(pdf) International Business Taxation

Running head: INTERNATIONAL AND BUSINESS TAXATION
International Business Taxation
Name of the Student
Name of the University
Authors Note
Course ID

1INTERNATIONAL AND BUSINESS TAXATION
Table of Contents
Introduction:...............................................................................................................................3
Aims and Objective of Overseas Expansion:.............................................................................3
Tax Jurisdiction of Singapore:...................................................................................................4
Taxation of Business Profits:.................................................................................................4
Double Taxation Relief:.............................................................................................................7
Unilateral Relief:....................................................................................................................7
Tax treaties:............................................................................................................................8
Anti-Avoidance Rules:...........................................................................................................9
Transfer pricing:.....................................................................................................................9
Transfer pricing Documentations in China:.........................................................................16
Financing of Business Operations:...........................................................................................17
Commercial Reality of Scenario:.............................................................................................18
Singapore Economy:................................................................................................................18
Economy of China................................................................................................................19
Complexity of Issues:...............................................................................................................19
Relevant Culture and Social Norms:........................................................................................19
Alternative decisions of not investing in Singapore and Staying in Australia:........................20
Benefits of Investing in Singapore:..........................................................................................21
Recommendations:...................................................................................................................21
Conclusion:..............................................................................................................................22

2INTERNATIONAL AND BUSINESS TAXATION
Reference List:.........................................................................................................................23

3INTERNATIONAL AND BUSINESS TAXATION
Introduction:
Private business are spending a large number of amount on managing their existence
along with the allocation of income through permanent establishment. Frequently, numerous
business departments are engaged in dealing with the probable exposure or employing some
of the opportunities to structure the organization more effectively1. As evident in the current
station for a private limited company that is based in Australia can consider establishing the
business in Singapore. The principle taxes that are levied on the companies that conduct their
business in Singapore are the income, taxes, goods and service tax, stamp duties and property
taxes. The report would be taking into consideration the benefits of establishing the business
in Singapore with numerous tax incentive provided for the business setting up the business in
Singapore.
The report is based on the private limited company that has 40 shareholders carrying
out the business activities in cosmetics and skin care. With the management objective of
expanding the business in the Asian market and setting up the subsidiary in Singapore with
production unit china, the report would seek to understand the tax environment of Singapore
with tax incentive scheme for making investment in Singapore2.
Aims and Objective of Overseas Expansion:
The aim of the cosmetics and skin care is to expand into the Singapore market.
Singapore provides strong climate for investment, political stability, free business economy,
readily available financial and professional support service and attractive tax incentive for
1 Zwick, Eric, and James Mahon. "Tax policy and heterogeneous investment
behavior." Australian Economic Review 107.1 (2017): 217-48.
2 Liu, Qing, and Yi Lu. "Firm investment and exporting: Evidence from China's value-added
tax reform." Journal of International Economics 97.2 (2015): 392-403.

4INTERNATIONAL AND BUSINESS TAXATION
subsidiaries3. The competition commission of Singapore is tasked prohibits the unfair or the
abusive pricing practices and aims to maintain the competition in the market.
Additionally Singapore may be considered as the desirable jurisdiction for the making
investment primary because of the attractive corporative tax rates and tax incentive4.
Furthermore, the absence of capital gains tax and broad network of treaty setting the business
of cosmetics and skin care is relatively easy in Singapore.
Tax Jurisdiction of Singapore:
Taxation of Business Profits:
The tax system of Singapore is based on the quasi-territorial basis which means that
companies that look forward to conduct their business in Singapore would be taxed based on
the accrued basis for the incomes derived from Singapore sources5. An important factor to
denote that Singapore does not create any differential between the business that are carried on
in Singapore by the residents or by the non-residents. Exemptions are also applicable for the
foreign sources income. All the Singapore sourced income that is earned by the non-residents
are held taxable however the tax treaty exemption between Singapore and Australia helps in
easing off the burden of taxes.
3 Poh, Simon. "R&D tax incentives in Singapore." Nexia International (2016).
4 Agarwal, Sumit, Nathan Marwell, and Leslie McGranahan. "Consumption responses to
temporary tax incentives: Evidence from state sales tax holidays." American Economic
Journal: Economic Policy 9.4 (2017): 1-27.
5 Wiedemann, Verena, and Katharina Finke. Taxing investments in the Asia-Pacific region:
The importance of cross-border taxation and tax incentives. No. 15-014. ZEW Discussion
Papers, 2015.

