Singapore remains as the top location of choice for businesses looking to register IP. Strong government support is a huge factor, especially with policies in place to assist entrepreneurs on a quest to turn “ideas into assets”. The nation’s legal system, fierce government support and a collective vision to turn Singapore into a Global IP Hub in Asia by 2020 are all great reasons that provide a pull for potential business owners and companies into the Republic.
That said, assets such as IP can tricky when migrating to “favourable tax jurisdictions ”, especially with governments issuing crackdowns on companies looking to evade tax. In the event that these IPs are undervalued, local governments could potentially issue taxes based on the value of the new assets, even if it has moved abroad to avoid hefty tax charges.
While Singapore will no doubt provide a strong global position and allows companies to operate efficiently, here are 3 essentials to consider for IP Migration into Singapore.
1) Ensure that your valuation is fair and correct to avoid double taxation
With IP licences being key to a company’s profitability, it is no wonder that governments are hard on companies looking to shave off payable taxes by moving to favourable tax jurisdictions. It is therefore crucial to compute correct value of your assets to avoid the local government from slapping you with a hefty fine.
Here are three ways to calculate value of IP, namely a market-based approach, cost-based approach and income-based approach.
A) Market-Based Approach
Computing value of assets via Market-Based Approach involves comparison with another similar or identical asset that already has price information released. This approach is suitable for consideration based on the following circumstances: -
- sale of asset has taken place recently via a transaction that is both legitimate and appropriate in order for the real value to be taken into consideration
- trade transactions involving the assets must be conducted publicly
- all trade transactions must be frequent and / or trackable
B) Cost-Based Approach
Measuring the value via cost approach is based on the understanding that a prospective buyer will not spend more on the asset than the cost it has already incurred. This means any expenses the asset has expanded via purchase and construction must be taken into consideration when computing its valuation. This includes making deductions for depreciation in any existing assets that would play a role in the final value.
Cost approach is applicable for computation of asset value under these circumstances: -
- asset must be able to be recreated without restriction imposed by legislation or legalities. It must also be recreated quickly enough so participants in the trade transactions could take place without imposing an exorbitantly high prices so they could use the asset immediately.
- asset does not directly produce income and its value cannot be computed via income approach or market approach
- value used as yardstick for comparison is based on cost of items associated with asset (replacement value)
C) Income-Based Approach
Income-based approach is one of the most popular methods to measure value of assets. This is done by estimating future cash flow and converting it to current value. Under this method of computation, value of asset is derived from tracking cash flow, savings and income generated. This method is applicable in situations where the asset are evaluated based on potential value in future, and the benefits it is supposed to reap.
Income approach is applicable under these circumstances: -
- asset must be able to produce income
- all projections of cash flow, savings and income must be within reason as is the time frame in which it will take place, especially in the event where similar assets are not available for comparison in the market
2) Tax Implications when transferring IP
In a bid for better development of existing resources and management of IP costs, companies are moving assets towards “tax havens” such Singapore. However, migration of IP involves lump-sum transfers, instalments or even payment based on use of IP. Depending on the nature of transfers and country of origins, income earned via royalty or through a sale of license are therefore taxable.
As such, businesses looking to move assets out from their countries must ensure that all profit-making activities are accounted for, documented and understood by key decision makers and tax executives within the business - failing which, you could be at risk of being non-compliant during tax filings.
3) GST considerations once IP has been transferred
Once the decision has been made to migrate IP into Singapore, businesses are thus able to benefit from lower costs for registering their assets in the Republic. However, as of 1st April 2017, IP application and registration paid will be subjected to Goods and Services Tax. Below is the table specifying the types of invoices that will be issued.
Table from https://www.ipos.gov.sg/resources
In conclusion, do take into consideration the 3 above-mentioned points before embarking on your journey of IP migration into Singapore, the ideal place for favourable tax jurisdiction. Also, check out our free Singapore Business Guide e-book today!
Disclaimer: This article is intended for general information / reading purpose only and should not be treated as a substitute for specific professional advice for any particular situation. While we endeavour to ensure the contents are correct to the best of our knowledge and belief at the time of writing, we do not warrant their accuracy or completeness nor accept any responsibility for any loss or damage arising from any reliance on them.