Tax Haven : What is a Tax Haven and Why Flipkart deal happen in Singapore


What is a Tax Haven?
A tax haven or offshore financial center is any country or jurisdiction that offers minimal tax liability to foreign individuals and businesses. Tax havens do not require businesses to operate out of their country or the individuals to reside in their country to receive tax benefits.



Benefits to a Tax Haven

  • To Tax Haven Countries – The countries benefit by way of attracting capital to their banks and financial institutions, which can then be used to build a thriving financial sector.
  • To Individuals or Businesses – The individuals and businesses benefit by saving tax, which in tax haven countries may range from zero to low single digits compared to high taxes in their country of citizenship or domicile.
Source https://corporatefinanceinstitute.com/resources/knowledge/other/what-is-tax-haven/


Top Tax Havens in the World


1.     Bermuda :  zero percent tax rate and no personal income tax
2.     Netherlands – Most popular tax haven among the world’s Fortune 500. The government uses tax incentives to attract businesses to invest in their country. One such tax incentive cost an estimated 1.2 billion euros in 2016 to Netherlands.
  • Luxembourg – It gives benefits such as tax incentives and zero percent withholding taxes.
  • Cayman Islands – No personal income taxes, no capital gains taxes, no payroll taxes, no corporate taxes, and the country does not withhold taxes on foreign entities.
  • Singapore – Charges reasonable nominal corporate taxes. Reasonable corporate tax rates are provided through tax incentives, lack of withholding taxes, and what appears to be substantial profit shifting.
  • The Channel Islands – No capital gains taxes, no council taxes, and no value added taxes.
  • Isle of Man – No capital gains tax, turnover tax. or capital transfer tax. It also imposes a low income tax, with the highest rates at 20%.
  • Mauritius – Low corporate tax rate and no withholding tax.
  • Switzerland – Full or partial tax exemptions depending on the bank used.
  • Ireland – Referred to as a tax haven despite officials asserting that it is not. Apple discovered that two of the company’s Irish subsidiaries were not classified as tax residents in the United States or Ireland, despite being incorporated in the latter country.

Top Companies that Benefit from Tax Havens

1.    Apple – Amount booked offshore is $214.9 billion. It uses Ireland as a tax haven. Would have owed the U.S. government $65.4 billion in taxes if tax haven benefits were not used.
2.    Nike – It holds $10.7 billion offshore. It uses Bermuda as a tax haven. It would have paid $3.6 billion for taxes if tax havens benefits were not used.  This implies Nike pays a mere 1.4% tax rate to foreign governments on those offshore profits, indicating that nearly all of the money is officially held by subsidiaries in tax havens.
3.    Goldman Sachs – It holds $28.6 billion offshore and uses Bermuda as a tax haven.
4.    Some of the 50 biggest U.S. companies that have stashed approximately $1.6 trillion offshore include Microsoft, IBM, General Electric, Pfizer, Exxon Mobil, Chevron, Walmart

Indian companies registered in Singapore

Several Indian startups, although operating in India, have registered holding companies in Singapore to benefit from increased funding opportunities, business and tax friendly environment, and stable economic policies.
One of these companies is Flipkart, an e-commerce company that is registered in Singapore as Flipkart Private Limited (FPL).
ingapore’s incentives for foreign companies
Singapore functions as a gateway for Indian companies expanding their trade and investment into ASEAN as it is, both, an international financial center and a shipping and aviation hub for the Asia-Pacific.
Here we lay out key incentives promoting Indian investments into the Singapore economy.
  • India’s corporate tax rate for companies with an annual turnover of more than US$36.95 million (Rs 250 billion) is 30 percent, a reduction of four percent from 2011. Meanwhile, the current corporate tax rate in Singapore is much lower at 17 percent.
  • Hiring local talent in Singapore is not compulsory, the government of Singapore pays half the salaries of national employees. This lowers the operational costs of firms registered in the country.
  • Singapore has no export duty. Unlike India, import duties are limited to tobacco, petroleum products, and specific luxury goods.
  • India taxes long term capital gains at 10 percent for investments over US$1,556.74 (Rs 100,000) but Singapore has no capital gains tax.
  • For startups, India offers tax exemptions for firms incorporated in 2016 – for three years over a seven year period; discussions are in place to extend this benefit. Only if the profits of the startup (accessing the tax break) exceed US$3.7 million (Rs 25 crores) in a financial year, is it liable to pay tax for that year. However, Singapore offers a guaranteed three-year tax exemption for entities with an annual income of US$223,382 in their initial years.
  • Singapore does not implement retrospective taxes, which can be a concern for investors looking at India.

 




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