5INTERNATIONAL AND BUSINESS TAXATION
The tax burden in Singapore is regarded as moderate in comparison to other countries
and can foreign entities business profits can be reduced with the help of numerous
incentives6. The income tax act of Singapore is regarded as the governing statute relating to
the corporate profits which is administered by the Inland Revenue authority of Singapore.
Moving fast forward to the Singapore quick tax facts for companies a corporate tax rate of
17% is applicable along with this a partial exemption is provided to the companies for the
first SGD 300,000 of the assessable income.
Singapore levies a very moderate branch tax rate of 17% with the partial exemption
is provided to the companies for the first SGD 300,000 of the taxable business profits. One
of the advantage for the business is that there is no capital gains tax in Singapore7. Singapore
provides the business with the loss relief as well. The tax system of Singapore is such that a
loss relief is provided and a business can carry forward the loss for an indefinite years. The
Singapore tax environment provides the double taxation relief as business can avoid taxing of
profits both at the source nations and at the overseas nation.
Business expenditure are generally considered as allowable deductions in computing
the taxable income, given the associated activities are directed towards the derivation of
income8. In order to promote the development of the enterprise expenditure that are incurred
entirely for the production of income might be considered deductible in determining the
assessable income. The 17% corporate rate is applicable for the subsidiary companies that are
incorporated in Singapore and to the foreign nations companies that set up the business
6 Li, Quan. "Fiscal decentralization and tax incentives in the developing world." Review of
International Political Economy23.2 (2016): 232-260.
7 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
8 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

6INTERNATIONAL AND BUSINESS TAXATION
operations in Singapore. Setting the business in Singapore is regarded as beneficial as
Singapore performs the one-tire corporate tax rate system where the corporate taxes are paid
on the profits of the company.
The private companies that set up the business in Singapore are provided exemption
on tax for the first 100,000 SGD on the normal assessable income with 50% exemption on
the subsequent 200,000 of the assessable income9. The exemption is applicable to the new
business that looks forward to set up the business in Singapore and the exemptions are
provided for the first three years of the business operations.
First Three Years of Tax Filing
Taxable Income (S$) Tax Rate
0 – 100,000 0%
100,001 – 300,000 8.50%
300,001 – 2,000,000 17%
AFTER FIRST THREE YEARS OF INCOME TAX FILINGS
TAXABLE INCOME (S$) Tax Rate
0 – 300,000 8.50%
300,001 – 2,000,000 17%
As evident from the above stated tabular representation 17% corporate tax rates would
be applicable to the company since it is a subsidiaries to Australia that are incorporated in
Singapore10. The cosmetics and skin care business of the private company would also be able
to a partial exemption of 75% on the first SGD 10,000 based on the normal taxable income
and cosmetics business would also be entitled to 50% exemption on the following SGD
9 Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.
10 Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business
taxpayers stay with their practitioners? Trust, competence and aggressive
advice." International Small Business Journal 34.3 (2016): 329-344.

