For Certificate of Residence (COR) applications in respect of calendar year 2025 onwards, a foreign-owned investment holding company will be required to either have at least a key employee or executive director based in Singapore, or establish that it is managed by a related company based in Singapore, for the purposes of demonstrating that it has valid reasons for setting up Singapore operations. This represents a noticeable tightening in IRAS’ practice with regards to the economic substance conditions required for COR applicants moving forward.

A. Introduction

Under Singapore tax laws, the tax residency of a company is determined by where its “control and management” is exercised. This generally refers to where strategic decisions of the company are made, such as where the board meetings are conducted.

Generally, IRAS will consider a company to be a Singapore tax resident for a particular Year of Assessment (YA) if the control and management of its business was exercised in Singapore in the preceding calendar year.

The COR is a letter issued by IRAS to certify that the company is a tax resident of Singapore for the purpose of claiming tax benefits under the DTAs that Singapore has concluded with other jurisdictions. The foreign tax authority typically requires the COR to prove that the company is a Singapore tax resident, to allow the company to enjoy tax benefits (e.g. tax exemptions or lower withholding rates) on income derived from the foreign jurisdiction.

B. Updated conditions for foreign-owned investment holding companies applying for COR

A foreign-owned company is a company where 50% or more of its shares are held by:

1. Foreign companies that are incorporated outside Singapore; or
2. Individual shareholders who are not citizens of Singapore.

Generally, foreign-owned investment holding companies with purely passive sources of income and receiving only foreign-sourced income are only eligible for a COR if IRAS is satisfied that the following conditions are met:

1. The control and management of the company’s business is exercised in Singapore; and
2. The company has valid reasons for setting up in Singapore.

For COR applications for calendar years prior to 2025, the foreign-owned investment holding company may demonstrate that it has valid reasons to be set up in Singapore by having at least one Singapore-based director (holding an executive function) or key employee. In the alternative, the applicant may demonstrate the existence of substance in Singapore in the form of its related companies in Singapore, or that it receives support or administrative services from such Singapore-based related companies. With effect from calendar year 2025, such conditions required by IRAS to substantiate that the company has valid reasons for being set up in Singapore will be tightened, whereby the applicant company can no longer rely solely on the existence of its Singapore-based related companies to demonstrate substance. If the applicant itself does not have any Singapore-based executive directors or key employees, it would be required to demonstrate that it is “managed” by its Singapore related company.

The full list of conditions that the foreign-owned investment holding company must satisfy prior and subsequent to 2025 is set out in the table below:

C. Our observations

Such change in IRAS practice represents a noticeable tightening of economic substance conditions for companies intending to apply for a COR moving forward, with the need to clearly demonstrate to IRAS that the executive and supervisory functions of the company are based in Singapore. It is further consistent with the developments in the international tax landscape with jurisdictions increasingly requiring the clear demonstration of economic substance in order to access tax benefits, and in particular, Singapore’s intention to safeguard its reputation in the international tax arena by ensuring that non-residents do not set up shell companies without substance to abuse its treaty network. Moving forward, it would be worth noting how IRAS assesses the requirement that the applicant be “managed” by its related company as satisfied, as it presently does not provide additional guidance or illustrations on the issue. Asset holding companies based in Singapore should consider these developments with careful detail in conjunction with the economic substance requirements under the recently introduced section 10L of the Income Tax Act 1947.

Please feel free to reach out to any of our key contacts should you have any questions or concerns on navigating these changes.