IRAS updates guidance for Covid-19 impact on tax residence and permanent establishment

On 28 October 2020, the Inland Revenue Authority of Singapore (IRAS) updated its guidance on the impact of COVID-19 in respect of the tax residence status of a company, as well as the potential creation of a permanent establishment (PE) in Singapore through the unplanned presence of employees in Singapore due to travel restrictions.

Any changes in residency or PE status could have significant implications for the effectiveness of an overall corporate structure and could also be relevant and important for tax and reporting purposes, as well as compliance under the Common Reporting Standard regime.

The new guidance specifies that where a company is unable to hold its Board of Directors meeting in Singapore due to the travel restrictions relating to COVID-19, the IRAS is prepared to consider the company as a Singapore tax resident for Year of Assessment (YA) 2021, provided it meets all the following conditions:

• The company is a Singapore tax resident for YA 2020;
• There are no other changes to the economic circumstances of the company; and
• The directors of the company have to attend the Board of Directors meeting held outside Singapore or if the meeting is held via electronic means (e.g. via video-conferencing, teleconferencing, etc.) due to the directors being temporarily restricted in their travel as a consequence of COVID-19.

Conversely, where a company is not a tax resident of Singapore for YA 2020, the IRAS will continue to consider the company as a non-resident for YA 2021, provided it meets all the following conditions:

• The company has to hold its Board of Directors meeting in Singapore due to the travel restrictions relating to COVID-19; and
• There are no other changes to the economic circumstances of the company.

To support the claim that a company should continue to be treated as a tax resident or non-resident of Singapore, the company should keep relevant documentations and records (e.g. board minutes stating why the directors were attending board meetings from their respective locations), and to provide the relevant information to IRAS upon request.

Employees of a foreign company may have to remain in Singapore due to travel restrictions relating to COVID-19. IRAS will consider that such an unplanned presence does not result in the creation of a permanent establishment in Singapore for the foreign company, provided it meets all the following conditions:

• The foreign company does not have a permanent establishment in Singapore for YA 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 31 December 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.

To support the claim that there is no permanent establishment in Singapore, the company should keep relevant documentations and records, and to provide the relevant information to IRAS upon request.