7INTERNATIONAL AND BUSINESS TAXATION
290,000. Furthermore the cosmetics business would be granted a partial tax exemption for the
first SGD 300,000 of the normal assessable income. For example if the cosmetics and skin
care business reports an annual turnover of SGD 2 million with net assessable income of
500,000 SGG then the applicable tax for the private business would be SGS 85,000.
First Year Income Tax Filings
Particulars Tax Rate Amount
Taxable Income (S$) 5,00,000
Tax on Taxable Income 17.50% 85000
Total tax payable 85000
Double Taxation Relief:
Unilateral Relief:
Singapore provides unilateral tax credits for the foreign tax paid by the overseas
companies deriving foreign income. The credit is restricted to the tax that is payable in
Singapore even though foreign tax liability is higher11. If the cosmetics and the skin care
business owns a minimum of 25 per cent of the share capital then the foreign tax credit would
take into the consideration the underlying amount of corporate that would be paid by the
business on the profits generated. The foreign tax credit system would allow the cosmetics
and skin Care Company to pool the foreign tax that is paid in Australia and the same can be
offset against the Singapore tax that would be payable on the same pool of foreign source
income.
Tax treaties:
Setting up the Cosmetics and Skin Care Company in Singapore could be considered
as the viable options since Singapore has wide range of tax treaty network. The treaties of
11 Long, Brendan, Jon Campbell, and Carolyn Kelshaw. "The justice lens on taxation policy
in Australia." St Mark's Review235 (2016): 94.

8INTERNATIONAL AND BUSINESS TAXATION
Singapore are usually formulated with the lines of the OECD models treaty. The treaty of
Singapore uses the credit method in order to avoid the double taxation agreement. The
government also makes the use of the tax treaties in order to ensure that the incentives
granted for the overseas investors should not be taxed away from home nation governments.
Private Limited Company (Corporate Tax) - YA 2017
New Start-Up Company (First Three years of Operations)
Taxable income Tax Amount After Rebate Effective Tax Rate
1,00,000 0 0.00%
2,00,000 5,950 3.00%
3,00,000 11,900 4.00%
5,00,000 35,700 7.10%
10,00,000 1,16,000 11.60%
As evident from the above stated tabular representation for example if the Cosmetics
and Skin Care Company reports the taxable income of SGD 5,00,000 of taxable income the
taxable amount after rebate under the double taxation agreement would be fall SGD 35,700
with an effective tax rate of 11.60%. The double taxation agreement states that if the
enterprise of the resident country performs the business in Singapore, the business profits that
would be derived by the private company would be able to gain tax rebate and the rights of
taxation would be subjected to one jurisdictions only with the other jurisdictions would forgo
the right of taxing the income12.
Anti-Avoidance Rules:
Transfer pricing:
The Singapore transfer pricing systems covers the applications of the arm’s length
principle, requirements of documentation and advance pricing agreements. The related party
transactions should be carried out under the arm’s length rule. Related party transactions also
12 Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).

9INTERNATIONAL AND BUSINESS TAXATION
comprises of the enterprise that are taxed separately at the entity level and generally includes
the permanent establishment of the enterprise13. For a private company that is carrying on the
business of cosmetics and skin care is required to make sure that the intercompany
transactions are carried out based on the arm’s length principles.
The transfer pricing agreements also requires preparation of the documents to avoid
any probable tax adjustment by the Inland Revenue Authority of Singapore14. The tax
jurisdictional of Singapore requires preparation of transfer pricing documentation that would
form the part of the record-keeping requirements for taxation purpose and companies are
prepare such documents no later than the tax filing date.
Singapore Transfer Pricing Agreements
Category of Related Party transactions Threshold per FY
Purchase of Goods from all related parties SGD 15 Million
Sale of goods to all the related parties SGD 15 Million
Loans owed to all related entities SGD 15 Million
Loans owed by all related parties SGD 15 Million
All other categories of related party transactions SGD 1 Million
A tabular representation of the transfer pricing agreement provides that the subsidiary
company are granted the threshold limit of SGD 15 Million per financial year whereas the
threshold limit for all the other categories of the related party transactions stands SGD 1
million.
Planning for Singapore:
13 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
14 Graetz, Michael J., and Alvin C. Warren. "Integration of corporate and shareholder taxes."
(2016).

