When we hear the term "haven", the first things that come to mind jurisdictions that shield income and wealth from their domestic governments.
There are a couple of applications to the word "haven" that we know of. A "safe haven" is a type of investment that is expected to retain or increase in value during times of market turbulence. A "tax haven" is a country that impose very low or zero tax rates either on income or other revenue-genrating components.
A "haven" then is simply defined as a "place of safety or refuge".
Here are 4 reasons why Singapore can be regarded as a "haven" in its own right.
1. High standards of regulation and compliance enforcements
Some have the mistaken impression that Singapore has replaced Switzerland as a 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 opinioned that Singapore is on some kind of ‘watchlist’ 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 who 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.
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 FATCA to increase the efficiency of the US government in improving tax compliance of Americans with regards to their foreign financial assets internationally.
Singapore’s financial sector is characterized by high standards of financial regulation and supervision by the authorities, and it is not through low taxes per say. 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.
2. An efficient and fair tax system
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 a flat rate of 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. There are many rebates and exemption programs regarding corporate and individual taxes that reduces the flat rate of 17% to an effective tax rate in single digits. For e.g, the new startup company tax exemption program aims to help startup companies during the initial years of formation by reducing their tax burden if they pass certain criteria.
3. Strictly no abuse of the financial system
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.
While Singapore privacy laws provide bank customers the right to the 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.
4. One of the safest place to bank with in the world
Singapore is the Nomadcapitalist's favorite place to bank. It is home to some of the world’s best offshore banks. According to Global Finance, the tiny Asian financial center is home to three of the world’s safest banks: DBS (#14), OCBC (#15), and UOB (#17). By a separate account, OCBC is the “world’s strongest bank.” Singapore has built the best offshore banking center in the world by acknowledging one simple truth: capital goes where it’s treated best. The fact that Singapore has one of the highest numbers of ultra-wealthy people in the world makes it a great place to bank. It is getting harder to open an offshore account in Singapore, but it’s still possible.
And since so many wealthy Asians are ignoring Switzerland in favor of Singapore, it’s an excellent sign that it’s the place to bank.
Countries that are actually tax havens
A "tax haven" is an offshore country where taxes are levied at a very low “effective” rate for foreign investors. Residency or business presence is typically not required in order to benefits from their tax policies. Additionally, tax havens share limited or no financial information with foreign tax authorities. Tax havens attract a generous amount of capital inflow and impose fees, charges, and even low tax rates to generate government revenue. While high-tax countries lose corporate tax revenue from businesses shifting profits elsewhere, tax havens can reduce the cost of financing investment in those countries, indirectly facilitating economic growth.
While tax havens may seem questionable, investing through a trust or company in a tax haven is legal. Regulatory bodies, such as the Organization of Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office, monitor modern tax havens. This being said, modern corporate tax havens have high levels of OECD-compliance and have bilateral tax treaties. These tax havens still have the ability to enable tax treaties closer to zero, like traditional tax havens, by using base erosion and profit shifting tools (BEPS).