Start-up incentives introduced in Singapore

Far East Tax & Money Havens, , , , , ,

During his keynote address to Singapore’s Fourth Start-up Enterprise Conference, the Permanent Secretary for Finance, Peter Ong, illustrated how the competitive tax regime in Singapore encourages the growth of new start-up companies.

“Singapore offers a very competitive tax regime designed to encourage new start-up companies,” he said. “Under the full tax exemption scheme, a newly incorporated company that meets the qualifying conditions effectively pays only 5.6% on the first SGD 300,000 (USD 213,000) of the income they earn in their first three years.” “After this period,” he continued, “start-ups can continue to pay less than 9% tax on the same amount, thereby allowing new entrepreneurs to retain a larger portion of their earnings to be ploughed back to grow their businesses.”

He pointed out that, this year, the government has also unveiled an unprecedented tax benefit in the form of the Productivity and Innovation Credit, to encourage start-ups and small- and medium-sized enterprises (SMEs) to invest in productivity and innovation. As an illustration, for the first SGD 300,000 that a start-up invests in staff training, it can deduct SGD 750,000 from its taxable income.

The same start-up will enjoy another SGD 750,000 deduction should it invest in automation. “The Productivity and Innovation Credit also allows businesses to convert the enhanced tax deduction into a cash payout,” he added, “a move that would come in handy in helping start-ups and SMEs ease their cash flow.”

Ong then illustrated the programme which supplies young start-ups with grants of up to SGD 50,000 to start their innovative business, while the Start-Up Enterprise Scheme provides a co-financing option of up to SGD 1m in funding start-ups with innovative and viable content.

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Private Foundations

African Tax & Money Havens, Central and South American Tax & Money Havens, European Tax & Money Havens, Indian and Pacific Ocean Tax & Money Havens, , , , ,

We can help you to establish a Private Foundation. Essentially, Private Foundations act as a holding entity for assets transferred to them.  The transfer is usually in the form of a gift, by a person referred to as the donor and in some jurisdictions, the term “settlor” is used.

The Private Foundation have traditionally been used over the centuries for benevolent or charitable purposes, often being associated with pieces of art or other valuable collections. The Private Foundation works well for individuals desiring a straight forward asset holding/protection structure designed to provide beneficiaries with an asset-derived income.

Foundations cannot be used for trading activities or for conducting financial service business activities.  However, the buying and selling of assets (real estate, shares in trading companies, investments etc.) is not considered a trading activity. Foundations can act as a shareholder but not a director or officer, in a trading entity like a corporation.

There is no gift tax to pay at the time a Foundation is established, and earnings generated by the Foundation are tax exempt. However, incomes paid by Foundations to its beneficiaries, once declared by beneficiaries, might be subject to local taxation at their place of domicile.

Because the Foundation’s assets are gifted, the donor receives no payment in return. The Foundation becomes the owner of the assets endowed to it and, as such, the entity has a separate legal personality. It is in this area that Foundations fundamentally differ from trusts, since trusts are not considered to be legal entities.  In the case of a trust, legal title of its assets is held in the name of the trustee.

In order for the Foundation to function, the assets need to have been endowed and placed at the disposal of the Foundation and its officers.  This endowment satisfies the tax inspector’s question “has the property ceased to be the asset of the tax-payer (donor)”. One of the documents required at the time of registration of a Foundation is a Certificate of Initial Assets signed by its officers. This declaration must confirm that assets of not less than US$ 10,000 in value have been endowed to the Foundation. Upon receipt of the Certificate of Initial Assets, the Registry will issue a ‘Certificate of Endorsement of Statement of Value of Initial Assets’.  The specific assets endowed at the time of registration need not be named and additional assets can be gifted at anytime, again without any public record of their value or their source.