10INTERNATIONAL AND BUSINESS TAXATION
Year 1
Revenues before Tax 10,00,000
10,00,000
Less: Non-Taxable Income
One-tier dividend 1,25,000
Foreign exchange gain on non-trade or capital transactions 65,000
1,90,000
8,10,000
Add: Non-Tax Deductible Expenses
Depreciation 80,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 7,500
Amortisation 27,500
Goodwill payment 55,000
Installation of equipment or assets 1,30,000
Interest adjustment 17,500
Legal or professional fees relating to loan arrangement / increase in share capital 12,000
Provision for obsolete stocks (general) 18,000
3,47,500
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 4,62,500
Adjusted Profit / (Loss) before Capital Allowances 4,62,500
Less: Unutilised Capital Allowances brought forward 14,500
Current Year Capital Allowances 5,750
Balancing Allowance (BA) 8,750 8,750
Adjusted Profit / (Loss) after Capital Allowances 4,53,750
Total Income / (Losses) before Donations 4,53,750
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 24,500
donations made)
24,500
4,29,250
Chargeable Income (before exempt amount) 4,29,250
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 2,76,750
Tax @ 17% 47,047.50
Less: Corporate Income Tax (CIT) rebate 25,000.00
22,047.50
Less: Tax previously assessed
Additional tax payable / (tax discharged) 22,047.50
Planning For Singapore

11INTERNATIONAL AND BUSINESS TAXATION
Year 2
Revenues before Tax 12,00,000
12,00,000
Less: Non-Taxable Income
One-tier dividend 1,20,000
Foreign exchange gain on non-trade or capital transactions 60,000
1,80,000
10,20,000
Add: Non-Tax Deductible Expenses
Depreciation 85,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 8,500
Amortisation 27,550
Goodwill payment 57,500
Installation of equipment or assets 1,35,000
Interest adjustment 18,000
Legal or professional fees relating to loan arrangement / increase in share capital 12,000
Provision for obsolete stocks (general) 17,500
3,61,050
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 6,58,950
Adjusted Profit / (Loss) before Capital Allowances 6,58,950
Less: Unutilised Capital Allowances brought forward 16,500
Current Year Capital Allowances 7,250
Balancing Allowance (BA) 9,250 9,250
Adjusted Profit / (Loss) after Capital Allowances 6,49,700
Total Income / (Losses) before Donations 6,49,700
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 35,000
donations made)
35,000
6,14,700
Chargeable Income (before exempt amount) 6,14,700
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 4,62,200
Tax @ 17% 78,574.00
Less: Corporate Income Tax (CIT) rebate 25,000.00
53,574.00
Less: Tax previously assessed
Additional tax payable / (tax discharged) 53,574.00
Planning For Singapore

12INTERNATIONAL AND BUSINESS TAXATION
Year 3
Revenues before Tax 15,00,000
15,00,000
Less: Non-Taxable Income
One-tier dividend 1,35,000
Foreign exchange gain on non-trade or capital transactions 65,000
2,00,000
13,00,000
Add: Non-Tax Deductible Expenses
Depreciation 80,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 6,250
Amortisation 27,500
Goodwill payment 42,500
Installation of equipment or assets 1,27,500
Interest adjustment 19,500
Legal or professional fees relating to loan arrangement / increase in share capital 12,000
Provision for obsolete stocks (general) 17,000
3,32,250
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 9,67,750
Adjusted Profit / (Loss) before Capital Allowances 9,67,750
Less: Unutilised Capital Allowances brought forward 18,500
Current Year Capital Allowances 8,500
Balancing Allowance (BA) 10,000 10,000
Adjusted Profit / (Loss) after Capital Allowances 9,57,750
Total Income / (Losses) before Donations 9,57,750
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 28,000
donations made)
28,000
9,29,750
Chargeable Income (before exempt amount) 9,29,750
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 7,77,250
Tax @ 17% 1,32,132.50
Less: Corporate Income Tax (CIT) rebate 25,000.00
1,07,132.50
Less: Tax previously assessed
Additional tax payable / (tax discharged) 1,07,132.50
Planning For Singapore
It is assumed that that the company is deriving revenue $1 for the first year and
looking to expand the increase the revenues to $1.2 million and $1.5 million in the following
two years with an applicable corporate tax rate of @17% for each of the three year in
Singapore.

