Global or Regional Headquarters (HQ) Tax Incentives
Companies that carry out global or regional headquarters (HQ) activities of managing, coordinating and controlling business activities for a group of companies may apply for the Development and Expansion Incentive (DEI) for the HQ activities. The most relevant tax incentives in Singapore would be the Regional Headquarters Award (RHA) and the International Headquarters Award (IHA), both administered by the EDB.
The DEI is aimed at encouraging companies to grow capabilities and conduct new or expanded activities in Singapore.
Overview of the Incentive
An approved company under the PC or DEI is eligible for a corporate tax exemption or a concessionary tax rate of 5% or 10%, respectively, on income derived from qualifying activities.
The incentive period is limited to five years. Extension of the incentive may be considered, subject to the company’s commitment to undertake further expansion plans.
The company is required to maintain a separate account in respect of any non-qualifying activity undertaken during the incentive period. The income from the non-qualifying activity is not eligible for the incentive.
Application for the DEI is open to companies that are prepared to make significant investments in contribution to the economy or in advancement of capabilities towards globally leading industries. The award of DEI may also be accompanied with the International Headquarters Award status for companies that commit to anchor substantive HQ activities in Singapore to manage, coordinate and control regional business operations.
To qualify, companies must meet quantitative and qualitative criteria. These include the employment created (including skills, expertise and seniority), total business expenditure which generates spin-off to the economy, as well as commitment to growing the capabilities (e.g. technology, skillsets, knowhow) in Singapore. Manufacturing projects are also required to commit to fixed asset investment in plant, building or equipment. Companies with RHA status pay a lower corporate tax rate of 15% for three years plus a potential further two years on incremental qualifying income, if the prescribed conditions are satisfied. If the applicant company satisfies all the minimum requirements by the third year of the incentive period, it will enjoy the 15% concessionary tax rate on qualifying income for an additional two years.
The applicant company must satisfy all of the following minimum requirements by the milestone indicated and maintain these until the end of the incentive period:
- A paid-up capital of $0.2m and $0.5m by the end of Year 1 and Year 3 of the incentive period respectively.
- Three headquarters services to network entities in three countries outside Singapore by the end of Year 1. Network entities refer to any entity within the group, including subsidiaries, sister companies, branches, joint ventures and representative offices as well as to franchises.
- 75% skilled staff throughout the incentive period. Skilled employment refers to at least an NTC2 Certificate qualification.
- An additional 10 professionals in Singapore by the end of Year 3, where ‘professionals’ refers to at least a diploma qualification.
- An average remuneration per worker of $100,000 per annum for the top five executive designations by the end of Year 3.
- An additional $2m in annual total business spending in Singapore by the end of Year 3. Total business spending refers to total operating costs minus the costs of work subcontracted outside Singapore, royalties and know-how fees paid overseas, raw materials, components and packaging.
- An additional $3m in total business spending cumulatively for the first three years of the incentive period.
Substantially better tax incentives in the form of lower tax rates of either 10% or 5% are possible with the IHA but, to achieve this award, applicants are expected to substantially exceed the criteria listed for the RHA.
The approval and award of the DEI will be subject to the company implementing its plans to grow and sustain substantive economic activities in Singapore.
The DEI is subject to the provisions of Parts II, III and IIIB of the Economic Expansion Incentives (Relief from Income Tax) Act and any subsidiary legislation respectively. A DEI company must submit regular progress reports to the EDB for the evaluation of performance. In the event of any breach of term or condition of the DEI, the company is subject to the potential revocation of the incentive and recovery of any associated benefits.
All business entities incorporated, registered or carrying on a business in Singapore must carry out any transaction with any related parties at arm’s length and are subject to transfer pricing guidelines. This requirement includes the preparation and keeping of contemporaneous transfer pricing documentation, which has to be submitted to the Inland Revenue Authority of Singapore (IRAS) upon request.
Any questions or requests for clarification can be submitted to Bestar.