Unlike trusts, once assets are placed in a Foundation, they cannot be withdrawn at will by the donor.  A statement relating to the endowed assets also needs to be included in the Memorandum of Endowment signed by the donor and submitted with the application to register. The Memorandum is not filed, but is returned to the Foundation attached to a Certificate of Endorsement of Documents issued. An ‘Extract of Particulars of the Memorandum of Endowment’, signed by the Secretary of the Foundation is filed. The names, addresses and specimen signatures of the appointed officers and the Secretary, and details of the address to be used for the service of documents to the donor are included in this Extract. The name of the donor does not appear in the Extract and, therefore, need not become public information. In addition, more than one donor is permissible, and there are no restrictions on residency or nationality of the donor.  However, a donor cannot act as an officer or be appointed as the Secretary of the Foundation, but can participate in its supervisory board, if one is appointed.  Moreover, the donor can be one of the beneficiaries.

Management responsibility of a Private Foundation sits with its officers who determine the distribution of income and capital in accordance with the donor’s instructions.

A minimum of three officers need to be appointed, and at least two officers must be physical persons. One of the officers can also act as the Secretary, and a corporate Secretary is permitted. Consent to Act declarations for each officer and the Secretary need to be submitted with the application to register the Foundation, and these are filed together with the Extract. As with the donor, there are no restrictions on residency or nationality for the officers and/or the Secretary. Officers can delegate their powers to one another. To assist in the management of a Foundation, the officers may decide to appoint a Supervisory Board comprised of at least three physical persons.  Private Foundation Law permits a donor to participate on the Supervisory Board.

The Supervisory Board must be established as a body that is independent of its officers and beneficiaries. The Board acts like the Protector of a trust. Similarly, auditors may also be appointed. The procedural rules for running a Foundation are set out in the Management Articles, a document that is very similar in scope to the bylaws of a corporation. The Articles are signed by the donor and submitted with the application to register the Foundation. Like the Memorandum, the Management Articles are not filed, but returned to the Foundation attached to a Certificate of Endorsement of Documents.

A typical function of a Private Foundation is to provide beneficiaries with an income derived from an asset(s) endowed to it from a donor(s). As has been outlined above, the donor provides guidelines as to how the Foundation is to be managed and also defines who the beneficiaries will be, what payments should be paid to the beneficiaries, and when payments should occur.

While the officers of the Foundation need to know the names of the beneficiaries, such information is not required to be filed. A donor can also provide further guidance to assist officers to manage the Foundation in the form of a Letter of Wishes and, from time to time, change the beneficiaries. The Letter of Wishes is an internal document and not, therefore, filed.

Once formed, a mandatory annual return for the Foundation, signed by the Secretary must be submitted.  The annual return must confirm that the information filed in the Extract remains correct and that proper accounts have been maintained.  Annual returns are not publicly filed.

The Private Foundation provides a perfect holding structure for emerging financial and asset empires, while distancing the donor from otherwise taxable events.  The Foundation permits income generated from assets held by the Foundation to be available to the donor and subsequently his heirs in accordance with the (changing) wishes of the donor/settlor.   At the same time, the Foundation keeps intact the wealth-generating activities of a family (shipping operation, hotels, property, licenses, royalties, manufacturing or service activities).

The above concept is based on Austrian law and also used in Liberian Private Foundations. Similar foundations are available other places like Panama and Mauritius.

Contact us if you are interested to set up a Private Foundation.

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Tax advantage in Russia’s Silicon Valley

European Tax & Money Havens, ,

Russia’s Skolkovo To Have Own Tax Regime The head of the Russian ‘Silicon Valley’ project at Skolkovo, Victor Vekselberg, has given an interview to Vedomosti, in which he describes the project and its planned tax privileges in more detail. Skolkovo will have its own special legal regime, he said, which will be managed and funded by a non-profit making foundation rather than a city council. Companies in residence, will be exempt from income taxes on property, and have lower rates of social security contributions,” said Vekselberg, adding that he had sometimes had to raise his voice when discussing tax privileges with the Ministry of Finance. Enterprises should be eligible for duty-free importation of equipment – or subsidies to compensate for duties. According to the draft terms still to be agreed, preferential tax treatment would be given for unspecified periods of up to 10 years, or until annual revenues reached RUB3bn during which time there could be zero taxes on income, property, land, and transport, and no VAT.