13INTERNATIONAL AND BUSINESS TAXATION
Planning for China:
Year 1
Revenues before Tax 10,00,000
10,00,000
Less: Non-Taxable Income
One-tier dividend 75,000
Foreign exchange gain on non-trade or capital transactions 37,275
1,12,275
8,87,725
Add: Non-Tax Deductible Expenses
Depreciation 1,25,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 5,750
Amortisation 27,750
Goodwill payment 75,000
Installation of equipment or assets 2,50,000
Interest adjustment 17,500
Legal or professional fees relating to loan arrangement / increase in share capital 8,750
Provision for obsolete stocks (general) 18,000
5,27,750
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 3,59,975
Adjusted Profit / (Loss) before Capital Allowances 3,59,975
Less: Unutilised Capital Allowances brought forward 12,750
Current Year Capital Allowances 7,500
Balancing Allowance (BA) 5,250 5,250
Adjusted Profit / (Loss) after Capital Allowances 3,54,725
Total Income / (Losses) before Donations 3,54,725
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 15,000
donations made)
15,000
3,39,725
Chargeable Income (before exempt amount) 3,39,725
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 1,87,225
Tax @ 25% 46,806.25
Less: Corporate Income Tax (CIT) rebate @15% 7,020.94
39,785.31
Less: Tax previously assessed
Additional tax payable / (tax discharged) 39,785.31
Planning for China

14INTERNATIONAL AND BUSINESS TAXATION
Year 2
Revenues before Tax 13,00,000
13,00,000
Less: Non-Taxable Income
One-tier dividend 80,000
Foreign exchange gain on non-trade or capital transactions 38,950
1,18,950
11,81,050
Add: Non-Tax Deductible Expenses
Depreciation 1,30,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 6,275
Amortisation 28,000
Goodwill payment 77,500
Installation of equipment or assets 2,55,000
Interest adjustment 18,975
Legal or professional fees relating to loan arrangement / increase in share capital 9,255
Provision for obsolete stocks (general) 20,000
5,45,005
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 6,36,045
Adjusted Profit / (Loss) before Capital Allowances 6,36,045
Less: Unutilised Capital Allowances brought forward 15,000
Current Year Capital Allowances 7,250
Balancing Allowance (BA) 8,500 7,750
Adjusted Profit / (Loss) after Capital Allowances 6,28,295
Total Income / (Losses) before Donations 6,28,295
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 18,000
donations made)
18,000
6,10,295
Chargeable Income (before exempt amount) 6,10,295
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 4,57,795
Tax @ 25% 1,14,448.75
Less: Corporate Income Tax (CIT) rebate @15% 17,167.31
97,281.44
Less: Tax previously assessed
Additional tax payable / (tax discharged) 97,281.44
Planning for China

15INTERNATIONAL AND BUSINESS TAXATION
Year 3
Revenues before Tax 15,00,000
15,00,000
Less: Non-Taxable Income
One-tier dividend 1,10,000
Foreign exchange gain on non-trade or capital transactions 40,500
1,50,500
13,49,500
Add: Non-Tax Deductible Expenses
Depreciation 1,32,000
Expenses converted into cash under PIC
Motor vehicle expenses applicable to S-plate cars 7,250
Amortisation 32,000
Goodwill payment 85,000
Installation of equipment or assets 2,65,000
Interest adjustment 20,250
Legal or professional fees relating to loan arrangement / increase in share capital 10,250
Provision for obsolete stocks (general) 22,000
5,73,750
Adjusted Profit / Loss before Other Deductions
Less: Further Deductions 7,75,750
Adjusted Profit / (Loss) before Capital Allowances 7,75,750
Less: Unutilised Capital Allowances brought forward 18,500
Current Year Capital Allowances 6,750
Balancing Allowance (BA) 9,500 11,750
Adjusted Profit / (Loss) after Capital Allowances 7,64,000
Total Income / (Losses) before Donations 7,64,000
Less: Unutilised donations brought forward
Donations to approved institutions of public character (Enter 2.5 times the 21,000
donations made)
21,000
7,43,000
Chargeable Income (before exempt amount) 7,43,000
Less: Exempt amount 1,52,500
Chargeable Income (after exempt amount) 5,90,500
Tax @ 25% 1,47,625.00
Less: Corporate Income Tax (CIT) rebate @15% 22,143.75
1,25,481.25
Less: Tax previously assessed
Additional tax payable / (tax discharged) 1,25,481.25
Planning for China
Considering the investment for the Chinese counterparts the business expects to
generate revenue $1 million for the first year of operations while in the second year while in

