Case Study: Routing Chilean Investments Through Singapore

May 5, 2016 Posted by ASEAN Briefing Reading Time: 4 minutes

By: David Lee, Manager Dezan Shira & Associates Singapore

For many companies, profits generated within ASEAN will need to be remitted to parent companies across the globe. Although remitting profits directly from centers of production can be accomplished, the cost of these transfers is often elevated in the absence of up to date DTAs. Singapore is a significant asset in this respect. With many DTAs in place and a 0 percent withholdings tax of its own on dividends, Singapore allows companies to remit profits from production centers at a lowered rate than would be normally possible and then pass profits on to a parent company without further reduction.

RELATED: International Tax Planning Services from Dezan Shira & Associates

Indonesia to Chile

To illustrate the benefits of routing investments through Singapore, take the example of a Chilean investment in Indonesia. Under normal circumstances, Chilean investors would be subject to Indonesia’s corporate income tax of 25 percent in addition to Indonesia’s non treaty withholding rate of 20 percent – applied to dividends, interest and royalties. This would result in a realized profit of just 60 percent of the company’s gross total upon repatriation of these funds to the Chilean parent company.

Routing Chilean remittance through Singapore

Routing through Singapore

When routing the same investment through Singapore, investors would be subject to the same CIT rate but benefit from Singapore’s DTA with Indonesia which reduces withholdings on all fronts. Depending on the combination of remittances employed, up to a 12 percent increase in realized profit can be achieved as a result of the withholdings differential between an Indonesia – Chile remittance and an Indonesia – Singapore – Chile remittance. Sending dividends from Indonesia to Singapore would result in a 67.5 percent retention rate which, without a withholding on the part of Singapore, can be carried over to Chile.

This article is an excerpt from the March & April issue of ASEAN Briefing Magazine, titled “Managing ASEAN Expansion from Singapore.” In this issue, we discuss the we discuss the benefits of using Singapore as a hub for the management of regional operations throughout ASEAN. We firstly focus on the position of Singapore relative to its competitors, such as the Netherlands and Hong Kong. We then provide step-by-step instructions on corporate establishment, and provide expert insight on maximizing returns through the reduction respective tax burdens.

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