Vekselberg said that he would be the first president of the foundation, assisted by co-sponsors on the foundation board of trustees, which would include representatives from the Russian Academy of Sciences, Rusnano, Vnesheconombank, the Russian Venture Company, a Fund for Assistance to Small Innovative Enterprises in the scientific and technical sphere, the owner of the land (а state-sponsored housing association), as well as an association formed by universities. Vekselberg did not exclude the possibility of adding foreign sponsors to the list in due course.


The community is expected to grow to 25,000-30,000 people and premises for postgraduate and doctoral research will be constructed, which should also encompass laboratories, housing, offices, kindergartens, schools and hospitals. The construction alone, excluding research funding, should involve expenditure of USD2bn.

Vekselberg described the construction as low-rise, environmentally friendly and energy efficient. Funding for the first 30 months may reach RUB50-60bn (USD1.7bn-USD2.0bn). It would be state funded and financial contributions from co-sponsors would be minimal. Local services would also be state funded.
The foundation will provide grants for some projects. Companies whose projects are supported will be able to rent premises virtually at cost and will be given tax, customs and other privileges. This way, Vekselberg said, companies will be able to concentrate fully on research without being distracted by bureaucracy and formalities.

A streamlined procedure for the transfer of land would be introduced, which would shortcut planning permission formalities. Import formalities would also be streamlined. Some projects would not have to meet performance criteria, promised Vekselberg; for the first time in Russia, projects may be allowed to fail. In the West, Vekselberg concluded, two successful start-ups out of 10 would be regarded as a satisfactory outcome.

The project is not without its critics, however. Vedomosti quoted, for example, Sergei Mitrokhin, leader of liberal party Yabloko, as saying: “It will be a kind of state corporation, a sinecure; and with the absence of local government (which is in fact unconstitutional), activity will be completely out of control.” 

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The European Union outlaws exit taxes

European Tax & Money Havens, , , , , ,

The European Commission has sent reasoned opinions to Belgium, Denmark and the Netherlands, requesting that they change their exit tax rules on companies that transfer their seat or assets to other member states. 

The Commission considers these provisions to be incompatible with the freedom of establishment provided for in Article 49 of the Treaty on the Functioning of the European Union (TFEU). A similar case against Sweden has been closed, following compliance by the Swedish authorities. 

The Commission has called on the aforementioned countries to amend the following provisions:  

  • Belgium – Article 208, 209 and 210, paragraph 1, point 4 of the Income tax code (CIR92), that provides for the immediate taxation of capital gains where the company switches fiscal residence to outside Belgium;
  • In Denmark, Section 7A of the Danish Corporate Tax Act provides for immediate taxation of capital gains on assets transferred outside Denmark; and
  • In the Netherlands, articles 3.60 and 3.61 of the Income Tax Law 2001 and articles 15c and 15d of the Corporate Tax Law 1969, which provide for exit taxation of non-incorporated businesses and companies.

The Commission considers that such exit tax rules are likely to dissuade businesses and companies from exercising their right of freedom of establishment and constitute restrictions of Article 49 TFEU.

The Commission’s opinion is based on the Treaty as interpreted by the Court of Justice of the European Union in De Lasteyrie du Saillant, Case C-9/02 of March 11, 2004, and in N, Case-470/04 of September 7, 2006, and on the Commission’s Communication on exit taxation of December 19, 2006. The immediate taxation of accrued but unrealized capital gains at the moment of exit is not allowed if there would be no similar taxation in comparable domestic situations. It follows from the case-law that the member states have to defer the collection of their taxes until the moment of actual realization of the capital gains.

The Commission had already referred Spain and Portugal to the Court of Justice for similar exit tax rules, and sent a reasoned opinion to Sweden,

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French “black list” – St. Kitts and Nevis added

Caribbean Tax & Money Havens, , , ,

St Kitts and Nevis Prime Minister, Denzil Douglas, has denounced the Federation’s placement on France’s new blacklist of non-cooperative territories. He said that efforts taken by the Federation, and by other OECS countries, to meet international compliance standards relating to their financial services sector, is like “working towards a moving target.”

A statement from the Prime Minister’s Office said: “This blacklisting by France of countries that they claim have failed to cooperate on tax issues has caused tremendous concern for the Federation for a number of reasons.”

“The Federation has concluded negotiations and initialed agreements with 17 countries for the exchange of tax information and double taxation agreements by the end of 2009 and was in a position to sign all of these agreements at that time.”

