Dividends from Singapore company?

Can anyone tell me whether dividends received from a Singapore company are tax exempt here?

Specifically, I'm wondering what is the best place to receive income in the following situation - have a stake in a Singapore holding company which has a wholly owned Australian subsidiary. My stake is held through my personal entity, a local pty ltd. I currently get an income from the Australian subsidiary, but wonder whether I'm better getting my "income" as dividends from the Singapore company.

I read somewhere that if you hold more than 10%, the foreign dividends are tax exempt. Does that mean if its eventually distributed to me (through personal entity), there is no tax on the income? Or do you still wind up having it taxed when you receive it personally?

 

What do the lawyers and accountants who set up your current structure say you should do?

 

You need professional advice.

 

Australia resident taxpayers are taxed on their worldwide income.

 

Dividends from Singapore are taxable.

The best place to receive dividends from Singapore is in Singapore.

 

I saw this in a KPMG tax guide:

"Dividend Income
Dividends received by a resident company from non-resident companies will be treated as non-assessable,
non-exempt income if a participation interest of at least 10 percent is held in the non-resident company.
This test applies at the time the dividend is paid. This exemption will only apply to equity dividend
distributions, and excludes debt interests such as redeemable preference shares."

Isn't that saying there is no tax on foreign dividends (or non-assessable) if a company holds greater than 10% shareholding? That's not what it means?

 

If the income is derived by the Australian (active business) company, it will pay Australian company tax on it, then distribute it by way of a dividend to the Singaporian (passive) holding company, before paying it as a dividend back to the Australian Holding company.

Question is why would you do that. Not an expert in Singaporian tax rules - but when the cash comes back to Aus from the Singaporian entity I'm guessing there are problems accessing the franking credits from the Australian subsidiary? Do they get lost when the dividend is paid to Singapore?

What have you been doing all this time that the company has been in operation? Surely your accountant has sorted this out already?

Unless you went and set up a Singapore holding company and forgot about CFC rules...

 

It's historical, setup years ago for a startup that got investment in Singapore, was too early for the market and went out of business, but has IP. There are no profits in the Australian subsidiary, so no dividends. There will be royalties going back to Singapore from Australia, not dividends. There's a 10% Australian withholding tax on royalties which becomes a foreign tax credit in Singapore. Haven't needed to address this in the past because the Australian subsidiary only starting to pay royalties back to Singapore starting next year. However, my question is just about foreign dividends from Singapore back to my personal entity and whether I can get it tax free, based on the KPMG info I quoted above about it not being assessable if the entity owns more than 10% of the non-resident company

 

If the Singapore company is earning more than 5% of its income from an Australian source (such as royalties) then the Singapore company will pay Singapore corporate tax, and the immediate Australian parent entity might have to pay a top-up tax to the ATO.

In short - you don't get to avoid Australian tax just by paying "royalties" and shifting profits to Singapore and declaring nil profits here.

You may wish to ask your accountant about concepts like tainted income and Controlled Foreign Company attribution rules.

Looking at one clause in the tax act in isolation is a recipe for trouble...

 

I don't think it's shifting profits - The Singapore parent owns the IP, and it was a condition at the time it got investment years ago that there would be a license to the Australian subsidiary.

Understood the Singapore parent pays Singapore company tax, but the income won't be large and there is a reduced rate for the initial income each year as well, so pretty low tax.

The Singapore parent isn't wholly owned, no immediate parent, it has multiple shareholders.

So I'm really just looking for clarity on what I read in the KPMG report I quoted, does it mean that the dividend back to my personal entity is tax free since my personal entity holds more than 10%?

 

Since I want to use most of the funds to buy property, is it better to leave the Singapore dividend income in the personal entity and have it buy the property?

 

i dont think many on here will be providing the advice you need. sounds like marty deals with international tax issues in his profession and been generous with the advice so far.

 

Yep that's right. I'm not allowed to give tax advice, but for the multinational I work for I deal with the accounting for a problem similar to this one (and the actual tax specialists are the ones who sort it out).

It's a complex area, and if the numbers are large enough the ATO will come knocking for things like International Dealing Schedules. The expectation from them is that you have quite robust specialist tax advice for something like this.

This is not the forum for a question like this to be answered. Your problem is very specific to your circumstances.

 

All good feedback all the same thanks. You've brought up a few things I hadn't heard about before so will look into them. The main issue is that it's probably not a large amount that will come back but long term company accountants will want to charge $15-$20k for advice.

 

It is specialised advice that only a small percentage of tax advisors will know. You could research as much as you can, but this will only get you so far. Get a copy of the master tax guide for some preliminary reading

 

Unfortunately, it is specialist advice and will be priced accordingly.

BTW you are referring to section 23AJ. It may have been rewritten into the 97 Tax Act under subdivision 768-A.

The problem will be paying it out from the Aus Company to the shareholder.