Tax Havens: Myths and Realities
Often, when we hear the term “tax haven”, the first things that come to mind are shady or questionable jurisdictions that impose very low or zero tax rates either on income or other significant revenue-generating components of the economy.
There is no formal definition of the term anywhere, even though international organisations such as the OECD use certain markers for non-transparent or non-cooperative countries in relation to tax matters and the facilitation of tax evasion.
A tax haven typically has a tax structure designed to attract companies and individuals from higher-tax jurisdictions to avoid paying taxes in their home countries. Another feature of such tax havens is that the individual’s or the company’s substantive local presence in that jurisdiction is not required.
Some have the mistaken impression that Singapore has replaced Switzerland as tax haven, which is wholly untrue. The Singapore banking and finance industry is highly-developed and facilitates a large amount of wealth management activities with standards of regulation and compliance practiced at an internationally-lauded level.
For example, there are some who opine that Singapore is on some kind of ‘list’ of countries like the U.S. because there is a great deal of discussion and engagement on these matters between the governments of the two countries. The reality is, there are many real American investors, entrepreneurs and businesses that come to Singapore to do business, form a Singapore company or generate large profits. Therefore, it makes sense that the IRS attempts to engage the Singapore government in their FACTA activities.
The fact is, however, Fair and Accurate Credit Transactions Act (FACTA) is a US federal tax policy that applies across the board and to all countries where there are Americans, that the Obama administration introduced to increase the efficiency of the US government in improving tax compliance of Americans with regards to their foreign financial assets internationally.
Besides, the singapore tax system aims to attract substantive economic activities by keeping the tax burden on enterprises and individuals as low as possible. Businesses are taxed at 17% and the individual income tax rate is progressive up to 20%. Such a tax system is designed to boost a diversified, knowledge-based economy, spanning a wide range of economic sectors and not a means for wealthy individuals to merely park their money inactively in Singapore so as to avoid taxes back in their home countries.
Furthermore, Singapore strictly does not allow the abuse of its financial system to facilitate tax evasion and/or other crimes such as money laundering or the financing of terrorism. As an international financial centre, Singapore has an internationally-acknowledged reputation for being highly vigilant against illicit funds that could threaten its integrity, and cooperates extensively with international partners and authorities eg. the Interpol, to deter and prevent such criminal abuse.
Singapore also endorses and implements the internationally agreed Standard for Exchange of Information (the EOI Standard) for tax purposes in its tax treaties. The level of tax cooperation that Singapore renders to its tax treaty partners is fully in line with global standards.
Additionally, Singapore’s financial sector is characterised by high standards of financial regulation and supervision by the authorities, and it is not through low taxes per se. Singapore’s banking and financial system is open and transparent, and rules are rigorously enforced. Investors choose Singapore as the place in which to manage their wealth because of the country’s economic and political stability, sound regulations, respect for rule of law, and the availability of fund management expertise.
While Singapore privacy laws provide bank customers the right to confidentiality of information, banking confidentiality has never prevented the Singapore authorities from providing information to assist domestic or foreign authorities in bonafide investigations of potential criminal activities.