Douglas commented: ”The Federation was told that we would have to wait until these OECD countries carried out their internal bureaucratic processes before we could be given a date or a venue for signature. We were able to sign eight of these agreements by the end of 2009 and we signed our ninth agreement with the UK in January of this year.”

”It is extremely unfair for St Kitts and Nevis to now be penalized by France for not meeting the required standard of 12 signed tax agreements as we sit and wait for OECD member countries to inform us that they are ready to sign these agreements.”

Douglas further informed that, responding to a call by St Kitts and Nevis and other OECS countries for assistance in getting agreements signed with OECD member countries in a more timely fashion, the World Bank has announced the appointment of a consultant to assist the OECS countries with this process.

“This consultant has actually negotiated with France the text of a Tax Information Exchange Agreement on behalf of the OECS countries which the Federation signed off on last month and we are now awaiting a date for signature of this agreement from the French government. It is therefore surprising that despite this development, France has seen it fit to move ahead of its other G20 counterparts to issue its own blacklist and to announce sanctions with effect from March 1, 2010, which are indeed quite punitive and will completely stagnate any investment by French nationals into the Federation and the OECS region. It is of further concern that countries blacklisted by France, even if they meet the international standard one week later, will remain on this blacklist until January 1, 2011, when this list will again reviewed,” the statement noted.

The statement added that it was based on the fear of situations like this blacklisting by France that in March 2009, the government passed the St Christopher and Nevis (Mutual Exchange of Information on Taxation Matters) Act, No 7 2009, which provides the legal framework for the Federation to give the force of law to Tax Information Exchange Agreements (TIEAs) signed by the Federation and allowing the Federation to unilaterally list countries in a schedule to this Act which would be entitled to make requests for tax information to the Federation pursuant to rules which are included in a schedule to this Act.

“These rules are based on the OECD model [TIEA] and are therefore in compliance with the international standard. The reason for the government taking this initiative was firstly to ensure that we would not be hindered by the cost and time involved in negotiating tax treaties to enable us to comply with our international obligations. Our experience in being able to receive dates for the signing of our already negotiated agreements has demonstrated that this fear was in fact justified,” it said.

“The OECD in a publication on its website dated April 21, 2009, entitled ‘Countering Offshore Tax Evasion: Some Questions and Answers on the Project’ clearly stated that the standard for transparency and tax information exchange can be implemented “through bilateral tax treaties or [TIEAs]; by multilateral agreements; or by domestic legislation allowing for the provision of information on a unilateral basis.”

Despite this endorsement of the unilateral mechanism by the OECD in its publication, the unilateral mechanism adopted by the Federation in March of 2009 to facilitate the provision of tax information to countries that make requests to the Federation is yet to be adopted by the OECD as a mechanism for implementation of the standard.

Douglas further noted that the government has been advised that the Global Forum, following an intervention made by St Kitts at the September 2009 Global Forum in Mexico, is now looking into the matter. However, this move to review this mechanism has obviously come a little too late for the Federation and many other OECS countries.

The Federation will be signing a TIEA with six Nordic countries on March 24, 2010, and will at the latest be removed from the OECD “grey list” on that date.

“This being said, we will continue to do our part to advocate for the official recognition of the unilateral mechanism to ensure that in the event that the threshold is again changed in the future, that we will not be in the position we now find ourselves where we are at the mercy of the bureaucracy of OECD countries. We will also continue with our attempts to bring a final conclusion to the negotiations with the countries that we have already initialed tax agreements with and with other countries that we are currently negotiating with,” said the statement.

St Kitts and Nevis has already signed agreements with Monaco, The Netherlands, The Netherlands Antilles, Aruba, the United Kingdom, Denmark, Belgium, New Zealand and Liechtenstein.

Countries the Federation has initialed or concluded negotiations with and are awaiting dates for signature are Australia, Canada, France, Germany, Norway, Sweden, Greenland, the Faroe Islands, Iceland, Finland and San Marino.

Countries the Federation has commenced discussions with about TIEAs but have not yet confirmed the text for these agreements are India, Japan, the Seychelles and the United States.

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