16INTERNATIONAL AND BUSINESS TAXATION
the subsequent years the revenues would is forecasted to increase at $1.3 million and 1.5
million respectively at a corporate tax rate of 25%.
Divided to Shareholders:
Shareholder Marginal Tax Rate 45%
Franked Dividend Paid 70
Plus imputation Credit (Representing Company tax paid) 30
Assessable Income 100
Tax Assessed 45
Less: Franking Credit 30
Tax Payable 15
Excess Credit to be offset against other tax payable/receive as a refund Nil
Net Dividend received 55
Dividend Distributions
It is assumed that the assessable income stands $100 with shareholder’s marginal tax
rate of 45% and imputation credit of 30 per share. The net dividend that shareholders would
be receiving the net dividend of 55.
Transfer pricing Documentations in China:
For a private company that is looking forward to set up the production unit in China
would be engaged in the related party transactions of three different types of transfer pricing
documentations. Namely the company would be required to file the yearly income tax
disclosure, contemporaneous transfer pricing documentations and other relevant transfer
pricing documents on the request of the tax authorities. The private business would be
required to meet the criteria of transfer pricing documentations which is stated below;
a. The yearly sum of related party transactions and sales transactions is lower than 200
million (CNY).
b. The related party transactions should be covered under the advance pricing
agreement.
c. The overseas shareholders of the employees is below 50%.

17INTERNATIONAL AND BUSINESS TAXATION
The related party transactions under the transfer pricing agreement would for the
private company would also include the amount currency and the contractual terms of the
related party transactions.
Financing of Business Operations:
Concerning the financing of the business operations for the cosmetics and the skin
care business, the government of Singapore has successfully transformed the small island into
the regional centre of finance15. The business would be raising funds by issuing equity shares.
However the company would also look forward to obtain the funds through banks as the
Singapore government provides tax deductions for new companies setting up its operations in
Singapore.
The banking sector of Singapore provides broad array of services that ranges from
traditional lending to the corporate and investment banking services16. For a private company
that looks forward to set up the cosmetics and skin care business, Singapore could be viewed
as the desirable jurisdictions for the making investment and setting up the business operations
as Singapore provides attractive corporate and personal tax rates with reliefs and incentives.
With wide range of tax treaty network and non-existence of capital gains tax it is relatively
easy for the company to set up the subsidiary in Singapore.
The government of Singapore welcomes the overseas investments since it contributes
to the economic growth of Singapore17. Additionally, the benefit of setting up the business
15 Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International, 2015.
16 Stewart, Miranda. "Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development." Taxation and Development-A Comparative Study. Springer, Cham, 2017. 17-
41.
17 Mahar, Frederick, Jonathan Longridge, and Jing Lin He. "The economic impact of a
corporate tax rate cut in Australia." Taxation in Australia 51.3 (2016): 141.

