International Turnkey Contracting in ASEAN: EPC-Projects in Singapore

WHEN IS A PERMANENT ESTABLISHMENT (PE) GENERALLY ESTABLISHED FOR ON-SITE WORKS? DOES A DOUBLE TAXATION AGREEMENT (DTA) BETWEEN SINGAPORE AND GERMANY AFFECT THIS ASPECT?

Under Singapore domestic tax law, a PE in Singapore is triggered where, among others, a person (which includes corporations) carries on supervisory activities in connection with a building or work site or a construction, installation or assembly project. PE may be triggered for on-site projects lasting more than 183 days. There is no minimum time threshold stipulated for PE exclusion. Under the DTA between Singapore and Germany, among others, a building site, construction, installation or assembly project constitutes a PE only if it lasts more than twelve months. This is in line with the OECD model tax convention.

IS IT A COMMON APPROACH IN SINGAPORE TO SPLIT EPC-CONTRACTS IN ON- AND OFFSHORE PARTS TO MITIGATE TAX RISKS?

Yes, it is common practice to split EPC-contracts based on the supply of goods/services onshore or offshore. This is not only a tool to mitigate tax risks, but also to address other non-tax considerations such as limiting the liability for contractors and reducing the cost of complying with local licensing regulations. The Inland Revenue Authority of Singapore (IRAS) accepts such arrangements if they reflect economic reality and are commercially justified. Anti-Avoidance Principles apply.

ARE THERE ANY SPECIFIC TAXES TO BE OBSERVED FOR EPC-CONTRACTS IN SINGAPORE?

There is no specific tax regime for EPC-contracts in Singapore. However, several other specific taxes need to be considered when executing EPC contracts in Singapore. Among them are the Corporate Income tax, Goods and Services Tax (depending on the type and extent of the supply of goods/services) and Withholding Tax. Other taxes/fees may include import and stamp duties, local construction and property license fees and duties. If the EPC project is split between offshore and onshore components, transfer pricing rules apply

ARE THERE SPECIFIC INVESTMENT CONDITIONS OR PERMITS/LICENCES REQUIRED FOR EPC-WORKS IN SINGAPORE?

There are no specific investment permits/licenses required for investing in EPC works in Singapore. Generally, depending on the form of investments, licenses may be required for a firm carrying out investment activities. If the investment firm wishes to conduct regulated fund management activities, it must be register with the Monetary Authority of Singapore (MAS) or hold a capital market services license to operate as a registered fund management company or licensed fund management company. Managers of venture capital funds managers need to apply to MAS as well. Currently, the most common mode of financing EPC-works in Singapore is debt financing.

With respect to EPC-works, there are several permits, approvals and licenses required for setting up a construction company in Singapore to provide EPC-works. The requirements depend on the industry sector, the scope of work, and whether the contractor is operating directly or through a local entity. EPC is deemed as a construction service which requires business licenses in the form of business registration number (NIB), verified standard certificate and business entity certificate (SBU). Firms which provide professional engineering services must be licensed by the Professional Engineers Board under the Professional Engineers Act. In addition, workmen performing certain tasks may require specialised licenses, e.g., tasks like electrical works, welding etc.

WOULD A MERE TAX REGISTRATION OF A PE BE SUFFICIENT OR IS A CERTAIN INVESTMENT VEHICLE REQUIRED IN SINGAPORE?

A suitable vehicle is generally determined based on tax efficiency and on the question of whether tax treaty provisions need to be relied upon. A mere tax registration of a PE is sufficient, whereby the PE would be filing income tax return in Singapore as a separate entity for Singapore tax purposes. There is no mandatory investment requirement or investment vehicle required in Singapore in relation to a PE.

CAN THE PE GET OWN BANK ACCOUNTS AND HANDLE LOCAL CURRENCY PAYMENTS AS WELL AS FOREX TRANSACTIONS FOR THE PROJECT?

Yes.

WHICH IMMIGRATION REQUIREMENTS COMMONLY APPLY FOR FOREIGN STAFF TEMPORARILY DEPLOYED TO WORK ON-SITE IN SINGAPORE?

Citizens of many nationalities are generally issued a Short-Term Visitor Pass (STVP) upon arrival in Singapore that is usually valid between 30 and 90 days. Both the issuance and duration of an STVP are at the sole discretion of the Immigration Officer on a case-by-case basis each time an individual arrives in Singapore. The issuance of a STVP of a certain duration is not guaranteed on every visit, especially in the case of frequent entries within a short period of time or prolonged past stays. Visitors issued with an STVP may not engage in any form of employment (whether paid or unpaid), business, profession, or occupation in Singapore during the period of validity of the STVP, unless they hold a valid work pass issued under the Employment of Foreign Manpower Act 1990 or are engaged in work pass exempt activities. 

An exception is made for individuals undertaking business visitor activities under an STVP. Such business visitor activities are strictly limited to, inter alia, attending company meetings, company retreats or meetings with business partners, and study tours or visits, training courses, workshops, seminars and conferences as a participant. Those undertaking such business visitor activities are not required to notify the Ministry of Manpower (MOM) of their activities and do not require a work permit of any kind.

Besides these activities a number of activities are work pass exempt (WPEA): Providing certain arbitration or mediation services; participation in certain exhibition as an exhibitor; certain journalism activities supported by the government; providing certain legal or judicial services; junket activities; being involved as an actor, model, director, photographer, or member of a film crew or fashion show; certain performances as an actor, singer, dancer, or musician; providing expertise relating to new plants and equipment, installing, repair, or maintenance of a machine, or transfer of knowledge processes; organizing or conducting certain seminars, conferences, or workshops; being involved in a sports event; and tour facilitation services. Each of these activities comes with specific restrictions.

Regarding on-site work in particular, providing expertise relating to

This exemption does not apply to the following, for which a work pass is needed:

Foreigners must notify the MOM online after they enter Singapore and before they engage in the WPEA. WPEAs may be performed for any number of visits, but only up to a total of 90 days in a calendar year.

CAN WORK PERMITS, IF REQUIRED, BE APPLIED FOR BY AN OVERSEAS COMPANY OR THE FOREIGN INDIVIDUALS DIRECTLY OR IS THE INVOLVEMENT OF A LOCAL ENTITY REQUIRED?

Companies not registered in Singapore need to get a local sponsor to submit a work pass application on behalf of the foreign staff. Employer of Record providers are not able to sponsor work visas. The relationship between the overseas employer and the sponsor company in Singapore, as well as the reasons why the sponsor company needs the foreign staff to work in Singapore, ought to be explained.

ARE THERE TAXES OR SOCIAL SECURITY CONTRIBUTIONS APPLICABLE FOR FOREIGN STAFF TEMPORARILY WORKING ON-SITE IN SINGAPORE? UNDER WHICH CONDITIONS ARE FOREIGNERS REQUIRED TO PAY INCOME TAX?

Foreigners are exempted from participation in Singapore’s social security scheme the Central Provident Fund (CPF), except for permanent residents and Singapore citizens. Employment income of non-residents working onshore for 

(i) 60 days or less in a calendar year is tax exempt, 

(ii) 61-182 days is taxed at 15% or progressive resident rates, whichever gives rise to higher tax amount and 

(iii) 183 days or more is considered tax resident and taxed at progressive resident rates.