a. How the Use of One or More Independent Contractors Creates a Permanent Establish-ment in Country and the Ramifications
A foreign corporation, which carries on business in Singapore, must register a presence in Singapore under the Companies Act (Cap 50) of Singapore. ‘Carrying on business’ is generally not defined but includes administering or managing, or otherwise dealing with, property situated in Singapore as an agent, legal personal representative, or a trustee, whether by employees or agents or others, and does not exclude activities carried on without a view to making a profit.
One of the factors considered in determining whether a non-resident person is carrying on business in Singapore is whether there is a permanent establishment in Singapore.
Section two of the Singapore Income Tax Act (Cap 134) of Singapore defines a “permanent establishment” as a fixed place where a business is wholly or partly carried on, including:
• a place of management;
• a branch;
• an office;
• a factory;
• a warehouse;
• a workshop;
• a farm or plantation;
• a mine, oil well, quarry or other place of extraction of natural resources;
• a building or work site; or
• a construction, installation or assembly project.
A person is deemed to have a permanent establishment in Singapore if that person:
- carries on supervisory activities in connection with a building or work site or a construction, installation or assembly project; or
- has another person acting on that person’s behalf in Singapore who:
– has, and habitually exercises, authority to conclude contracts;
– maintains a stock of goods or merchandise for the purposes of delivery on behalf of that person; or
– habitually secures orders wholly, or almost wholly, for that person or for such other enterprises as are controlled by that person.
As such, if the independent contractor or contractors conduct themselves in the man-ner described above, it is likely that the foreign corporation engaging the independent contractor would be deemed to have a permanent establishment in Singapore and any income arising there will be subject to Singapore tax. A foreign corporation that fails to register properly and carries on trade or business in Singapore will be liable for penalties for non-registration.
b. How the Employment of One or More Individuals Creates a Permanent Establishment in Country and the Ramifications
An employee does not perform their work in their personal capacity but on behalf of, or in the name, of the employer. As such, the employment of individuals in a country to provide services in the name of the employer is likely to create a permanent establishment risk and to expose the employer’s income to Singapore tax.