As discussed in a recent blog post, the Inland Revenue Authority of Singapore (“IRAS”) has been issuing guidance on the impact of COVID-19 on transfer pricing issues. This week, IRAS issued new forward-looking guidance on (i) the tax residency status of companies and (ii) permanent establishments. This guidance is temporary and applies for the 2021 tax year.
Tax Residency. According to the guidance, a company’s tax residency will not change simply because the pandemic impacts the location of the company’s Board of Directors meetings. Thus, if the company is a Singapore tax resident for 2020, the company will not lose its residency on the grounds that it holds its meetings elsewhere (or virtually) due to pandemic-related travel restrictions. Conversely, if the company is not a Singapore tax resident for 2020, the company will not become one merely by holding impromptu Board meetings in Singapore in 2021.
The guidance assumes that there are no other changes to the economic circumstances of the company and that the company will document how the pandemic has impacted its ability to hold meetings.
Permanent Establishment. IRAS recognizes that employees of a foreign company may have to remain in Singapore due to travel restrictions related to the pandemic. These foreign employees will not create a permanent establishment in Singapore in 2021 if:
- the foreign company does not have a permanent establishment in Singapore in 2020;
- there are no other changes to the economic circumstances of the company;
- the unplanned presence of the employees in Singapore is due to travel restrictions relating to COVID-19 in 2020 and their physical presence in Singapore up to December 31, 2020 is temporary; and
- the activities performed by the employees during the unplanned presence would not have been performed in Singapore if not for the travel restrictions.
The guidance suggests that the company maintains documentation about how the pandemic led to the employees’ unplanned presence in Singapore.