18INTERNATIONAL AND BUSINESS TAXATION
operations in Singapore is that the government provides attractive tax incentives. There is
hardly any business complexity in Singapore as there no such requirement of local
participations in the equity or administrations of the foreign owned enterprise and no
restrictions of entering in any specific industries.
Commercial Reality of Scenario:
Singapore Economy:
The commercial reality of Singapore states that it is a rising economy and holds the
reputation for integrity, quality, reliability and productivity18. Singapore is known for its
professional business environment along with the ability to attract sizeable amount of
overseas investment. Singapore is strategically surrounded by the emerging Asean
economies. It boasts economic benefits that lends support to wide range of fund management.
The commercial reality of cosmetics and skin care brands possess a bright future in
the country. Setting the business in Singapore is advantageous because it is a hub to make the
supply of products in the neighbouring countries. With immense amount of growth in the
Singapore there is wide array of opportunity for the business to attain good amount sales.
Economy of China
Considering the economy of China for the Cosmetics and Skin Care business despite
the highs and lows it appears that the consumer’s pursuit of beauty remains unchanged. The
Chinese economy has been experiencing highs and lows in the recent years while the
cosmetics industry has managed to preserve the compound average yearly growth at a rate of
8% in 2016-2017. With the changes in the demographic taste, higher income has resulted in
18 Thampapillai, Dodo. "Foreign Employment Income and Double Tax Avoidance
Agreement: Australia's Possible Governance Failure." (2016).

19INTERNATIONAL AND BUSINESS TAXATION
increased consumer spending. The consumer has better understanding of the cosmetics
consumption and with multiple channel of sales the momentum is anticipated to gather.
Complexity of Issues:
Concerning the complexity of the issue the beauty and the personal care market in
Singapore recorded a moderate present value growth in spite of the increasing global
economic uncertainty and declining consume confidence19. The taste of consumer towards the
skin care and cosmetics products have turned out to be more sophisticated.
There is a weaker consumer spending in retail and this would force the current
business to offer customers with more price discounts in order to stimulate sales and certainly
adds to the complexity issue of the business.
Relevant Culture and Social Norms:
Singapore is held as the emerging nation and one of the favourite destinations among
the Asian nations for international cosmetics players as there is a high spending customers of
cosmetic products20. The relevant culture and social norms suggest that there is an increasing
beauty concerns in both the men and women which is further fuelling growth in the cosmetics
industry of Singapore.
The business has performed a market survey to study the cultural and social norms
relating to beauty products in Singapore. There is growing market of men’s grooming with
increasing trend in skincare products among the women. The consumer behaviour suggest
19 McClure, Ross, Roman Lanis, and Brett Govendir. "Analysis of Tax Avoidance Strategies
of Top Foreign Multinationals Operating in Australia: An Expose." (2017).
20 Joseph, Sally-Ann. "Taxing Sovereign Wealth Funds: Looking to Singapore for
Inspiration." Fed. L. Rev. 45 (2017): 17.

20INTERNATIONAL AND BUSINESS TAXATION
that there is demographic preference and brand of customers toward to the cosmetics and skin
care products.
Alternative decisions of not investing in Singapore and Staying in Australia:
Even though Singapore is considered as the secure heaven for investment with stable
economy and lower amount of risk, Singapore accompanies a higher investment cost.
Combined with the factors of limited land, concentrated labour and higher import resources
this results in significant rise in business costs. For the private business of cosmetics and
skincare opportunity for supernormal profit in Singapore is mitigated by the higher set up
costs with lower return.
There is no better business environment anywhere across the world that presently
Australian offers. Australia has a resilient and fast growing economy with stable political
environment and excellent infrastructure for growth. As the business is looking to explore the
markets of Asia, Australian is geographically close and rapidly growing cultural links with
the Asia pacific regions. Given the company undertakes the decision of staying in Australia,
the business would gain benefit from the two trade facilities between Asia-pacific regions and
Australia. The primarily open economy of Australia would provide the company and its
shareholders with strong two way merchandise trade in the Asian export market.
Benefits of Investing in Singapore:
Considering the benefits of investing in Singapore from the perspective of both the
company as well as shareholders it can be stated that the company would be able to obtain the
corporate income tax relief rebate. This would allow the business with 30% rebate on the
corporate profits with yearly cap of SGD $30,000. The shareholders of the company would
also obtain the benefit of gaining an exemption on paying interest on loans given the
company decides to additional amount of loan from banks.

