COR, since they are not the beneficial owner of the income derived from the treaty partner. A nominee business is a business that acts as a custodian of shares on behalf of the beneficial owners.
For foreign-owned investment-holding companies that have purely passive sources of income and receive only foreign-sourced income, there is no way to apply for COR.
Keep in mind that a foreign-owned company is a company where 50% or more of its shares are owned by individual shareholders who are not Singaporean or foreign companies that are not incorporated outside Singapore.
However, IRAS may issue a COR should these businesses meet the following requirements.
- The control and management of the company’s business are exercised in Singapore.
- The company has good reasons for setting up an office in Singapore.
To meet the mentioned requirements, businesses have to demonstrate that decisions on strategic questions are made in Singapore. For instance, a business can show IRAS that its Board of Directors’ meetings are held in Singapore.
Additionally, the business also has to satisfy the requirements below:
- Has related companies in Singapore that are tax residents in Singapore or conducts business activities in Singapore.
- Receives support or administrative services from a related company in Singapore.
- Has at least one director based in Singapore who holds an executive position and is not a nominee director.
- Has to possess at least one key employee (for instance, a CEO or CFO) based in Singapore.
Non-Singapore incorporated business
Moreover, non-Singapore incorporated companies and Singapore branches of foreign businesses are not eligible to apply for COR. These companies are not controlled or managed in Singapore. Singapore branches of foreign companies are controlled and managed by their overseas parent company.
Still, in some situations, IRAS may still issue a COR under certain conditions.
- The control and management of the company’s business are exercised in Singapore.
- The company has valid reasons for not incorporating in Singapore.
Keep in mind that IRAS holds the right to request additional information about the business.
Requirements for individuals
The individual must either have lived or worked in Singapore for at least 183 days in the calendar year before the year of assessment (YA). Even if this requirement is not met, individuals will nevertheless be recognized as Singapore tax residents if they reside in Singapore and can prove that their absences from the country are temporary and reasonable.
If at least one of these requirements is met, the individual may make a COR application. But if the individual is a foreigner, there is another requirement – the individual must first obtain an Employment Pass. Fortunately, Sleek can help you secure an Employment Pass easily.
Does my business need a COR?
Applying for a COR is not mandatory. However, a COR can bring financial benefits to a business.
Both companies and physical persons can apply for CORs. The IRAS issues this certificate, and the companies need it to prove that they are Singaporean tax residents. However, keep in mind that a company is a tax resident of Singapore if its control and management is exercised in Singapore.
Hence, both companies and individuals that earn foreign income may be subject to tax both at home and in Singapore. Fortunately, as it was mentioned, Singapore’s network of DTAs is quite broad. This way, a person can make sure that they are not double-taxed, as the income earned in one country by a resident of the other country should not be taxed twice.
The primary goal of a DTA is to provide certainty regarding when and how tax is to be imposed in the treaty country where the income-producing business is conducted, or payment is made.
Under the DTAs, the treaty countries may provide tax breaks (tax credit or exemption) to tax residents of Singapore on income derived from their jurisdictions. Non-residents do not enjoy these benefits, and that is why having a certificate of residence is essential.
To enjoy the benefits you have just read about, you should submit the COR to the foreign tax authority to prove that you are a Singapore tax resident. The same goes for companies.
How do I apply for one?
It is first necessary to prepare various documents that have the necessary information for COR.
Prepare and collect the following information:
- Company name
- Confirmation that the company is not an investment holding company with a purely passive source of income
- Confirmation that the company is not a nominee company formed for the purpose of holding shares on behalf of the beneficial owners of the shares
- Proof of whether the company is receiving only foreign source income or not
- Confirmation that the company is not dormant
- Name of a treaty country (the COR will only be approved if there are treaties signed with Singapore)
- Nature of income derived: 1. Consultancy Fees, 2. The dividend, 3. Freight, 4. Interest, 5. Management Fees, 6. Others, 7. Professional Fees, 8. Royalty, 9. Service Fees, 10. Technical Fees
- Amount of income (If the amount cannot be disclosed, please provide an estimate of the income)
- Name(s) of the foreign company/person paying the income
- Date(s) of remittance of income
- Year of Assessment for which the certificate is required (Current year or past year)
- Is the income remitted to Singapore? If yes, please provide the date of remittance. If no, please provide the expected date of remittance
- Confirmation that the company control and management for the entire year has been/will be exercised in Singapore
- Confirmation that the application is made to claim benefit under the Avoidance of Double Taxation Agreement
- Kindly confirm that the company is the beneficial owner of the income
Once this information is gathered, a form needs to be filled in and submitted.
Currently, there is no shared electronic system through which companies can claim their tax credit, tax exemptions, or tax concessions based on the DTA signed between two countries.
That is why the foreign tax authority will typically require a company to submit a COR as evidence before allowing the company to enjoy benefits provided by the DTA.
However, if you find that your country has a signed DTA with Singapore, head over to the myTax Portal. All COR applications are filed there (online).
It is possible to apply for COR through myTax Portal for the current calendar year or up to four previous calendar years. For instance, in the calendar year of 2020, the company may apply for a COR for the calendar years 2016 to 2020.
The COR is granted to the company for the calendar year only if the control and management of its business are exercised in Singapore in the specified calendar year. If the COR is granted for the calendar year 2020, it means that the company is a tax resident of Singapore throughout the calendar year 2020.
Finally, the company has to authorize its staff or a third party for corporate tax in CorpPass before they can log in and apply for COR on behalf of the company.
Acquiring a COR for your business most definitely means lower costs and higher profits in the long run. Rest assured that you will benefit from the certificate if you plan on doing business in Singapore.
Having a Singapore tax certificate of residence is an important and powerful document, especially when a person needs to prove the tax residence status. This certificate will open many doors for entrepreneurs, and many tax benefits are in the store for those who acquire it.