Tax issues to consider for Angel Investors in Singapore and SEA
This article is originally written by Nexia TS.
- The information below is relevant to shareholders/investors who are natural individuals. For companies or other legal personalities, the associated tax implications could differ.
- Hybrid instruments (such as redeemable preference shares or convertible loan notes) may give rise to different tax implications in different countries. In Singapore, one would have to determine the nature of the hybrid instrument (whether is it debt or equity). This determination is generally qualitative.
- The information below is based on our understanding and views of the existing provisions of the relevant tax laws and the regulations, judicial decisions, and administrative practices in effect as at the date hereof, all of which are subject to change and differing interpretations, either on a prospective or retroactive basis. We accept no responsibility to any party relying on the information below. It is strongly recommended that you seek tax advice on the specific circumstances of your case.
Tax Issues to consider concerning the disposal of investments
Tax issue to consider |
Investment is a Singapore incorporated and resident company |
Investment is a foreign incorporated and resident company |
|---|---|---|
| a) Will future gains on disposals of the investment be subject to tax in the country of residence of the investment? | 1. Gains derived by Singapore residents are exempt from Singapore income tax if the gains are capital gains. Otherwise, the gains will be subject to Singapore income tax.
2. For foreign residents, the tax treatment is the same as Singapore residents. |
Certain countries impose withholding income tax/capital gains tax on gains on disposals.
Tax exemption or reduced tax rates may be applicable, depending on the relevant provisions of the tax treaties between the country of residence of the investment and country of residence of the investor. |
| b) Will future gains on disposals of the investment be subject to withholding tax in the country of residence of the shareholder? | 1. Gains derived by Singapore residents are exempt from Singapore income tax if the gains are capital gains. Otherwise, the gains will be subject to Singapore income tax.
2. For foreign residents, the tax treatment is the same as Singapore residents. |
1. Gains derived by Singapore residents are exempt from Singapore income tax if the gains are capital gains. Otherwise, the gains will be subject to Singapore income tax.
2. Gains derived by foreign residents may be subject to income tax/capital gains tax in their countries of residence, depending on domestic tax rules. |
Issues to consider specific to equity investments
| Tax issue to consider | Investment is a Singapore incorporated and resident company | Investment is a foreign incorporated and resident company |
|---|---|---|
| a) Will future dividends paid out by the investment be subject to withholding tax in the country of residence of the investment? | Singapore does not impose withholding tax on dividends paid out of a Singapore incorporated and resident company. | Certain countries impose withholding tax on dividend payments.
Tax exemption or reduced tax rates may be applicable, depending on the relevant provisions of the tax treaties between the country of residence of the investment and country of residence of the shareholder. |
| b) Will future dividends paid out by the investment be subject to tax in the country of residence of the shareholder? | 1. Dividends paid to Singapore residents are exempt from Singapore income tax.
2. Dividends paid to foreign residents may be subject to income tax in their countries of residence, depending on domestic tax rules. |
1. Dividends paid to Singapore residents will generally be regarded as foreign-sourced dividends and not subject to Singapore income tax.
2. Dividends paid to foreign residents may be subject to income tax in their countries of residence, depending on domestic tax rules. |
Issues to consider specific to debt investments
Tax issue to consider |
Investment is a Singapore incorporated and resident company |
Investment is a foreign incorporated and resident company |
|---|---|---|
| a) Will future interest paid out by the investment be subject to withholding tax in the country of residence of the investment? | 1. Interest paid to Singapore residents is not subject to withholding tax.
2. Interest paid to foreign residents is subject to Singapore withholding tax at the domestic rate of 15%. Tax exemption or reduced tax rates may be applicable, depending on the relevant provisions of the tax treaties between Singapore and the country of residence of the investor. |
1. Interest paid to Singapore residents may be subject to withholding tax. Tax exemption or reduced tax rates may be applicable, depending on the relevant provisions of the tax treaties between Singapore and the country of residence of the investment.
2. Interest paid to foreign residents may be subject to withholding tax. Tax exemption or reduced tax rates may be applicable, depending on the relevant provisions of the tax treaties between the country of residence of investor and country of residence of the investment. |
| b) Will future interest paid out by the investment be subject to tax in the country of residence of the investor? | 1. Interest paid to Singapore residents is subject to Singapore income tax.
2. Interest paid to foreign residents may be subject to income tax in their countries of residence, depending on domestic tax rules. Foreign tax credit claims on tax suffered in the country of residence of the investment may be available. |
1. Interest paid to Singapore residents will generally be regarded as foreign-sourced interest and not subject to Singapore income tax.
2. Interest paid to foreign residents may be subject to income tax in their countries of residence, depending on domestic tax rules. Foreign tax credit claims on tax suffered in the country of residence of the investment may be available. |
Other Matters
- From a Singapore tax perspective, the offering of shares in start-ups to mentors or advisors shares in return for mentoring or advisory work would generally be regarded as payment of service fees for services rendered. In this regard, the value of services could be subject to Singapore income tax in the hands of the mentors or advisors. Further, if the mentors or advisors are foreign residents, Singapore withholding tax could be applicable to the service fees. The value of the service fees would generally be the value of shares offered less the amount of consideration paid by the mentors or advisors.
- The responsibility to withhold taxes (e.g. on interest payments) generally falls on the payer.
About NexiaTS
We at Nexia TS, pride ourselves as trusted tax advisors to assist you with tax matters regarding your investment activities. If you have any questions, please do not hesitate to reach out to our dedicated team and we will be most happy to have that first important conversation with you.
For more information, please contact:
Edwin Leow
Director, Head of Tax
+65 6536 1312
Gareth Goh
Tax Manager, M&A, and Fintech Tax Lead
+65 6534 5700 (ext. 835)
Read more on Singapore Startup’s Guide on Retrenching Responsibly.
