Building Substantive Economic Presence in Singapore: What Foreign Companies Must Know
Why Does Economic Substance Matter?
If you want to access Singapore’s tax treaties, low corporate tax rates, or special business incentives, simply incorporating isn’t enough. The government — and global tax authorities — want proof you’re doing real business here.
Without substantive economic presence, you risk losing tax benefits or being challenged by other jurisdictions under anti-avoidance and base erosion rules.
1️⃣ Local Management and Decision-Making
To qualify as a Singapore tax resident, your company must show that key strategic decisions are made in Singapore. This includes:
✅ Appointing resident directors who actively participate in board decisions
✅ Holding board meetings inside Singapore
✅ Keeping decision-making authority local (not merely rubber-stamping head office decisions)
Many companies fail this test because they use nominee directors but keep all authority offshore — a setup that won’t hold under scrutiny.
2️⃣ Physical Office and Operations
A letterbox company won’t cut it. Authorities expect a genuine operational footprint:
✅ A rented or owned office space
✅ Visible on-site business activities (admin, sales, R&D, management)
✅ Clear links between the Singapore office and regional or global operations
Even small companies can qualify if they demonstrate that Singapore operations play a real role in generating value.
3️⃣ Meaningful Income Generation
Authorities want to see that the Singapore entity earns income tied to its activities, not just acting as a pass-through or booking profits artificially. This means:
✅ Charging arm’s length prices for intercompany transactions
✅ Having contracts, invoices, and cash flows aligned with operational reality
✅ Showing that profits reflect real Singapore-based contributions
4️⃣ Employment and Payroll
Hiring local staff strengthens the case for substance. Authorities look at:
✅ Number of local employees
✅ Roles and responsibilities that match claimed activities
✅ Payroll records and statutory contributions (like CPF)
Hiring talent doesn’t just support tax positioning — it helps unlock access to local grants, innovation schemes, and sectoral incentives.
5️⃣ Compliance and Documentation
Even if you have all the above, you need to prove it with:
✅ Board minutes and resolutions
✅ Employment contracts and payroll filings
✅ Office lease agreements and utilities
✅ Financial statements and tax filings
Good governance and recordkeeping are essential to defend your position in the face of audits or tax challenges.
Why Work With Paperwork.sg?
We don’t just file paperwork — we help you design, build, and support a real, compliant business presence in Singapore. From incorporation to governance, from director services to tax and employment compliance, we’re your local partner to make sure you meet both local and international substance expectations.