21INTERNATIONAL AND BUSINESS TAXATION
The company would gain the benefits of reduced corporate tax on interest. From the
perspective of the Shareholders investing in Singapore would enable them to obtain the
benefit of capital gains tax exemptions. The shareholders would be exempted from the gains
derived from the revenue nature that would originate from the disposal of the ordinary shares.
Recommendations:
a. Corporate Income Tax rebate scheme: In a bid to attain tax benefits it is
recommended that the business should structure the profit for the first three years
under the corporate income tax rebate scheme (CIT). The scheme would grant the
business with 30% relief up to the yearly cap of SGD $30,000.
b. Finance and Treasury Centre (FTC) Tax Incentive: Another way of obtaining of
tax benefit is the finance and treasury centre (FTC) tax incentive which would provide
the current business to obtain an exemption on interest payment of loans that would
be taken from banks. This would provide the company with reduced corporate tax on
fees, interest and gains from qualifying services and activities.
c. Integrated Investment Allowance (IIA): As the business is planning to set-up its
production unit in china to gain the cheap labour advantage the can obtain the tax
benefits of Integrated Investment Allowance (IIA) which would enable the company
to gain capital allowance on the basis of capital expenditure that would be incurred in
setting up the production equipment outside of Singapore.
Conclusion:
On a conclusive note, Singapore’s overall excessive tax incentive scheme, reduced
company income tax regime, double taxation agreement with Australia and lower cost of
compliance makes it as one of the first choice for cosmetics and skin care business. Though

22INTERNATIONAL AND BUSINESS TAXATION
china has cheaper labour but Singapore offers hassle-free and non-existence of any
bureaucratic stress as the favour environment for setting up the subsidiaries.

23INTERNATIONAL AND BUSINESS TAXATION
Reference List:
Agarwal, Sumit, Nathan Marwell, and Leslie McGranahan. "Consumption responses to
temporary tax incentives: Evidence from state sales tax holidays." American Economic
Journal: Economic Policy 9.4 (2017): 1-27.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.
Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International, 2015.
Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).
Graetz, Michael J., and Alvin C. Warren. "Integration of corporate and shareholder taxes."
(2016).
Joseph, Sally-Ann. "Taxing Sovereign Wealth Funds: Looking to Singapore for
Inspiration." Fed. L. Rev. 45 (2017): 17.
Li, Quan. "Fiscal decentralization and tax incentives in the developing world." Review of
International Political Economy23.2 (2016): 232-260.
Liu, Qing, and Yi Lu. "Firm investment and exporting: Evidence from China's value-added
tax reform." Journal of International Economics 97.2 (2015): 392-403.
Long, Brendan, Jon Campbell, and Carolyn Kelshaw. "The justice lens on taxation policy in
Australia." St Mark's Review235 (2016): 94.
Mahar, Frederick, Jonathan Longridge, and Jing Lin He. "The economic impact of a
corporate tax rate cut in Australia." Taxation in Australia 51.3 (2016): 141.

24INTERNATIONAL AND BUSINESS TAXATION
McClure, Ross, Roman Lanis, and Brett Govendir. "Analysis of Tax Avoidance Strategies of
Top Foreign Multinationals Operating in Australia: An Expose." (2017).
Poh, Simon. "R&D tax incentives in Singapore." Nexia International (2016).
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
Stewart, Miranda. "Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development." Taxation and Development-A Comparative Study. Springer, Cham, 2017. 17-
41.
Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business taxpayers
stay with their practitioners? Trust, competence and aggressive advice." International Small
Business Journal 34.3 (2016): 329-344.
Thampapillai, Dodo. "Foreign Employment Income and Double Tax Avoidance Agreement:
Australia's Possible Governance Failure." (2016).
Wiedemann, Verena, and Katharina Finke. Taxing investments in the Asia-Pacific region:
The importance of cross-border taxation and tax incentives. No. 15-014. ZEW Discussion
Papers, 2015.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
Zwick, Eric, and James Mahon. "Tax policy and heterogeneous investment
behavior." Australian Economic Review 107.1 (2017): 217-48.

25INTERNATIONAL AND BUSINESS TAXATION